KAMPALA: The High Court in Kampala has ruled that Stanbic Bank was negligent when it failed to investigate a customer who fraudulently acquired over Shs100 million through the bank. In his ruling, released by email, Justice Musa Sekaana cites negligence by the bank and awards €40,000 to the complainant plus interest.
The case stems from 2017, when Children’s Vision and EyeSight Care, an organization based in the Lwakhakha, applied for a €40,000 grant from Novartis Pharma AG, a donor in Switzerland. The two entered an agreement to implement a project intended to improve children’s vision and eye sight care in Mbale and Manafwa Districts.
As part of the agreement, the donor sent Shs159 million to the organization’s bank account in Centenary Bank, Mbale, on December 12, 2017, and another Shs27.6 million on April 13, 2018. To the surprise of the group, the money was taken and sent to an account in Stanbic Bank on both occasions.
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The said account belonged to James Mwesigwa of Christian Rural EyeSight Promotion Wakiso. But the money was withdrawn by one Shafique Nkengero, who had been endorsed by Christian Rural EyeSight Promotion Wakiso as the sole signatory to the bank account.
In 2018, Christian Rural EyeSight Promotion Lwakhakha, which had sought the grant, went to court seeking to recover its money. The organization sued Stanbic Bank and Nkengero, James Mwesigwa, Julius Kabanda, and Sandra Mutesi, all of whom were associated with the organization in Wakiso. Of the five accused parties, only Stanbic Bank defended itself in court.
In their complaint, Christian Rural EyeSight Promotion Lwakhakha and Manafwa accused Stanbic Bank of failing to investigate its said customer, the Wakiso Organisation, which impersonated them, and Nkengero, who withdrew the money. The bank was also faulted for allowing Nkengero to withdraw the money as an individual, yet the constitution of the Wakiso-based organization stipulated that there should be two signatories to the bank account.
Another issue was that when the funds were diverted to Stanbic bank, they were clearly indicated to belong to Christian Rural EyeSight Promotion Lwakhakha Manafwa. This account was given by Stanbic Bank itself, and yet they proceeded to deal with another organisation said to be from Wakiso.
In its defense, Stanbic Bank argued that it did due diligence on the organization and Nkengero before dealing with them. It argued that Nkengero presented the bank documents with a special resolution of the Central Executive Committee of Christian Rural EyeSight Promotion Wakiso, appointing him as the sole signatory to the bank account. Stanbic Bank also argued that its customer had informed them that it had two branches and that’s why, although the money was destined for the organization in Manafwa, they permitted access to the Wakiso branch.
In his judgement, Justice Musa Ssekaana of the Civil Division of the High Court has ruled that indeed Stanbic Bank failed to carry out due diligence in opening an account and later accepting money transferred from a foreign bank.
He ruled that there was no single letter of introduction from Wakiso District Local Administration or local councils of the area introducing the organization or its membership, especially directors, to the bank. The bank didn’t seek such information even after learning of the differences between the address of the original organization and the said branch in Wakiso.
In line with the doctrine of clear last chance, the receiving bank operates the account into which the funds are deposited. It is in the best position to compare account names with account numbers and to detect discrepancies or fraud as opposed to the sending bank, “said Justice Ssekaana.
The justice further ruled that it is common knowledge that a community-based organization (CBO) is tied to a specific area and that it wouldn’t be possible for this particular one to have two branches, one in Lwakhakha and another in Wakiso.
Ssekaana: “It should have raised enough suspicion to stop the deal because there was already a CBO in WAKISO and another in Mbale.”
“Notwithstanding the theft of the identity of the Plaintiff, the remitter’s information noting the beneficiary as Christian Rural EyeSight Promotion Lwakhakha Road, Manafwa District and not Christian Rural EyeSight Promotion Wakiso,” would still make the 5th defendant liable for misappropriation/application of the funds.”
Further, Justice Ssekaana further ruled that no “prudent” banker, knowing that funds belong to an organization, would permit a single individual to sweep the account clean “in such a rush and reckless manner”.
The Justice ruled that it was inexplicable for a bank to grant access to an individual based on a purported special resolution and to ignore the customer’s (organization’s) constitution, which provided for a minimum of two members of the executive committee to operate the bank account.
Hence, Justice Ssekaana awarded Christian Rural EyeSight Promotion Lwakhakha Manafwa €40,000 (approximately Shs150 million) in special damages at an interest rate of 8% per annum from the date of filing the suit until payment in full.
