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Businessman Hamis Kiggundu, the plaintiff, in yellow

UBA against ruling in DTB case because it exposes illicit dealings, ‘anarchy’ in banking sector – Ham Kiggundu’s lawyers

DTB Kenya is faulted for doing the transaction without permission from the Central Bank of Uganda as is required under Section 117 of the Financial Institutions Act, 2004 (as amended).
posted onOctober 10, 2020

Muwema and Company Advocates & Solicitors, and M/s Kimara Advocates & Consultants, the law firms representing businessman Hamis Kiggundu and his companies (Ham Enterprises Ltd and Kiggs International (U) Ltd) in a landmark court case against Diamond Trust Bank (DTB) Uganda and Kenya have said the Uganda Bankers Association’s (UBA) reaction to the recent judgment on syndicated lending shows how the Association could be committed to facilitating illicit financial inflows in the country.

“It would appear to us that the UBA has felt the shock waves of the judgment because the judgment exposes the hitherto undisclosed foreign loans which have been escaping regulatory oversight by the Central Bank of Uganda and which are otherwise eligible for taxation by the Uganda Revenue Authority,” the law firms said in a statement, which was copied to UBA Chairman Mathias Katamba and UBA Executive Director Wilbrod Humphreys Owor.

Kiggundu dragged DTB Uganda to court in order to recovery $23 million and Shs34 billion that were allegedly unlawfully debited from his companies’ accounts for a period of over nine years.

On Wednesday, Judge Henry Peter Adonyo, the head of the High Court Commercial Division, ruled that DTB Kenya had illegally lent money to Ham Enterprises as it has no license to conduct business in Uganda.

The said loan was acquired under an arrangement called syndicated lending, where a group of lenders referred to as a syndicate work together to provide funds for a single borrower.

In this case, DTB Uganda got some of the money it lent to Ham from its sister company in Kenya.

Reacting to the ruling, UBA said it could damage the economy, considering the government of Uganda is the largest beneficiary of syndicated lending.

“As a result of the judgment and its implications, the syndication portfolio currently seated with commercial banks that is now at risk is over Shs5.7 Trillion (1.53b USD) of running facilities across various sectors including real estate, road construction, energy covering hydroelectric power, oil & gas and manufacturing among others,” UBA said.

“The above figure does not include pipeline transactions that were still being processed or undrawn yet that have all been halted since the judgment came out yesterday.”

According to the law firms, while it is true that DTB Uganda and DTB Kenya engaged in a syndicated loan transaction with Kiggundu and his companies, it is not true that the judgment declared syndicated loans to be illegal.

They say that the judge declared the syndicated loan involving DTB Kenya to be illegal because it did not obtain permission from the Bank of Uganda as required by the FIA to conduct Financial Institutions business in Uganda.

DTB Kenya is faulted for doing the transaction without permission from the Central Bank of Uganda as is required under Section 117 of the Financial Institutions Act, 2004 (as amended).

DTB Uganda is also accused of acting in contravention of its license, the Financial Institutions (Agent Banking) Regulations, 2017 and the Financial Institutions Act vide Section 126 when it acted as an Agent Bank of DTB Kenya, without first obtaining approval to do so from the Central Bank of Uganda.

By supporting DTB’s style of business, the law firms wonder if UBA is trying to push for the deregulation of foreign lending in Uganda by vehemently protesting a court judgment which seeks to enforce the regulation of such foreign lending.

“Is UBA trying to promote illicit financial inflows and anarchy in the financial sector?” they wonder, adding: “The implication which should be derived from the judgment is that any Bank which desires to conduct syndicated loan transactions in Uganda is allowed to do so provided it comes under the regulation of the law.”

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