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COSASE Report Implicates Top BoU Officials On Closure & Sale Of Defunct Banks

The long-awaited Parliamentary Committee of Commissions, Statutory Authorities and State Enterprises (COSASE) report on the controversial closure and sale of seven defunct banks by Bank of Uganda (BoU) is finally out.

The investigations followed the special audit report by the Auditor General that raised a number of queries in the manner the banks were closed and sold.

The seven banks in question include Teffe Bank, International Credit Bank Limited, Greenland Bank, Co-operative Bank, National Bank of Commerce (NBC), Global Trust Bank and Crane Bank Limited.

The report presented before Parliament on Thursday evening implicates some of the BoU officials over the closure and sale of banks in question.

According to the report obtained by Business Focus, whereas section 95 (3) of the Financial Institutions (FIA) requires the Central Bank to appoint auditors on assumption of management of a distressed bank as soon as possible, in numerous cases, BoU has been appointing auditors after the sale.

“It is the Committee’s further observation that the Bank is not clothed with the authority to appoint an auditor for an institution that it has already sold and whose assets and liabilities have been passed on to a third party,” the report reads in part.

The report notes that in case of Crane Banks, BoU did not carry out valuation of the assets and liabilities of CBL BUT relied on the inventory report and due diligence undertaken by DFCU to accept their bid to arrive at the P&A.

The Committee recommends that The Central Bank should strictly follow the provisions of section 95 (3) of FIA, 2004 and invoke its mandate of appointing auditors only when it is in statutory management.

“ The BoU Board, in consultation with the Minister of Finance, planning and Economic Development  should, by Statutory Instrument in not more than six months, issue procedures and guidelines under the FIA on the resolution of financial institutions in distress,” the report recommends.

The report adds that whereas the GTB and NBC discount percentages of 20 and 30% respectively appear reasonable, the 93% discount in respect of the loan portfolio of ICB, Greenland Bank and Co-operative Bank acquired by M/s NRAC was incredibly outrageous.

“Whereas it could be difficult to establish with certainty and precision the prospects of sale and recoverable amount, the decision by BoU to undertake a desktop valuation of properties which had been mortgaged to the various banks more than eight years does not represent the realistic values at the time of sale,” the report reads.

It reveals that the consultant, M/s JN Kirkland and Associates employed by BoU to implement the exit strategy, identified the purchaser of the loan portfolio M/s Octavian Advisors which incorporated M/s Nile River Acquisition Company in Mauritius as a special purpose vehicle for purposes of entering into contract with BoU on 5th December 2OO7.

 The said JN Kirkland and Associates ended up as the local agent of the M/ s Nile River Acquisition Company with for example, the rights to run an account in Citi Bank in which all recoveries of the sold loan portfolio are deposited .

 The report says the  Committee obtained evidence from  Uganda Registration Services Bureau that M/s Nile River Acquisition Company, was not registered in Uganda as a local or foreign company which is violation of sections 369 and 370 (1) of the Companies Act.

M /S Octavian Advisors Plc was also never registered in Uganda.

“Records available to the committee indicate that the then Director Commercial Banking – Bank of Uganda, Mr. Ben Ssekabira, who was the agent of the liquidator/ Receiver of the three defunct banks (lCB, Greenland Bank and (Co-operative Bank) was up to the 12th August 2009 the agent of M/s Nile River Acquisition Company. It is further noted that between 12th  and 16th  February 2007, Mr. Ben Ssekabira together with Mr. Kakembo Katende of JN Kirkland and Associates travelled to the United States of America to meet the management of M/S Octavian Advisors plc,” the report says.

 However, while appearing before the committee he stated that he did not know the purpose for his travel to the USA. 6.

“The Committee observes that by time a delegation of JN Kirkland together with Mr. Ssekabira travelled to the USA to meet the prospective purchaser M/s Octavian Advisors plc had already made a deposit of USD5m on an escrow account with Citi Bank, New York. It is therefore, mind boggling that only USD 200,000 would later be paid added to constitute the full purchase price of USD 5.2m as the full consideration for a portfolio whose original offer was USD 10m. The exclusivity that had already been granted meant that M/s Octavian Advisors plc had no impetus to up or meet their earlier offer,” it adds.

The committee further notes that in all the business transactions involved in this transaction, the purchaser and her agent have not paid the requisite tax.

 The loan portfolio sold to M/s Acquisition Company is now being managed on their behalf by M/S SIL Investments Ltd. M/s SIL Investment has been charging an interest rate varying between 21 and 25%o on the loan portfolio and recovering monies from different debtors.

“The committee concludes that the transaction between BoU and M/S Octavian Advisors Plc and her agents lacked transparency and the officers involved should be held responsible for commissions and omissions which resulted in not marshaling the greatest amount from the assets of the distressed financial institutions,” reads the report.

It adds: “The committee further recommends that the officers involved should be held responsible for conflict of interest.. The fraudulent business activities being conducted by M/s SIL Investments on behalf of a nonexistent M/s NRAC should immediately cease.”

The report adds that the Inspector General of Police is required to immediately, on adoption of this report, seize all the land titles in the possession of Mr. Kakembo Katende of M/s JN Kirkland and Associates and M/s SIL Investments arising from their management of tire loan portfolio sold to M/s NRAC by Bank of Uganda.

“M/ s SIL Investments and Mr. Kakembo Katende should render an account to the public trustee of all monies received from the time M/s NRAC ceased to exist. The agency of M/s SIL Investments Ltd cannot legally exist upon dissolution of the Principal (M/s NRAC),” says the report, adding that the Uganda Revenue Authority should take interest in the tax activities of M/s Nile River Acquisition company and its agents, M/s JN Kirkland.

The report also notes that the FIA, 2004 should be amended to make specific provision for the timelines of undertaking all the activities related to and connected with resolution of financial institutions.

“Whereas the resolution of financial institutions in distress has been under the BoU supervision department, it is recommended that the mandate of resolving financial institutions in distress be independent of the bank supervision function. This would mitigate the risk of conflict of interest.

The central Bank should strengthen the supervision function to ensure that it is able to adequately supervise financial institutions in real time. This may require investment in human resource and systems, technological or otherwise,” the report adds.

It remains to be seen whether Parliament will adopt all the recommendations in the report.

More details to follow

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