Real estate magnate Sudhir Ruparelia has put the Bank of Uganda under scrutiny in his defence to charges that he illegally obtained $105 million from the collapsed Crane Bank.
In the defence filed last week at the High Court, Mr Ruparelia wants BoU Governor Tumusiime Mutebile and other top officials to appear as witnesses in the case.
Mr Ruparelia’s decision to file a defence, setting the ground for trial, while ignoring BoU’s overtures to settle the case out of court, will most likely open a Pandora’s box for the Central Bank.
Mr Ruparelia alleges that BoU wrote him a letter blackmailing him to settle the case out of court or face criminal proceedings after they had filed their plaint in June.
Mr Ruparelia is being sued jointly with Meera Investments Ltd, the real estate arm of his business. He is also accused of committing fraud and owning Crane Bank 100 per cent, in contravention of the Financial Institutions Act (FIA), which prescribes 49 per cent for any individual and his or her associates.
He is alleged to have used his total control over Crane Bank to embezzle Ush400 billion ($105 million), over a 10-year period.
He is also accused of fraudulently grabbing 48 properties built with Crane Bank money that he later transferred to Meera Investments before leasing them back to the bank at exorbitant prices.
BoU wants Mr Ruparelia to pay back over Ush650 billion ($178.2 million), for the 48 properties, when interest is taken to account in addition to handing over the titles.
In his defence, Ruparelia says the Ush1.8 trillion ($493.5 million) in proceeds the Central Bank got from liquidating Crane Bank is enough to cover any shortages.
Mr Ruparelia accuses the Central Bank of haste in disposing of Crane Bank’s assets and of not giving him details of the transaction.
In another case, BoU is accused of selling National Bank of Commerce (NBC) to Crane Bank in 2012 without following due process despite the owners having obtained an injunction against the sale. NBC is demanding $250 million in compensation for the assets that BoU sold.
The case is likely to feature in Mr Ruparelia’s trial.
In his defence and in a counter suit against BoU, Mr Ruparelia is asking why action was not taken sooner.
The Central Bank has based its suit largely on a forensic audit by PricewaterhouseCoopers (PwC) which found “suspicious” activities from as early as 2007.
The forensic audit concludes that had BoU paid attention to Crane Bank, it would have prevented the fraudulent activities.
The audit for example shows that out of the nine directors of Crane Bank, only Rasiklal Kantaria and P.K Gupta had the requisite qualifications to sit on the board.
“The lack of appropriate academic and professional qualification as well as experience among the directors constituting the Board Audit Committee meant that there was no effective oversight over the risk, financial reporting and internal controls,” reads the forensic audit.
Mr Ruparelia is challenging the Central Bank for not flagging concerns over the years yet details of board composition were submitted and it approved.
FIA requires that at the very minimum five members of a financial institution’s board have skills related to banking and capital flow management.
BoU approves annual audits of all commercial banks, looks at corporate governance structures, and approves board members. But the Central Bank somehow missed the fact that most of Crane Bank’s directors were unqualified.
The forensic audit adds that Mr Ruparelia was able to manipulate the board because of its incompetence. The board also failed to come up with credit risk policies, a loophole that saw Crane Bank engage in dubious lending among them that of Ush111 billion ($30.4 million), to Amina Hersi, the owner of Oasis Mall.
Such lending caused an increase in non-performing loans and a capital adequacy problem.
Mr Ruparelia counters that the non-performing loans arose from the war in South Sudan and the slowdown in the Ugandan economy including in the property sector leaving Crane Bank exposed.
Mr Ruparelia says this caused a capital inadequacy problem for which BoU seized Crane Bank’s treasury bills worth Ush169 billion ($46 million). This inhibited access to interbank funding and worsened the liquidity position at Crane Bank.
This coupled with the fact that a run on Crane Bank saw depositors withdraw Ush250 billion ($68.5 million) in three days, created a liquidity squeeze, that was hard to get out of, without support from the banker of last resort — BOU.
Central Bank has wound-up, sold or simply closed at least eight banks over the past 20 years.
Crane Bank, which was sold to DFCU Bank was the latest victim. BoU argued in taking over operations in September last year that the Bank was “grossly undercapitalised and paused a systemic risk to the financial sector.”