[2015] UGHC 11

### THE REPUBLIC OF UGANDA

## IN THE HIGH COURT OF UGANDA AT KAMPALA

### (CIVIL DIVISION)

#### CIVIL SUIT NO. 19 OF 2012

MODY NOUHOU BARRY...................................

#### **VERSUS**

#### UNITED BANK OF AFRICA............ ...................... DEFENDANT

#### **BEFORE: HON; JUSTICE BENJAMIN KABIITO**

#### JUDGMENT

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#### **INTRODUCTION**

This is an important case that is before this court. It raises questions as to whether a Financial Institution can be held liable for negligence of its officials in the opening of an unverified customer account and its eventual operation, through which, a third party, transacting with the said customer and through the said account, losses money and suffers loss.

#### Plaintiff's case.

**FRIFIED TRITE**

The Plaintiff in this action seeks special, general damages and costs from the defendant, arising out of the negligence of its officials, in the opening of an unverified prospective customer's account and -20 its subsequent operation, causing him financial loss to the tune of USD 21,000, upon the said bank customer 's default, to deliver vehicles paid for through the said account with the defendant's bank.

On account of this loss, the plaintiff seeks the following orders of this court;

- a) The defendant pays for the USD 21,000 (United States Dollars Twenty One Thousand,). - b) General damages - c) The defendant pays interest at a commercial rate of 25% from August 2011 up to date. - d) The defendant pays interest at court rate from the date of Judgment until payment in full. - e) The defendant pays costs of the suit.

The plaintiff'^s cause of action may briefly be stated as follows;

- a) The plaintiff, a resident of Nairobi, Kenya, was desirous of acquiring two vehicles for personal use in August 2011; - b) The plaintiff visited a number of websites, including that of Annik Auto Care, a business firm situate in Kampala, Uganda, with one Kyagulanyi Jackson Duggar, as its contact person.

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- . c) By telephone and email communications, the plaintiff entered into negotiations with the said Kyagulanyi Jackson Duggar. for purchase of the said vehicles at a cost of USD 21,000 (United States Dollars Twenty One Thousand). - d) Subsequent thereto, the plaintiff effected the transfer of the said monies from his Barclays bank, Westland's, account to account No 0116002011 provided by the said Kyagulanyi, in the names of Annik Auto Care held with the defendant bank. - **-***-2* e) After the transfer had been effected, the plaintiff inquired from Kyagulanyi about the possible date of delivery of the vehicles and was told to wait for some 10 days. - called the Moses (an f) Suspecting fraud, the plaintiff immediately defendant bank and was informed by one

employee of the defendant) that Kyagulanyi Jackson Duggar was a possible fraudster attempting to defraud him.

- g) The plaintiff implored the defendant to take instantaneous'' action to prevent the withdrawal of the funds from the said account. - h) The plaintiff made further attempts to get in contact with the senior management of the defendant, particularly with the Security Manager and/or the Manager of the defendant, without success. - i) Consequently, the plaintiff travelled to Kampala and made a formal complaint to the Police for investigations to be carried out in respect to the loss of the USD 21,000 and for the apprehension of Kyagulanyi.

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- j) Investigations carried out by the police discovered that Kyagulanyi Jackson Duggar was a partner at Annik Auto Care. - k) In the course of investigations, the police learnt that officials of the defendant had no ^t actually verified the address details and • information that Kyagulanyi had provided to the bank prior to the account being opened for transactions.

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*2.0* The plaintiff complains that he has suffered the loss of the USD 21,000 on account of the following omissions of the defendant with regard to the opening and operation of the account in question;

- a) Failure to exercise due diligence in obtaining sufficient information about the Customer's correct place of business and residence while opening his account. *-^5* - b) Failure to demand for properly executed documents for account opening purposes. - c) Failure to prevent the withdrawal of funds by their customer after being alerted by the plaintiff.

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- d) Failing to warn the plaintiff and the general public not to deal with Kyagulanyi Jackson Duggar, who was known to the defendant as being fraudulent. - e) Facilitating crime through failing to assist Police effect the arrest of Kyagulanyi Jackson Duggar, with whom they continued to transact business despite knowledge of the fraud he had committed and the fact that he was needed for interrogation.

The plaintiff avers that he has suffered loss and damages as result of the defendant'^s negligence.

# **Defendant'^s case.**

In its response, the defendant maintained that;

- a) The plaintiff contracted with Kyagulanyi Jackson Duggar and that neither the defendant nor its officials, participated in the said transaction or facilitated the conclusion of the alleged contract. - b) The alleged contract only came to the defendant's knowledge when the police served it with a court order on the 11th August 2011, to effect the blockage of the bank account of M/s Annik Auto Care. - c) It has a contractual obligation to its customers to keep their accounts operational and it is not banking practice to block customers' account on the basis of telephone calls from third parties, who are strangers to the defendant bank. - d) The plaintiff'^s alleged telephone call to Moses came after the money had already been withdrawn from the account. - e) The defendant contends that the plaintiff should have carried out proper due diligence on Kyagulanyi Jackson Duggar before contracting with him and paying colossal sums of money into his firms' account


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- f) The defendant contends that, if the plaintiff suffered any loss at all, such loss was self inflicted, borne out his recklessness, gullibility and overmastering desire to have vehicles off thb internet without conducting a proper due diligence on his trading partner. - g) The defendant contends that the plaintiff was negligent in the conduct of his matters and the alleged loss, and special damages claimed, were a result of his own negligence and wanton conduct.

*ro* The defendant contends that the plaintiff was negligent in the following respects.

- a) Failure to carry out due diligence on Kyagulanyi Jackson Duggar/Annik Auto Care, as the plaintiff'^s trading partners. - b) Failure to travel to Uganda to meet with Kyagulanyi Jackson Duggar, before the payment of money was rendered into his firm'^s account. - c) Careless and reckless payment of monies to a person only seen on the internet. - d) Failure to structure the purchase through the defendant with appropriate safeguards.

At the scheduling conference, the following facts were agreed upon.

# **3 AGREED FACTS.**

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1. Sometime in August 2011, the Plaintiff who was based in Kenya saw two (2) motor vehicles advertised on the internet by Annik Auto Care, as represented by Kyagulanyi Duggar.

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2. The plaintiff entered into an agreement with Kyagulanyi Duggar, for purchase of two (2) motor vehicles from the defendant's customer Annik Auto Care.

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- 3. On 3rd and 4th August 2011, the Plaintiff transferred USD 21,000 on Account Number ^0116002011 held by Annik Auto Care in - United Bank of Africa Uganda Limited, as payment for the vehicles, which vehicles were however not delivered . as expected. - 4. In the meanwhile, Kyagulanyi Duggar accessed the account and withdrew funds without delivering the said vehicles. - 5. On 11th August 2011, the Plaintiff served a court order on the defendant blocking transactions on the Annik Auto Care account. - 6. The plaintiff travelled to Uganda to trace Kyagulanyi Duggar, and recover his money, but his efforts proved futile due to insufficient information on the Defendant's record.

With both parties claiming that the other was negligent and accountable for the loss that the plaintiff had suffered, The following issues were framed for resolution of this matter.

# **ISSUES FOR RESOLUTION.**

- 1. Whether there was negligence of any party in this matter. - 2. If so, whether such negligence occasioned loss to the plaintiff. - 3. What the remedies are available to the parties?

# **BACKGROUND OF THE CASE**

On the basis of the evidence that was led by both parties, the following is the background of this case.

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In August 2011, the plaintiff sought to purchase two motor vehicles for personal use. As part of his search the plaintiff visited several websites, including that of Annik Auto Care, a business firm, based in, Uganda and found that the said firm had the vehicles that the plaintiff wanted.

The website had the telephone contact of one Kyagulanyi Duggar whom the plaintiff called to inquire about the vehicles and the purchase price. The parties agreed on a purchase price of USD 21000 (United States Dollars Twenty One Thousand), for the supply of the vehicles.

Kyagulanyi Jackson Duggar availed the plaintiff with the Annik Auto care account details with the defendant bank situate in Kampala, Uganda, for him to arrange the transfer of the funds by electronic transfer, from his own account with the Barclays Bank of Kenya Ltd.

The plaintiff had the sum of USD 21,000 transferred to Annik Auto Care of Clement Hill Road, plot 230 Kampala, on Account no 0116002011 held with the defendant, in two installments dated 2/8/2011 for USD 16,000 and 3/8/2011, for USD 5000, respectively. (Swift Customer Transfer documents, Pex. No1, 1(1), and 1(2) were provided to the court.)

The statement of Account of United Bank of Africa, Jinja road, Branch for Annik Auto Care, of P. O. Box 112234 Kampala, for the period 26/6/2011 to 31/01/2012, indicates that on 4/8/2011 and on 5/8/2011, respectively, sums of Ugs 41,868,100 Ugs 13,094,400/- were received from one Mody Nouhou Barry (the plaintiff), all totaling a sum of Ugs 54,962,500/- that relate to the monies that had been sent from Nairobi, by Electronic transfer.

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The plaintiff testified thus in respect to what transpired after he had sent the money.

*"I inquired on how soon ^I would obtain the documents pertaining to the motor vehicles in issue and what steps were needed to take once the vehicles arrived in Mombasa, but he was non committal. On realizing the possibility that he was a fraudster, I told him that we should not proceed with the transaction."*

Upon the plaintiff coming to the realization that he could have been defrauded, attempts were made to contact the defendant's senior management in order to prevent the withdrawal of the monies by freezing the account.

The defendant'^s officials insisted however on the presentation of a court order before any dealings on the said account could be frozen.

The plaintiff travelled to Kampala and reported the loss of monies to • the police for investigation of the case.

By the time a court order was secured, by the police, Kyagulanyi had effected a number of cash withdrawals and transfers as follows.

- 1) On 5/8/2011, a cash withdrawal by Jackson of a sum of Ugs 14,000,000/-by cheque no 220303. - 2) On 5/8/2011, a sum of Ugs 1,400,000/- was transferred to account no 011304216, by cheque no 230304. - 3) On 8/8/2011, a cash withdrawal by Jackson of a sum of Ugs 15,000,000/- by cheque no 230305.

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- 4) On 8/8/2011, a sum of Ugs 2,000,000/- was transferred to account no 011304216, by cheque no 230306 - 5) On 8/8/2011 a cash withdrawal by Jackson of a sum of Ugs\* 18,000,000/- by cheque no 230307. - 6) On 8/8/2011, a sum of Ugs 2,000,000/- was transferred to account no 011304216, by cheque no 230308. - 7) On 9/8/2011 a cash withdrawal by Jackson of a sum of Ugs 2,900,000/- by cheque no 230309.

All the said withdrawals total a sum of Ugs 55,300,000/-

**¹** *-10* In the course of the investigations of this case, the police learnt from one Mark Mwirumubi, a Bank Relationship officer, with the defendant, that although he had endorsed on the Customer'^s Address verification Form, one of the account opening forms, for Annik Auto Care and those for Kyagulanyi Jackson Duggar, that he had personally visited the business firm office address as well as Kyagulanyi'^s residential address, he had actually not done so.

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**3 - 5.0** The result of this omission and revelation, on the part of the Relationship Officer was that the police and the bank itself were unable to trace Kyagulanyi and in effect the money that the plaintiff had paid for purchase of the two vehicles, was lost.

#### **PRELIMANARY POINT OF LAW.**

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^I must first deal with the contention by the defendant that the transaction from which the plaintiff claim'^s for loss and damages arises in this matter, is based on a breach of contract, and is not encompassed under the ambit of the provisions of the Financial Institutions (Anti Money Laundering Regulations 2010) as the plaintiff has claimed.

^I have carefully considered the respective submissions on this point which ^I shall not repeat.

In my view, this case, involves the investigation by the court of how a what was ostensibly a normal transaction for purchase of vehicles between two parties, one being a customer of the defendant, was turned into an unlawful and fraudulent enterprise for monies obtained through false pretense through the medium of an account opened and operated , by the defendant , without prudential verification of the identity and address of the prospective customer as were given, in contravention of the Know Your customer requirements of the said regulations, to the detriment and loss of the plaintiff.

**I** The issues at hand are a determination of whether through due diligence and prudential oversight, the defendant could have prevented the unlawful and fraudulent enterprise from being ^> perpetrated through the medium presented by the defendant, in the ordinary course of its banking business.

These matters certainly fall within the scope of the provisions of the Financial Institutions (Anti Money Laundering Regulations), 2010 that are intended to prevent and curtail, through detection and — reporting to the authorities for investigation, suspicious and unlawful financial transactions from being perpetrated through financial institutions.

# **RESOLUTION OF ISSUES ONE AND TWO.**

**Whether there was negligence on either party. Whether such negligence caused the plaintiff'^s loss.**

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**10** ^I will consider issue no one and two concurrently as they are all interconnected.

In order for a party to succeed upon a claim for negligence, that party must lead evidence to show that;

1) A duty of care was owed to such a party.

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2) The other party is guilty of a negligent act or omission.

3) The party has as a result suffered damage or loss.

4) The damage or loss was reasonably foreseeable.

(See; case of *Manharlal Thakker vs Bahati and another,* Civil Suit No 1028 of 2001).

The resolution of these issues resolves around the omission on the part of the officials of the defendant to verify customer information particulars that were provided by one Kyagulanyi, prior to the opening of an account for Annik Auto care and whether such an omission caused the loss that the plaintiff has suffered.

# **3 Defendant'^s Statutory and Regulatory Duty of Care.**

As a bank, and a Financial Institution the defendant was under an obligation in terms of Rule 5 of the Financial Institutions (Anti-Money Laundering) Regulations, 2010 to develop **"Know Your** *Customer"* rules and procedures.

**3 ¹¹** To this end, the defendant's account opening formalities required the Relationship Officer of the Bank (RO) to complete a Customer'^s Address Verification Form (CAVF) and a Customer Risk Rating Form/Transaction Profile /Customer Profile Form, by interview of the prospective customer, before any account could be opened.

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# **Address for Kyagulanyi Jackson Duggar.**

In respect to the CAVF for Kyagulanyi Jackson Duggar, it was indicated by the RO, that the address that he had visited, on the 24/6/2011, at about ¹¹ am, was Seguku, near Roofing'^s Uganda Ltd.

The RO certified that he was convinced that the said customer resided at the said address.

Upon an attestation of the RO that he had personally visited the said address by appending his signature on the 27/6/2011, the Bank's Operations Manager, Mary Nakibirango, gave approval, on the same day, for the details and information that had been endorsed on the form.

### **Address for Annik Auto Care.**

In respect to the CAVF for Annik Auto Care, the RO indicated that he had visited the office at Wandegeya opposite the Public Service Ministry, of P. O. Box 112234, Wandegeya, Kampala, on 24/6/2011 at about ¹¹ am.

The RO certified that he was convinced that the said customer worked at the said address.

Thereafter, the RO gave an attestation that he had personally visited the address by appending his signature on the 25/6/2011 . In turn, the " Bank'^s Operations Manager, Mary Nakibirango, on the 27/6/2011, gave approval for the details and information that had been endorsed on the form.


#### **Customer Risk Rating form**

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On the Customer Risk Rating Form/Transaction Profile /Customer, Profile Form, the RO, indicated that Annik Auto Care's sources of income and transaction profile were that of a firm engaged in Transport and Car Import and Export, with an investment of Ug 70,000,000/- and rental income of Ugs 2,000,000/- and a Customer ^s AML Risk, total weighted average score of 1.5 out of 3.

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The form does not however give the justification for the customer risk rating assessed by the RO.

*io* Thereafter, the RO made and executed the following declaration which is quite pertinent in the resolution of this case.

**a ■2.0** "As *the Account officer, for the above named prospective customer of the bank , I do hereby certify that ^I have conducted necessary due diligence required to establish the identity , address and nature of business/occupation of the customer with a view to establishing his /her eligibility as an account holder with the bank. On the basis of the information arising my interview and due diligence, I can confirm that my AML risk rating of the prospective customer is appropriate and in line with the bank'^s guidelines."*

The RO further acknowledged that; **3**

*"it shall be my responsibility to continuously monitor the account holders/account activity and to promptly inform the Branch Manager , the Branch Operations Manager and the Compliance Office, if at any point in time, there is any stS significant changes in the status of the account holder (s).l will*

# *also escalate any suspicious transaction(s) identified on the account."*

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In the circumstances, of this case, the defendant must be held accountable for the representations, declarations, attestations and approvals made by its RO, on the bank's own account opening documentation leading up to the opening of the account of Annik Auto Care, as a medium through which the said firm could deal with third parties.

By the defendant opening an account of Annik Auto Care, ostensibly, in compliance with the requirements of Know Your Customer, the defendant, held out to the general public that had dealings with Annik Auto Care, that Annik Auto Care and Kyagulanyi, were known, genuine and bona-fide customers, of the bank and that they were identifiable and traceable,'as such in the ordinary course of the banking business.

On the other hand , the plaintiff, in his dealing with Annik Auto Care and its Managing Partner, one Kyagulanyi, in respect to a purchase of vehicles transaction, with monies being remitted to its account held at the defendant , was entitled to assume and did assume that Kyagulanyi and Annik Auto Care , were known, genuine and bona -fide customers, of the bank, and that they were identifiable and traceable, as such, in the ordinary course of the banking business.

The plaintiff testified that he was quite comfortable to remit the money directly into the Annik Auto Care account, held with the defendant as he assumed that the defendant was a reputable and diligent bank, licensed by the authorities in Uganda, to offer banking service to its customers, that it had verified and knew, prior to their

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accounts being opened and that he could rely on such a representation to transact business with them.

There is no doubt that it was on the basis of these representations that the plaintiff, transacted business with the said Kyagulanyi and Annik Auto Care, respectively.

# **Post Contract Aftermath**

However when the plaintiff was confronted with the possibility that he had been defrauded by Kyagulanyi and the monies were possibly lost, he had the matter reported to the defendant and to the police for investigation and recovery of the monies.

The plaintiff testified as follows on this point.

"...... I filed a formal complaint with the police under case file GEF /1369/2011.

The investigating officers obtained statements from the Bank's employee, Mark Mwirumubi who opened and verified Annik Auto care's account.

During the interrogation Mark Mwirumubi admitted that although he signed the account opening forms to the effect that he had verified the customer's place of business, to be $-20$ opposite Public Service, Wandegeya, and the customer's residence at Seguku after Roofings, he did not physically visit the customer's place of business to confirm its existence.

Other issue of concern is the difference of the two photos used by the so called dealer, Jackson and the apparent Bank

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*refusal to hand over the CCTV specific recordings to the police as per request.*

*The investigating officer summoned Mary Nakibirango and the Legal Officer to make their statements but they did not respond, instead the Legal officer wrote a letter defending their actions and declined to report to police to make a statement.*

*The Legal officer indicated that the employees acted diligently and it was not the Bank'^s mandate to visit customer's places of business.*

*That as a result of the insufficient information, it became difficult to trace for the suspect."*

In respect to this action, the plaintiff maintained that he couldn't pursue a person that had vanished and whose addresses had not been verified and accused the bank of negligence, in not verifying the particulars that Kyagulanyi had provided prior to the Annik. Auto Care account being opened.

In his testimony, plaintiff explained thus;

*"I cannot assume that the account was operating properly. I assumed that the person had properly opened the account. My assumption was that the defendant had followed due diligence in the opening of the account in question."*

*My concern was that it would have been easier to recover my money if the bank had all the details of its customer as expected."*


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is my determination that the defendant owed the plaintiff a duty of care as a party dealing with Annik Auto Care and Kyagulanyi through the medium of an account that it had opened and, operated.

#### **Negligent Omission.**

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As has been determined, the defendant as a financial institution was under a duty of care, not to open an account without verification of the identity, address and the nature of business of the prospective customer.

It should have been apparent to the defendant, at the time the decision whether to approve the opening of an account for Annik Auto Care , was being made , that its statement of particulars submitted to secure its registration under the Business Registration Act, and submitted later to the defendant,(Pex 10(2), gave the residential address for Kyagulanyi Jackson Duggar, a partner , as Kikoni,Makerere Lower that was different for the address of Seguku, near Roofing's (U)Ltd, given by the said Kyagulanyi, in the Customer Verification Forms.

This manifest and glaring discrepancy in the residential addresses of Kyagulanyi on documents in the possession of the defendant which ought to have been detected, prior to the opening of the Annik Auto Care account, the failure of which points to a negligent omission on the part of the defendant.

In respect to the information provided by Kyagulanyi, on the Customer verification documents, **Denis Odongpiny, a Commissioner of Police (PW2),** noted thus; .

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"We *found that the bank did not take due diligence to determine whether their customer was presenting genuine documents or not eg P. O. Box number 112234, Wandegeya.*

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*The irregularities on the account opening documents could be one of the causes of the loss, because if the bank was diligent, by visiting the place/premises of their customer, and to ascertain the status of the driving permit during the time of account opening, the documents would have assisted to help trace the account holder."*

**DW2, Mbabazi Kabyoma Emejeit,** who is the Company Secretary \_ and Head of Legal, of the defendant, testified, in part, as follows;

"We *admit some mistakes in the opening of this account such as.*

~l *1) Visiting the customer's premises. We stated that we had visited the customer premises yet we had not done so. It is crucial and necessary to visit such premises. This is one of the ways the bank examines diligence.*

*The information availed on the form is wrong;*

- *1) The information regarding the customer address visited is wrong.* - *2} The name of the registration is wrong as well.* - *3) The address visited as Seguku customer is wrong.* - *4) The description of address visited as opposite Roofing (U) Ltd is wrong as well.*

Dw2, had in a letter dated 18th August 2011, addressed to the Assistant Inspector General of Police, Criminal Investigation

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Directorate, Police Headquarters, written in response to a request to assist the Police in the investigation of this case, noted thus in part;

".... Mary Nakibirango did not visit the company's offices or Director's home as that is not her duty. None of the Bank officers visited the company offices and residence as it is not a requirement."

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However, Regulation 7(5) of the regulations is quite categorical on the need to verify a prospective customer before an account can be opened.

The rule provides thus;

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"A financial institution shall not open an account for a customer where problems of verification arise in the banking or financial relationship, which cannot be resolved."

Without a check up of the addresses provided by Kyagulanyi, the defendant was unable to determine whether there were problems of verification of the identity , and addresses given and nature of the business as stated, for which the Annik Auto Care account would not have been opened.

It was contended by Dw2, the defendant's Legal Officer, that the customer address verification form and the customer risk rating forms $-20$ are confidential documents only of use by the bank and that the plaintiff was not privy to the customer 's details prior to the conclusion of the purchase transaction in question.

It was contended further, by Dw2, that the mere existence of a bank account with the defendant, should not have induced the plaintiff $-25$

to deal with Annik Auto Care , without due diligence on the plaintiff's ⁵ part.

With respect, it may very well be that these account opening documents are confidential and meant for the bank's own records of its customer.

However under the Regulation 7(a) and (b), the defendant was under a duty to determine Annik Auto Care and Kyagulanyi Jackson Duggar's identity and addresses and nature of business to its satisfaction and to ensure customer records remain up to date and relevant.

Further, under Regulation 7(2), the defendant was obligated to demand and record proof of identity of Annik Auto Care and Kyagulanyi before establishing business relations or conducting transactions such as the opening of the said accounts.

While it may very well be the case that the purchase transaction in question, could have been better handled between the plaintiff and Annik Auto Care, through the engagement of the defendant, such a transaction as was structured does not, in any way, take away the duty of the defendant to know its customer before an account is opened and to provide information, if and when circumstances require, to the law enforcement agencies and the Central Bank, of the identity , address and nature of business of its customers, on the basis of proper verification.

When the need arises for the law enforcement agencies or the Central bank, to trace the identity or address or the nature of the business, of a customer, of any bank, then the customer verification and other account opening documents, if properly, and truthfully

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 executed, became a critical and reliable source of information to assist the authorities in tracing any customer for investigation with regard to any questioned or fraudulent, transaction.

The duty to cooperate with the law enforcement agencies and the Central bank is recognized in Regulation 12(3).

In these circumstances, the claim of the defendant that it was under no duty of care towards the plaintiff as a person dealing with its customer, beyond the mere opening of an account, of such a customer, is untenable.

#### Continuing duty of care.

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In fact, the defendant, in this matter, had a continuing duty of care towards the plaintiff.

This duty of care is acknowledged in the declarations that are required to be made by a Relationship Officer, already reviewed $-15$ herein, wherein the DW3 undertook to escalate any suspicious transactions that come to his notice.

A suspicious transaction as defined in Regulation 1;

"refers to a transaction which is inconsistent with a customer's known legitimate business or personal activities or with the normal business for that type of account, or a complex and $-20$ unusual transaction or complex or unusual pattern of transaction that has no apparent or visible economic purpose."

Transaction with no apparent or visible economic purpose includes;

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*''a transaction which, without plausible reason, results in the intensive use of what was previously a relatively inactive account, such as a customer's account which shows virtually no normal personal or business related activities but is used to receive or disburse unusually large sums which have no obvious purpose or relationship to the customer or his or he business;*

A financial Institution is under an obligation to report a suspicious transaction.

**Regulation 12 of S.1 32 OF 2010** provides thus;

*"(1) A financial institution shall report promptly any knowledge or suspicion of money laundering related to a specific customer or any account held with the financial institution, to the national law enforcement agencies, and shall serve a copy to the Central Bank, using the Suspicious Transactions Report set out in schedule 2 to these Regulations."*

**/** *<2* In this regard and in the circumstances of this case, it should have been apparent to the defendant on the basis of scrutiny of the Barclays Swift Customer transfer documents, in respect to the two remittances made, and tendered in court as Pex 1(1) & 2(2), that the address of the Beneficiary'^s details, who was their customer, with an account that was in use, had an address to wit, Plot 230 Clement Hill Road, that was different from the address that had been provided to the bank on the Customer verification form, at the time of the opening of the account.

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In terms of Regulation 7(1) (c), the defendant was under an obligation to determine whether /mnik Auto care was operating **- ! • 22**

from undisclosed address and whether an update of its customer records was necessary and relevant.

Second, the remittance of the sum of USD 16,000 (Sixteen thousand) (Pex 1(1), was well over the threshold of USD 10,000(Ten thousand), that is categorized as a large cash transaction under Rule 2.

In the circumstances of this case, the defendant's own forms, covering Customer risk rating, Transaction profile, Customer profile that we reviewed earlier on, carry an undertaking for the RO, to continually monitor the account holder and account activity and to escalate any suspicious transaction identified or of any significant $-10$ changes in the status of the account holder.

Third, the remittance of the sum of USD 16,000(about Ugs 41 million) so soon after the account had been opened on 26/6/2011 and in respect to a sum so much more that the sum of Ugs 100,000/- and Ugs 50,000/- respectively, that had been last deposited on the account, cast a duty on the defendant, to escalate this transaction as a suspicious transaction to be reported upon for investigation.

For these reasons, the claim that the defendant had no continuing duty of care towards the plaintiff of any other person or entity, in the operation of its customer's account, is untenable.

I will now consider the effect of an omission by the defendant to verify particulars provided by a prospective customer and whether such an omission constitutes yet another, negligent omission, on the part of the defendant.

The confession of the RO, (Dw3) to the police, that he had not $-25$ visited any of the addresses that Kyagulanyi Jackson Duggar had $\overline{23}$

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provided for the office of Annik Auto care and for his own residential address; before the Annik Auto care account was opened , meant, in practical terms that he was unable to take the police to any of the addresses that he had not personally visited .

Secondly, what the confession of the RO, means is that the certifications attestations and declarations that he executed on the customer verification forms, of Annik Auto Care and those for Kyagulanyi, on the basis of which approvals were made, leading to the opening of an account for Annik Auto Care , were false certification, attestations and declarations by the RO, and the other officials of the defendant that the given addresses had been personally visited, checked and verified ,whereas not.

In effect therefore, the defendant, *did not know* Kyagulanyi or Annik Auto Care, as its customers and the account that was opened and operated by the defendant, without proper verification contravened the requirements of clauses ¹ (a) and (c) , and 2 , of Schedule ¹ , arising from Regulation 7(4) of the Financial Institutions (Anti- Money Laundering ) Regulations 2010 and , ought not to have been opened or operated at all.

The unequivocal confession of the RO in the circumstances of this *-a* case, amounts to reckless and inexcusable conduct on the part of the bank officials charged with the verification of a prospective customer's particulars, before an account is opened and operated for which the defendant must be held accountable.

The risk that the bank assumed on account of the non-verification of - ^A the prospective customer particulars could and should have been altogether avoided with the exercise of due diligence and prudence over the sensitive matter of getting to know your

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customer before an account is opened and getting to know your customer even better, once the account is opened.

### **Failure /Inability to provide information to the authorities.**

**- ⁵** ^I will now consider the effect of failure or inability to provide information to the police and plaintiff that would have helped trace Kyagulanyi Jackson Duggar and Annik Auto Care.

It is the testimony of DW1, Simbwa Moses, an internal auditor with the defendant, that by the time the plaintiff called the bank and talked to him, the sum of USD 21,000 ( Ugs 54,962,500/-) had been withdrawn leaving a sum of Ugs 130,000/-,only, on the account.

It was the evidence of Pw3, D/AIP Joshua Muwanga that the plaintiff had called the police on 8/8/2011 and that they visited the bank on 10/8/2011, to inform the Security Officer of the report of a possible fraud occurrence and were advised to secure a court order to access the account.

Pw3 testified that the court order was secured on the 11th day of August 2011, (Dex 1), and was served upon the defendant on the same date.

Dx3 testifies thus on the status of the account;

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## "On *9/8/2011 there was no money on account equivalent to USD21,000."*

There is no doubt even from perusal of the firm'^s statement of account, Dx2, that the monies in question had all been withdrawn or transferred by Kyagulanyi, by the 9/8/2011, before the first visit of **25**

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the police to the bank and the service of the court order on the 11/8/2011.

With the money having been withdrawn by the time of the service of the court order, upon the defendant, the question which arises is whether the failure to provide the police with information to lead to the arrest of Kyagulanyi, and recovery of the monies is attributable to a negligent omission on the part of the defendant to verify Kyagulanyi's details.

As has been noted herein, the defendant had a duty to report a suspicious transaction and to cooperate -with Law Enforcement . Agencies and the Central bank, under Regulation 12(3).

Under Regulation 10, a duty is cast upon a Financial Institution, to maintain records and for it to comply with information requests from competent authorities.

Under the regulations, there was a duty for the defendant to comply with the police's and plaintiff'^s request for information leading to the arrest of Kyagulanyi which duty was not met and could not be met as the defendant did not know where their customer resided or the location of its office.

### **PLANTIFF'^S NEGLIGENCE.**

It has been contended for the defendant, that the defendant'^s omission to verify its customer details and the resulting lack of information to help the plaintiff to trace Kyagulanyi was not the cause of his loss.

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It has been contended further that the plaintiff acted recklessly in his dealings with the Kyagulanyi and Annik Auto care, his business partners to the exclusion of the defendant and should bear his loss in, those circumstances.

The plaintiff has been quite categorical that he only agreed to enter $\mathcal{S}$ into the purchase transaction of vehicles with Kyagulanyi through the remittance of the monies into Annik Auto Care's account and to no other.

The plaintiff has contended that he assumed and that he was entitled to assume that Kyagulanyi and Annik Auto Care, were $-10$ known, by the defendant, as genuine and bona -fide customers of the bank and that they were identifiable and traceable having been verified as such.

In any event, whatever assumptions that the plaintiff had in the matter, did not take away the solemn duty bestowed upon the $-15$ defendant by the regulations to verify the particulars of a prospective customer before an account was opened.

In this regard, I understand the plaintiff's response to this accusation to be the fact that Annik Auto Care and Kyagulanyi, were in the circumstances of this case, the customers of the defendant, first $-2\sigma$ before they became the plaintiff's business partners.

With respect, I find the defendant's claim that, in the circumstances of this case, it was the plaintiff that was negligent in respect to the loss that he has suffered, to be ridiculous, incredible and pathetic.

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In the result and for the reasons stated, the defendant must be held $-25$ liable for a negligent omission to verify a prospective customer

details and addresses as were provided to it to do so and for providing an account through which a fraudulent transaction was facilitated and perpetrated.

# **Whether the loss that the plaintiff has suffered was as a result of the defendant'^s omission to verify particulars provided by a prospective customer.**

Having held as ^I have that the defendant must be held accountable for the negligent omission to verify its customer's details and address, prior to an account being opened, it follows that the defendant must be held accountable as well for its failure to assist the police with information to lead to the arrest of Kyagulanyi and the possible recovery of the monies he received through the account that ought not to have been opened or operated by the defendant at all.

If the defendant had verified the addresses as had been provided to it and it was able to demonstrate due diligence in so doing, the defendant would have had a credible defense to part of this action regarding the opening and operation of the account, in question.

#### **Whether the foreseeable. loss that the plaintiff suffered was reasonably**

There is no doubt that the RO, as an official of the defendant, knew ^S that the omission to verify the residential address of Kyagulanyi and the business address of Annik Auto Care was known to Kyagulanyi as the prospective customer and was recklessly indifferent to the risk that such an omission and knowledge thereof on the part of Kyagulanyi, posed to the defendant.

It also follows that Kyagulanyi knew that the defendant had not verified any of the addresses that he had provided prior to the opening and operation of the account and that such an omission, provided an opportunity for him to exploit an unsuspecting third party that could be induced into enter into a transaction through the medium of the account so opened as happened in this case.

According to the Law and Practice of Banking Vol 1, Milnes Holden, 5^th Edition at page 394, states that;

"There have been very many cases where a dishonest person has succeeded in opening an account in an assumed name for the purpose of obtaining money to which he was not entitled."

The test for establishing negligence and protecting the bank against fraudulent actions was considered by Lord Warrington in the case of; Lloyds Bank Ltd Versus E. B Savory & Co [1933]AC at p.221

The standard by which the absence, or otherwise, of negligence is to be determined must in my opinion be ascertained by reference to the practice of reasonable men carrying on the business of bankers, and endeavoring to do so in such a matter as may be calculated to protect themselves and others against fraud."

**Lord Wright** said at pg 232 of the same case that;

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"It is argued that......a bank is not negligent if it takes all precautions usually taken by bankers. I do not accept the latter proposition as true in cases where the ordinary practice of bankers fails in making due provision for a risk full known to those experienced in the business of banking."

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**In Lloyds Banks Ltd versus E. B Savory (supra)** it was held at page 231 that;

"If **is now** *recognized to be the usual practice of bankers not to open an account for a customer without obtaining a reference and without inquiry as to the customer'^s standing; failure to do so at the opening of the account might well prevent the banker from establishing his defence "*

In **Principles of Banking Law by Ross Cranstone QC at page 198,** the author states that;

**-***1* **"Know** *Your Customer Rules are sometimes said to impose a duty on Banks to carry out proper due diligence on their counterparts and customers. This seems to be part of the growing trend to make banks statutorily liable for unlawful activities which they facilitate by their operations unless they can demonstrate due diligence."*

**-5** In the result and for the reasons stated, and on the basis of the authorities reviewed, ^I hold that the defendant ought to have foreseen that the non- verification of the particulars of Kyagulanyi and Annik Auto Care, prior to the account being opened, and the fact that such non-verification was known to Kyagulanyi, exposed third parties, dealing with the firm to a risk of fraud and loss, and with a possibility of not being traced.

In the result, ^I find that the plaintiff has proven on a balance of probabilities, that the defendant was negligent in the opening of an account for Annik Auto Care, and in its operation, for which if liable to pay damages to the plaintiff. ### **ISSUE THREE**

# What remedies are available to the parties?

### A) Special damages

- 1) Arising from the loss suffered that the defendant is liable for, I award to the plaintiff, the sum of USD 21,000 (United States Dollars Twenty One Thousand) payable by the defendant, as special damages for the monies that were paid to Kyagulanyi Jackson Duggar, trading as Annik Auto Care through the Defendant. - 2) I decline to award under special damages the sum of USD $-10$ 500 for air tickets per trip for each of the trip that the plaintiff made to Kampala in respect to the this case, in the absence of the travel documents being presented to the court.

### **B) General damages**

$-15$ General damages are awarded at courts discretion and are intended to place the injured party in the same position in monetary. terms as he would have been had the act complained of not taken place. See Phillips versus Ward [1965] I AU ER 874.

Under this head, I award the plaintiff, a sum of USD 6,000 (United States Dollars Six thousand) only, payable by the defendant, to $-20$ cover the trips to Kampala that he had to make, hotel and other related charges incurred, and inconveniencies generally, suffered by the plaintiff, on account of losses suffered and for non-use of the vehicles.

### C) Interest.

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^I award interest at a rate of 15% per annum on the **USD 21,000 (United States Dollars Twenty One Thousand only)** from 2nd August 2011 when the money was lost, for the reasons stated in this judgment, till payment in full.

^I award interest at a rate of 6% per annum on the **USD 6000 (United States Dollars Six Thousand only)** on general damages from the date of this judgment till payment in full.

## **D) Other Orders.**

^I find it imperative in the circumstances of this case, to grant other orders in terms of Section 33 of the Judicature Act and Section 98 of the Civil Procedure Act for the reasons that ^I shall now give.

The plaintiff and police complained generally about the lack of cooperation on the part of the defendant in efforts to trace Kyagulanyi and the possible recovery of the monies lost.

Upon the discovery by the plaintiff and the police while at the bank premises that the photograph of Kyagulanyi Jackson Duggar, availed to the bank as part of the requirements under the Customer Address /Customer Profile forms, was different from the one posted of the said Kyagulanyi Jackson Duggar, on the website that the plaintiff had visited prior to the conclusion of the impugned transaction, heightened the critical need for cooperation and assistance on the part of the bank.

The plaintiff has particularly complained of an apparent refusal of the defendant to avail CCTV footage that would have revealed the true identity of the person, (Kyagulanyi), who withdrew monies from the Annik Auto Care account with respect to the monies lost.

^I have taken into account as well, that the International Driving Permit, that was submitted by Kyagulanyi, as part of the account


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opening documentation, was itself found by the police as not having been issued by the automobile association of Uganda and thus a forgery.

It is my determination that the failure, or refusal or omission on the part of the defendant to cooperate with the plaintiff and the police, in securing the true identity of Kyagulanyi Jackson Duggar, when it could have done so and was required to do so under the law, merits an award of punitive damages in the sum of USD 2000 (United States Dollars Two thousand only) payable to the plaintiff by the defendant.

### E.) Adminstrative Scantions/Reprimands

It is my recommendation as well, in the context of this case and the judgment of the court, that the Bank of Uganda, that has supervisory and regulatory oversight over the defendant as a regulated Financial Institution, under the law, and the Banker's association, consider to impose administrative sanctions/reprimands, against the following current and former officials of the defendant, still engaged as bank officials with the defendant or elsewhere.

### 1. Mark Mwirumubi

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For making false declarations, certifications, and attestations on the Customer Verification/Customer profile Forms that led to the $-20$ approval, opening and operation of the impugned account and the unequivocal confession of this wrong doing on his part, when confronted by the police in the investigation of this matter.

### 2. Mbabazi Kabyoma Emejeit

As Company Secretary and Head of Legal, of the defendant, she $25$ failed to cooperate with the police on the investigations of the fraud and shielded Mary Nakibirango from being interrogated by the

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police, in the investigations undertaken over the fraud that was perpetrated.

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3. **Mary Nakibirango, Bank'^s Operations Manager,** for failing to cooperate with the police investigation in the fraud that was perpetrated as an official who signed on the customer address . verification forms.

# **F.)OTHER RECOMMENDATIONS.**

During the hearing of this case, Mbabazi Kabyoma Emejet, Company Secretary/Head legal and Moses Simbwa , Internal Auditor ,made strenuously efforts to denigrate the purpose , importance and effect of the **"Know** *Your Customer"* rules and procedures as set out in regulation 7 of the regulations , as a risk mitigation and prudential mechanism against bank fraud and money laundering being perpetrated in the banking industry, that, in light of this case, it is recommended that bank officers -/ who make declarations, or certifications or attestations on customer address verification , customer profile forms, or rating forms, that are found to be otherwise than is represented therein, be held to be personally liable as well.

In that respect, the account opening and customer address verification requirements, will cease to be taken lightly or perfunctory by banking officers and the financial institutions concerned.

all **³⁴**

## **G.) Costs.**

**^I** award costs of this suit to the plaintiff.

Orders accordingly.

BENJAMIN KABIITO JUDGE 7/12/2015 $\mathbf{I}$ $\mathsf{E}\mathsf{E}\mathsf{F}\mathsf{S}\mathsf{S} \mathsf{S}$ **ドトイド:** $Hi($ DATE: $\mathbf{1}$ CERTIFIED TRIJE<br>COPY OF THE ORIGINAL $\overline{\phantom{a}}$ $\bar{p}$ $\leq$ $\sqrt{6}$ $\hat{\mathbf{p}}$ $\mathbf{1}$ $\mathbf{1}$ $\mathfrak{I}$ 35 392 $\overline{1}$ $\mathbf{I}$ $\mathbf{1}$

### **THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT KAMPALA (CIVIL DIVISION) CIVIL SUIT NO. 19 OF 2012.**

mody nouhou barry **PLAINTIFF**

#### **VERSUS**

#### **UNITED BANK FOR AFRICA FOR AFRICA (U) LTD DEFENDANT**

### DECREE

This suit coming up for judgment this 7lh day of December 2015 before **Hon.** Justice Mr. Benjamin Kabiito, in the presence of Mr. Aruho Raymond for the defendant an- .n the presence of Mr. John Bulungu for the plaintiff;

#### **IT** is decreed as follows:

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- 1. That the defendant pays to the plaintiff special damages of **US** \$ 21,000.0 (Twenty one thousand United States dollars only). - 2. The plaintiffs prayer for US \$ 500.0 (Five hundred United States dollars only) as special damages for air tickets per trip is declined. - 3. That the defendant pays to the plaintiff general damages in the sum of **US** \$ 6,000.0 (Six thousand United States dollars only). - 4. That the defendant pays to the plaintiff interest on the above special damages of US \$ 21,000.0 at the rate of 15% per annum from 2nd August 2011 till payment in full. - 5. That the defendant pays interest on the above general damages of US \$ 6,000.0 at rate of 6% per annum from date of judgment till payment in full. - 6. That the defendant pays to the plaintiff punitive damages of **US** \$ 2,000.0 (Two thousand United States dollars only). - 7. That a recomendation is made to Bank of Uganda and the Uganda Bankers, Association to impose admistrative sanctions/reprimands against Mark Mwirumubi, Mbabazi Kabyoma Emejeit and Mary Nakibirango.

2015. GIVEN under my hand and seal of this Hon. Court this **REGISTRAR** 8. That the defendant pays costs of this suit to the ^P,air^j day of. **i r.-**

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Raymond Aruho & Co. Advocates,<br>5^th Floor, suite R.10, Namaganda Plaza, $\cdot$ Plot 14 Luwum Street, P. O. Box 33895, Kampala.

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