How BoU blew Shs478b in Crane Bank takeover

Kampala. In the Central Bank, the Governor and his technical advisors were running out of time to take a decision on whether to let Crane Bank Limited (CBL) collapse or tactically intervene to ensure that the apparent problems at the third largest financial institution at the time did not disrupt the economy.
Covertly, Bank of Uganda officials hatched a plan to bail out CBL using taxpayers’ money but without a clear longer-term strategy to have the bank revived.

The reason for the takeover of the commercial bank was that its capital had fallen below the 50 per cent legal requirement under the law.
The architects of a motion in Parliament that calls for a full-blown inquiry into “BoU dealings” and other watchdogs led by Ms Cissy Kagaba of the Anti-Corruption Coalition Uganda, have questioned BoU’s failure to restore CBL’s capital, and called for a deeper inquiry into the expenditure of Shs478.8b they allegedly injected in it before it was sold to dfcu Bank without valuating its assets and liabilities.
The August confidential report of the Auditor General has provided details on how BoU officials withdrew more than Shs478.8b from an undisclosed account in Central Bank and took the money to CBL, formerly owned by businessman Sudhir Ruparelia under the cover of “liquidity support”. This was done in October 2016 when BoU took over the management of Crane Bank before selling it to dfcu in January last year.
“I was unable to review and verify the approved requests for liquidity support together with supporting schedules, I did not review the payments made by CBL to the bonafide account holders and or respective beneficiaries using the injected funds,” AG report reads.

The issues
Although BoU injected the money in CBL, the Auditor General says they did not provide him with a plan or assessment detailing efforts to return CBL into compliance with prudential standard. In the absence of a plan to revive CBL, the AG could not confirm whether the expenditure of Shs478.8b was within the confines of Section 89 (5) and 90 (4) (c) of Financial Institutions Act 2004. Under these sections, the BoU statutory manager was to issue a report on compliance but this was not done.
The BoU team led by the Governor, Mr Emmanuel Tumusiime-Mutebile, ran the affairs of Crane Bank for three months (October 2016-January 2017) before they sold the assets and liabilities to dfcu at Shs200b. The AG says Crane Bank was sold to dfcu without valuation of assets and liabilities. Instead BoU relied on the inventory report and due diligence undertaken by dfcu to arrive at Shs200b.
“I noted that BoU did not carry out a valuation of the assets and liabilities of CBL. In absence of the valuation, I could not establish how the terms for the transfer of assets and liabilities in the Purchase of Assets and Assumption of Liabilities were determined,” the AG report adds.
In his special audit report on seven closed banks, the Auditor General, Mr John Muwanga, told Parliament that he was not privy to the details on how BoU officials arrived at Shs478.8b they injected in Crane Bank before selling it to dfcu. The AG report, however, contains details on how BoU spent the funds in question.
Efforts to speak to BoU officials failed. Ms Charity Mugumya, the head of communications at BoU, did not respond to follow-up email and text messages.

Ms Mugumya’s bosses, Dr Tumubweine Twinemanzi, the executive director in-charge of supervision, and Deputy Governor Louis Kasekende also did not answer nor return our calls.
In an email to Daily Monitor last week, Ms Mugumya explained: “…the Bank of Uganda is audited by the Auditor General’s Office on an annual basis in line with the Bank of Uganda Act Chapter 51 and the National Audit Act 2008.

The audited financial statements are part of the bank’s annual report, which we table before Parliament before the end of September each year.”
She added: “The auditing covers all aspects of the bank’s mandate, including supervision, monetary policy, and currency management amongst others.

Bank of Uganda has fully cooperated with the Auditor General’s office ever since the Parliamentary Committee on Commissions, Statutory Authorities and State Enterprises (Cosase) instituted a special audit in the resolution of Supervised Financial Institutions.”

Unjustified expenditure
The AG says in his report to Parliament that he was unable to justify the expenditures in question, including the liquidity support to Crane Bank worth Shs466.2 billion. The balance of Shs12.2 billion went to external lawyers, two auditing firms, terminal benefits and other interventions.
According to the report, to conduct a forensic audit into Crane Bank operations and compile an inventory of assets and liabilities, PricewaterhouseCoopers (doing business as PwC) was paid Shs1.3billion. The AG, however, says he was not privy to details on how this company and other service providers were appointed by BoU and for that reason, did not evaluate the value for money.
Another auditing firm, KPMG was paid Shs428.8m for provision of IT technical support and help BoU officials manage CBL’s IT system. And because “BoU IT team did not have competent and experienced resource with requisite expertise in Crane Bank’s core Banking system (T24)”, KPMG was again paid Shs190.5m to teach BoU staff how to use the IT system.
KPMG team was paid an additional Shs302.2m, again for provision of IT technical support. BoU officials explained that the payment was based on the time required by individuals assigned to the engagement plus direct out of pocket expenses and VAT. It is not clear whether the BoU contract with KPMG was availed to AG for scrutiny.
External lawyers fees
Although Cosase chaired by Mr Abdul Katuntu (FDC, Bugweri) heard in September 2017 that top city law firms, including MMAKs Advocates, were paid Shs1.4b, the audit report found that MMAKs alone was paid Shs3.9b for legal advice and commission (5 per cent) of monies recovered from CBL shareholders.
MMAKs and AF Mpanga Advocates were the external lawyers representing BoU in Crane Bank case involving city tycoon Sudhir Ruparelia. The two legal firms contracted by BoU were kicked out of the Crane Bank case in December by Justice David Wangutusi after Mr Ruparelia accused them of conflict of interest.

BoU has since replaced them with Sebalu Lule & Co. Advocates. Another law firm, Cohen and Collins Solicitors and Notaries, was paid Shs17.4m for legal services. BoU officials were asked to present the budget for MMAKS Advocates.
The details of another expenditure of Shs720.4m were not disclosed to AG in what some legislators have called a syndicate to shield the mess at BoU.

The Governor and his team explained that the money in question was “facilitation for special exercise”. The Governor and his team also paid Meridian Surveyors Shs21.5m to survey Mr Ruparelia’s properties. The Katuntu committee is investigating all these matters.