Pension: BoU downgrades Cairo Bank

Investigations into the payment of at least Shs63 billion to 1,018 nonexistent or “ghost” pensioners through Cairo International Bank (CIB) reveal that the bank ignored warnings to adhere to ethical and regulatory standards.

Bank of Uganda (BoU) has since downgraded CIB’s performance from fair to marginal. This means the bank, with customer deposits of Shs36 billion, according to BoU, is operating on the edge.

Documents seen by the Sunday Monitor also show that the bank had earlier been penalised by the regulator (BoU) over abnormal operations. CIB was thrust into the limelight after police started investigations into the payment of Shs63 billion to “ghost” East African Community Beneficiaries Association (EACOBA) members. The scam, which has since grown to more than Shs300 billion, led to the arrest and prosecution of two junior bank officials and three senior government officials in the Ministry of Public Service and one businessman.

‘Bank culpable’
They are Ms Rahma Nakigozi and Mr Ishaka Abdallah Ssentongo from the bank; Mr Jimmy Lwamafa – permanent secretary, Mr Christopher Obey – principal accountant, pension and Mr David Oloka – accounts assistant from the Public Service ministry; as well as Mr Peter Ssajjabi from EACOBA.

Curiously, the police did not prefer charges against the bank or its senior officials, saying the bank played no role in the scam. But BoU in a letter dated November 12, 2012 and signed by the Governor Emmanuel Tumusiime-Mutebile, reveals the culpability of the bank in the scam.

“Bank of Uganda’s examination of the pensioners’ transaction at Cairo International Bank, revealed that the bank’s officials did not exercise adequate due diligence in the execution of the transactions relating to the pensioners,” Mr Mutebile wrote.
He added: “Please note that all the enclosed examination report’s highlighted weaknesses in the banks account opening process. Repeated directives were issued to the bank to rectify the anomalies but the bank did not ensure full compliance.”

In a letter addressed to the director of Criminal Investigations and Intelligence Directorate (CIID), Mr Mutebile revealed that when CIB failed to comply, on August 21, 2012, Bank of Uganda penalised CIB for failure to deal with issues raised in previous reports such as streamlining the Know-Your-Customer and other account opening procedures.
“In addition, CIB’s overall CAMELS rating was downgraded from fair to marginal and the bank was directed to appoint a new board of directors by February 28, 2013,” reads Mr Mutebile’s letter.

However, CIB’s Managing Director Osama Darwish told the Sunday Monitor that “the grading of the bank is something different”. Asked what the downgrading implied, Mr Osama said: “It’s a technical issue. It should be confidential information.”

He declined to confirm or deny whether they have complied with BoU’s directive to have a new board. BoU’s letter was in response to police request for information relating to the pension scandal. At the time police wanted this information, they appeared convinced that CIB had a role in the scam to which Mr Mutebile agreed thus: “I agree with your assertion that there are many irregularities which should have raised a red flag/suspicion to the senior management team at CIB.”

BoU officials say CIB imposed on pension depositors, charges which were way above what the bank had earlier submitted to Bank of Uganda for record and public announcement. “Therefore the 2 per cent charge is irregular as it is not in line with the charges and fees of Shs20,000 published by CIB since January 2011,” Mr Mutebile said.

“The deposit trend shows a modest level of local deposits averaging about Shs36 billion. The alleged pensioners’ funds did not stay on the accounts as the funds were immediately withdrawn in full after the funds were received,” he added.

While the bank said they always paid money withdrawn, to Mr Sajjabi, the ECOBA secretary, documents from the same bank show that the money was paid out to purported beneficiaries not Mr Sajjabi and in some cases, letters purportedly written by Mr Sajjabi introducing beneficiaries to the bank were written days after the accounts had been opened by the bank.

However, the police did not charge the bank but instead preferred charges against junior employees. Apparently, there were negotiations between the bank, police and the Director of Public Prosecutions (DPP).

These negotiations, that finally exonerated the bank, were partly at the urging of a senior Cabinet minister. This minister, whom we can’t name at this stage, reportedly has interests in the bank.

One of the briefs from CIB lawyers Tumusiime, Kabega & Co Advocates, states: “In conclusion, Cairo International Bank Ltd and its top management have since been exonerated from any fraud and/ or liability whatsoever by the Police and Directorate of Public Prosecutions both having established that the criminal acts of Rahma Nakigozi, assistant manager Heavy Cash and Ishaka Ssentongo, Assistant Manager Operations were individual actions and the fraud was not carried out by the Bank/or its Top Management.”

A paper trail also shows that CIB lawyers agreed with DPP and police not to amend the charge sheet to include the bank and its senior managers. Instead, bank employees and Mr Sajjabi whose participation in the multi-billion scam was peripheral, were nailed by police and DPP while one of the top bank officials whose role was key in facilitating the scam, was left to return home in Egypt.

An email on May 07, 2013 at 12:21am from Osama Darwish to Nabil Ghanem, reads: “We have made excellent progress. DPP confirmed to the prosecutors that he shall not make any changes to the charge sheet in Court unless the police adduce any new evidence. The Director Criminal Investigations in the same meeting confirmed that all investigations were done and there is no new evidence to be produced to occasion a change in the charge sheet. Therefore the DPP ruled that there is nothing to discuss.”

“Mr Tumusiime [lawyer] says the meeting was very good. During the meeting the DPP called our contact in the presence of Mr Tumusiime and confirmed that nothing shall happen. He also stated he would not make it for the meeting because he was summoned to Parliament and on Wednesday he heads out of the country for two weeks. Therefore the position is no amendment shall be done to include the Bank or you.”

Our sources say the contact mentioned in the email is the Cabinet minister who prevailed over investigators and prosecutors to get off the bank. Mr Osama declined to answer other questions from the Sunday Monitor saying: “We don’t have that letter here; it’s between BoU and CIID. I respect it but it should not go to the public. I have no comment on it.”
BoU could not deny nor confirm when we contacted them. Mr Jam Tibamwenda, a communications director at BoU, said he would give us a response in an hour but had not done so by press time.

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