Banks to sue URA over customer data

Commercial banks could file a constitutional petition challenging a move by tax collector Uganda Revenue Authority (URA) to demand customer information held by the respective banks as early as tomorrow, Sunday Monitor has learnt.
The legal showdown stems from a March 16 letter by the URA’s commissioner of Domestic Taxes, Mr Henry Saka, asking all the commercial banks in the country to provide information on all account holders from January 1, 2016 to December 31, 2017.

According to the request, the banks are supposed to avail records of their clients, including the account name, Tax Identification Number (TIN), National Identification Number (NIN), address, telephone number and email addresses to the tax collector.

The other requirements are total cash deposits in the respective accounts for the period starting January 2016 to December 2017 and total cash withdrawals from those accounts over the same period.
The tax body, quoting Section 42 of the Tax Procedure Code Act, has also asked the commercial banks to furnish it with the current balances on that account as of the time of request.

Law suit
Sunday Monitor has learnt that two law firms, Bowmans Uganda (A.F Mpanga Advocates) and MMAKS Advocates have been jointly instructed by the banks under their umbrella body, Uganda Bankers Association (UBA), to challenge the request on grounds that it is unconstitutional.
“We feel it [Section 42 of the Tax Procedure Code Act] is an overreach of their [URA] mandate because by its nature tax is supposed to be a voluntary disclosure but this request is reactionary in nature. It stems from (Justine) Bagyenda’s leaked accounts,” one of the aggrieved parties told Sunday Monitor on condition of anonymity because they are not authorised to publicly speak about the same.

The official added: “If you are to look at Article 27 of the Constitution, it guarantees the right to privacy. Privacy relates to even financial dealings and all that information. So really, it shouldn’t be on the side of the commissioner to overstep that mandate”.
As a first step after receiving the communication from URA, commercial banks petitioned their regulator, Bank of Uganda, to advise on how to proceed.
Mr Wilbrod Humphreys Owor, the executive director of UBA, in a letter to URA dated March 23, says: “We refer to your letter ref 1000024189 dated 16/2/2018, to all member banks regarding the above. Member banks have brought this matter to the attention of the regulator to provide guidance. In the circumstances, banks are constrained to act pending directions from the regulator.”

By press time, it was not clear how BoU had guided the banks on the matter and why they had opted for litigation.
Mr Fabian Kasi, the chairperson of UBA and the managing director of Centenary Bank, told Sunday Monitor in an interview that discussions on the matter were still on.
“We are still doing consultations with URA and Bank of Uganda before we know the way forward,” he said but declined to discuss any further details on the matter.
Mr Yusuf Nsibambi, a prominent lawyer and chairman of Kampala District Land Board, said on the matter: “It is unconventional and illegal. The Constitution provides for right of privacy. Also, there is a fiduciary relationship between a banker and client which would be breached as a result (of banks giving up customers’ data).”

Last month, the account details of Ms Bagyenda, the executive director in charge of commercial banks supervision at Bank of Uganda, were leaked to the public and consequently published by several online news sites. A number of commercial banks were compelled to issue public apologies and to indict some of their staff for what they termed as an “unlawful act”.
Sunday Monitor has learnt, from reliable sources that this revelation is what prompted the taxman to issue the request for customer information to commercial banks. In their letter of request, URA does not give any legal justification for the request.

Unconfirmed reports indicate the “cash strapped” tax body, which failed to reach its revenue collection targets last year and the year before, could have seen an avenue to collect taxes from some people suspected to be keeping unexplained money in the respective commercial banks.

Tax shortfall
In the Financial Year (2016/2017), the tax body recorded a 13 per cent growth in revenue collection but ended up with close to Shs500 billion revenue collection as shortfall of the Shs13.2 trillion target.

A similar situation prevailed in the financial year 2015/16, were collections grew by 15.6 per cent but with Shs404 billion as shortfall of the Shs11.6 trillion. The target for this Financial Year 2017/18 is Shs15 trillion, which is 14 per cent higher than last year and there are indications URA may not be able to meet the same.
But the tax collection aside, there are a number of other concerns that have been raised concerned the release of bank customer data to URA and by extension the State.

Rogue public and security officers, for instance, could use the data to blackmail cash-rich individuals or even rob them when they move the money. There is also a concern about the security of the data if it were released to URA, with fears being voiced that it could then not be securely stored.

The other concern is that such information could be used to target the government’s political opponents.
“Some of us have been making all the noise about the rule of law but when one individual is being treated unjustly, the media supports it and that meets the ire of a public that is always looking for someone to bring down,” a senior lawyer who requested not to be named told Sunday Monitor.
“Recently, I saw judges at a conference with URA, at which URA asked the Judiciary to stop issuing injunctions when there is a tax dispute - the tax payer should pay. Can you believe that? And no one criticised that. How can the judges then be neutral in any tax dispute when they go into a private conference with a notorious litigant and entertain its requests?” he asked.

The move, the lawyer explained, is a sign that the taxman “is now emboldened because we have allowed them to mistreat individuals. Now they have come for everyone because the standard is set. They are almost above the law,” he added.
In an interview, lawyer and Kampala Lord Mayor, Erias Lukwago, said the move by URA was not only wrong but illegal.
He advised the taxman to go to court and seek an order in case they need account information on some banks’ clients.
“Banks are like lawyers. They have the responsibility to safeguard secrets of their clients and that is what is termed as fiduciary duty. If banks comply, many people are going to go to court and the banks will find themselves in a situation where they have to pay a lot of money to their clients,” he said.

A CASE FROM KENYA
In 2016, Safaricom rejected Kenya Revenue Authority’s (KRA) request to access its customers’ mobile money records. The Kenyan taxman was seeking unfettered access to private mobile money transaction records in a bid to identify tax cheats who use the platform.

Those against tax bodies having unfettered access to people’s private account information argue that there must be reasonable suspicion that a taxpayer is shortchanging the taxman before access is granted. The argument that the determination of what constitutes reasonable suspicion should be left to courts is premised on the rules of natural justice provide that the taxman cannot be the jury and the judge in his own case and the fact that a judicial officer would likely give KRA access where there is reasonable suspicion as has been the case.

Also, unethical officials in the tax body and their accomplices could use the financial information on specific targets for illegal activities.
The other argument is it could drive some bank clients underground as they seek to avoid detection by the tax collectors. This, analysts, have argued can be counter-productive to the economy.
In November last year the Central Bank of Kenya directed all banks to ask for a Kenya Revenue Authority Personal Identification Number (PIN) certificate before signing on clients. The move was largely interpreted as KRA being granted complete access to into Kenyans’ bank accounts.