Officials from Bank of Uganda yesterday had no answers for the lawyer makers who wanted to know how the Central Bank used shs 478bn to capitalize Crane bank yet it only needed shs 157bn to keep running.
Members of Parliament on the Committee on Commissions, Statutory Authorities and State Enterprises (Cosase) are conducting a probe into the closure and sale of seven commercial banks, following an Auditor General’s report that pointed at possible corruption within the central bank.
During a probe hearing on Tuesday, Central Bank officials were reading from different pages over how much undercapitalized Crane Bank was before taking the decision close it. Governor Tumusiime Mutebile admitted he didn’t have the figure while Benedict Ssekabira, the Director Financial Markets Coordination, put the figure at Shs157b.
Justine Bagyenda the former Executive Director Commercial Bank supervision said the bank required an additional capital of at least Shs32b by September 15, 2016 and progressive capital of Shs56b if capital adequacy was to be restored by October 31, 2017.
Yesterday, Sekabira insisted the figure was Shs157b after COSASE Chairman asked how much Crane Bank needed to return to adequate capitalization at the time of closure.
MP Medard Segoona asked for documentary evidence before Odonga Otto questioned why Shs478b was spent on a bank that needed only Shs157b at the time of closure.
“If Crane Bank was in deficit of 157b, why did you use Shs478b to clear mess?
Why didn’t BoU just capitalize Crane Bank with 157b,” MP Odonga Otto queried.
MP Abraham Byandala wondered why there was a rush to take over Crane Bank since it had been given up to end of October 2016 to recapitalize
“A bank can even be recapitalized within a day but it was taken over 10 days before the time it was given in August 2016 MoU,” he said.
BoU spent Shs478b as liquidation support to keep running Crane Bank for three months, before it was sold to DFCU for Shs200b in January 2017.
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.
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.