The High Court in Kampala has ruled that Stanbic Bank was negligent when it failed to investigate a customer who fraudulently acquired over 100 million Shillings through the bank.
In his ruling, released by email, Justice Musa Sekaana cites negligence by the bank and awards 40,000 Euro to the complainant plus interest.
The case stems from 2017 when Children’s Vision and EyeSight care, an Organisation based in the Lwakhakha, applied for a 40,000 euros 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 EyeSight care in Mbale and Manafwa Districts.
As part of the agreement, the donor sent 159 million Shillings to the organisation’s bank account in Centenary Bank, Mbale on December 12, 2017, and another 27.6 million Shillings on April 13, 2018. To the surprise of the organization, on both occasions, the money was intercepted and diverted to an account in Stanbic Bank.
The said account belonged to James Mwesigwa of Christian Rural EyeSight Promotion Wakiso. But the money was withdrawn by a one Shafique Nkengero who had been endorsed by Christian Rural EyeSight Promotion Wakiso, as the sole signatory to the bank account.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 organisation sued Stanbic Bank and Nkengero, James Mwesigwa, Julius Kabanda, and Sandra Mutesi all of whom were associated with the Organisation in Wakiso. Of the five accused parties, only Stanbic Bank defended itself in court.
In their complaint, Christian Rural EyeSight Promotion Lwakhakha, 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 Organisation stipulated that there shall 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 defence, Stanbic bank argued that it did due diligence about the Organisation and Nkengero before dealing with them. It argued that Nkengero presented to 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 Organisation in Manafwa, they permitted access to the Wakiso branch.
Now, 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 and especially directors to the bank. The bank didn’t seek such information even after learning of the differences in the address of the original Organisation 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 Organisation-CBO is tied to a specific area and, it wouldn’t be possible that this particular one to have two branches, one in Lwakhakha and another in Wakiso.
“It should have aroused enough suspicion to decline the transaction for having a CBO in WAKISO and another in Mbale,” ruled Justice Ssekaana.
“Notwithstanding the theft of 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.”
Justice Ssekaana further ruled that no “prudent” banker, well knowing that funds belong to an Organisation, 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 ignore the customer’s (organization’s) constitution which provided for a minimum of two members of the executive committee to operate the Bank account.
Justice Ssekaana hence awarded Christian Rural EyeSight Promotion Lwakhakha Manafwa 40,000 euros (approximately 150 million Shillings) in special damages at an interest of 8% per annum from the date of filing the suit until payment in full.
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