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Shocking Details About Mauritian Company Running Ugandan Mobile Banking Operations Revealed

Paul Mbugua of Electics is ABC's group MD

Uganda’s Agent Banking App Copyright Theft Scandal

The adage that “A prophet is not without honor save in his own country” rhymes with what is going on in the Ugandan mobile/online banking sector, where the original investors of the technology were sidelined in favor of a company based in Mauritius.

A story is told of how a few individuals within the banking Sector under their Uganda Bankers’ Association (UBA) entrusted the running of Uganda’s online/mobile banking to Electics International Ltd – a company based in a known tax haven – Mauritius, frustrating Nicholas Lugonjo and Henry Owarwo Mugumya who had demonstrated to 12 banks how this technology works.


Lugonjo and Owarwo have already sued the 12 Banks in Uganda and the case is still ongoing at the High Court Commercial Division.
The banks locked in this scandal include: Centenary Bank, dfcu, Finance Trust Bank, Barclays Bank (now ABSA), Kenya Commercial Bank (KCB), Stanbic, Exim, Diamond Trust Bank (DTB), and Equity Bank. Others are Bank of Africa, Housing Finance Bank and post bank (U) Limited.

Finance Trust’s Anne Nakawunde Mulindwa is also a director of ABC


It has however emerged that as the case lags on, the banks have started encountering losses and other mishaps which the plaintiffs (Lugonjo and Owarwo) attribute to misapplication of their technology by the banks.
The decision to sideline Ugandans in favor of a Mauritian company has left Bankers and legal gurus wondering why bankers who are supposed to protect savers’ money and who are presumed to be highly knowledgeable with tax legal regimes would take such a decision.
In this analysis, we bring you part of the plausible explanations. Read on.

Details
For starters, the originators of the technology in Uganda claim that after they registered their copyright on the technology, they visited different banks to interest them in the technology. After appreciating it, the banks through their umbrella body – UBA, chose to circumvent them and instead register a company called Agent Banking Company of Uganda Limited (ABC) and made it a subsidiary of Electics International. It is now this company that is running the agent banking operations in the country, with Electics probably managing the technology aspects.


The plaintiffs argue that the 12 Banks simply co-opted Electics as a way of circumventing them (innovators). “They definitely could have sold our idea to Electics, relying on the disclosures that we did to them in the meetings we had with them; that’s why we want them tried for copyright and intellectual property rights infringement,” the plaintiffs said.

At the moment, we haven’t been able to get any direct evidence linking the loss so far occasioned to depositors and reputation damage banks are facing to either ABC, UBA or Electics International, but we can only hold them accountable by virtue of their shareholding and registration as direct managers and controllers of the Mobile/Agent banking service.

Centenary Bank’s Fabian Kasi is a director of ABC

About Electics International

Records from the Registrar of Companies shows that Electics International is domiciled in Mauritius on address, 4th Floor, Unicorn Centre, 18, Frere Felix de Valois Street Port Louis, Mauritius. However, particulars of its seal indicate another address as Electics International Ltd, 2nd Floor, the axis, Cyebercity, Ebena 72201, Mauritius. However, a remote Google search shows that Electics is based in Kenya, which leaves one wondering which one of these companies is dealing with the Ugandan Agent Banking Company and Uganda Bankers’ Association to run Uganda’s online banking. Also one would wonder why a Company would have its physical address different from its seal.

That aside, the people registered as Managing Directors for this Company are; Paul Mbugua (Group MD) and Sebie A. Sultan (Deputy MD) who are both Kenyans. This may mean that the Kenyan company could be an associate or subsidiary of the one in Mauritius or vice versa. Though there is no bar for any Kenyan or any other national to register a company in Mauritius, with the recently inaugurated Nairobi International Financial Centre (NIFC), Kenya is emerging as a regional tax haven.

This means companies in tax havens may register Kenyan subsidiaries and then rip off Ugandans using the benefit of trade partnerships such as Free Trade Zone and Double Taxation Agreements. This, analysts say, has made Kenya increase Uganda’s vulnerability to Illicit Financial Flows. Statistics show that annually, Uganda loses US$115m (Shs405bn) to IFFs and this is majorly through misinvoicing of trade, Money laundering, and Corruption; with Kenya and Rwanda listed as trading partners most responsible for this.

The Tax Haven equation
https://www.investopedia.com defines a tax haven as a country that offers foreign businesses and individuals minimal or no tax liability for their bank deposits in a politically and economically stable environment. They have tax advantages for corporations and for the very wealthy, and obvious potential for misuse in illegal tax avoidance schemes. It says companies and wealthy individuals may use tax havens legally as a means of stashing money earned abroad while avoiding higher taxes in the U.S. and other nations. The Urban dictionary; www.urbandictionary.com/ puts it more plainly thus: Tax haven is a country in which big companies like Facebook or Microsoft or any other business giant deposit their profit for tiny prices to avoid taxes, whereas you work your ass off to revive the economy.


In other words, Tax Havens are used to hide money from tax authorities at home and this is guaranteed by those countries being uncooperative with foreign tax authorities. According to the Tax Justice Network, companies registered in tax havens are associated with many challenges to countries. The most prominent however is enabling Illicit Financial Flows. This is majorly through aiding tax avoidance by companies associated with them and also by making it easy for some companies to practice Misinvoicing of trade, Money laundering, and Corruption.


So Electics’ incorporation in Mauritius – a known tax Haven, raises some concern because in case of any financial flaws in online banking in Uganda, it will be next to impossible to access any details of transit or any information that the investigators may need to bring the culprits to book. This is because tax haven companies enjoy business Secrecy conferred upon them by laws and regulations in countries where they are domiciled. It may therefore make it difficult to get information regarding customers’ deposits in case such money loss has a bearing on Electics.


According to the Illicit Financial Flows Vulnerability Tracker by the Tax Justice Network, such secrecy is not just about tax but also covers fraud, tax evasion, escape from financial regulations, embezzlement, insider dealing, bribery, money laundering, inequality, etc. If we consider this, then it also means in case the lost deposits in Uganda are laundered to the Mauritian tax haven, then the secrecy laws will make it impossible for any affected to trace the fate of their money.

Ugandans at the Center
Records from the registrar of companies show that on July 21, 2017, three MDs of local banks were appointed as directors of ABC, with Uganda Bankers’ Association and Electics International being listed indeed as the company’s ‘Corporate Directors’. The appointed individual directors include: Centenary Bank MD Fabian Kasi (Managing Director), Anne Nakawunde of Finance Trust Bank (Managing Director), and Wilbroad Humphrey of Uganda Bankers Association (Executive Director). The other two are the MD and Deputy MD Electics International; Mbugwa and Sebi already highlighted above.

Bankers’ Body Speaks
In a statement released towards the end of last month, the Uganda Bankers Association claimed that Agent Banking Company of Uganda (ABC) has no individual shareholders as had earlier been indicated in several media reports. “The Agent Banking Company of Uganda, is a special purpose industry vehicle duly incorporated as a Joint Venture Company with TIN No.101064056 between UBA and Electrics International, a regional based ICT company providing various banking technology solutions to over 250 financial institutions across 26 countries in Africa.

These two institutions to-date are the registered shareholders of the Agent Banking Company of Uganda,” reads in part the statement before going into details of the mandate of UBA and Electics. They further attribute three Ugandan bank directors’ registration as shareholders of ABC to the fact that at that time, those three were the executive committee of the Association that was overseeing the roll-out of Mobile/Agent banking in Uganda.

The Court Case
Court documents seen by the Inspector show that on April 23, 2019, the two tech wizards; Nicholas Lugonjo and Henry Owarwo Mugumya dragged these banking institutions to court seeking damages and revocation of their banking agent services over gross copyright theft and infringement of intellectual property rights. Particulars of the case indicate that after years of grueling research, Nicholas Lugonjo developed a computer software that he intended to use to develop the banking sector. He then submitted it to the Uganda Registration Services Bureau (URSB) and after undergoing the requisite testing and investigations, it was on May 9, 2012 granted a copyright certificate No. 13 of 2012. According to the certificate, Lugonjo’s software was codenamed ‘POS BANKING’.


Under the copyright and neighbouring rights act 2006, it is described as “A system and method for conducting agent assisted financial transactions that include withdrawal, deposit, transfer, balance inquiries and statement printing utilizing a magnetic strip card, mobile Point of Sale (POS) device running a point of service application running over a mobile communication network”.


“In 2013 I approached the 12 banks intending to interest them into buying my copyrighted innovation with a view of earning a profit from it. I held meetings with the banks, during which they asked me to fully disclose the nitty-gritty features and operation of my innovation, which I did,” he states.


However, Lugonjo would get a shock of his life after the banks turned him away, showing no interest in his works. He however continued improving the software and even went on to develop other innovations. But for proper management of his works, he assigned the management of POS BANKING and his other copyrights to Henry Owarwo Mugumya; issuing him with a certificate of assignment on March 19, 2019.


The plaintiffs claim that armed with full ‘constructive knowledge’ of their software the defendants (12 banks) decided to shortchange these innovators by registering their own company; Agent Banking Company of Uganda (ABC) to duplicate the POS software. To actualize this, they teamed up and reportedly began to lobby for the inclusion of Lugonjo’s idea into Uganda’s banking sector. This was then achieved when the financial institutions (agent banking) regulations were enacted in 2017. The software was then rolled out under ‘AGENT BANKING’ as opposed to Lugonjo’s initial ‘POS Banking’. This case remains unresolved at the High Court Commercial Division before Justice Jean Rwakakoko.

Losses So far

Lately, there have been increased reports of bank customers losing millions in deposits on mobile (agent) banking platforms mainly through cyber-attacks as hackers overrun the banking app, network issues or total/delayed reconciliation failure. According to the government-owned New Vision newspaper, some of the profiled customers include Sharon Christine Abenakyo and Moses Mwanje who lost Shs1,040,000 and Shs43m respectively, which was mysteriously withdrawn from their accounts in Equity Bank. During a recent Financial Technology Service Providers’ Association (FISTPA) conference, sector players including banks, telecoms and aggregators attributed the problem to operational challenges.


In fact the Banks have already admitted to the challenges. For instance, on September 1, 2021, Stanbic issued a statement threatening to deal with Bank agents under whose management the losses were incurred.


“Stanbic Bank Uganda has countered fraudulent activity by a few of its banking agents aimed at defrauding the bank through a process flow error that affected some third-party agent banking transactions… In liaison with law enforcement, the bank is undertaking measures aimed at recovering from the implicated agents who sought to benefit from the error by retaining funds that should have been remitted to the bank,” the statement read in part. The same glitch was experienced by DFCU bank where many of its customers who had taken loans with the Mobile Banking platforms and cleared before the due date had their money taken but reconciliation was not done and the system kept sending demand messages to the said customers. As of yesterday, many DFCU customers were still demanding that reconciliations on their mobile/online banking transactions be made without any success.


According to the Uganda Police crime report for 2020, 256 cybercrime cases were reported compared to 248 cases in 2019 and 198 in 2018, representing a 63% jump in two years. In all these, over Shs15.9b was stolen in 2020 compared to Shs11.9b stolen from commercial banks and telecom companies through fraudulent mobile transactions in 2019.

Watch this space!!
NB: for any comments on this story, contact: info@theinspector.co.ug or 0701822301

Tags : AGENT BANKINGFINANCE TRUST BANKHENRT OWARWOMakerere UniversityNICHOLAS LUGONJO
RICHARD KINTU

The author RICHARD KINTU

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