Chimp Investigations Team
On July 19, 2010, Mahmoud Barwani and Mohammed Yoosuf, all known to embattled Ugandan businessman, Sudhir Ruparelia, decided to open a company in Kampala.
The company was named Infinity Investments Ltd. The duo would be directors in their new outfit.
Four days after opening the company, (July 23 2010), the two directors drove to Crane Bank where they applied for credit facilities in the form Direct Loans ($2.5m, Shs 5.8bn) and Over Draft (OD) Shs 1bn.
The proposal to the bank’s loan committee for sanction was made on August 14, 2010.
The securities offered against these facilities were Plot M589, Mukabya Road, Plot 1-5, Cornwall Crescent, Plot 45-65, Mpanga Close, Plot M539, Mpanga Close, Plot 880, Industrial Area and Plot M876, Industrial Area.
According to confidential records of Crane Bank contained in an updated and detailed forensic audit report sent to Bank of Uganda, search reports for plots M876 & M880 were received on August 13, 2010.
A day later, a sanction letter was issued (August 14, 2010).
On September 30, 2010, the massive loans were disbursed to Mahmoud Barwani and Mohammed Yoosuf.
Yet, earlier in 2007, lawyer Kiwanuka, Karugire Advocates and Solicitors to Crane Bank had clearly pointed out that Plot 1-5, Cornwall Crescent and Plot M589, Mukabya Road were encumbered by wayleaves such as high power transmission lines that traversed the properties.
Basing on the lawyers’ report, the remaining securities tendered by Infinity’s directors, were not sufficient to cover the bank’s exposure.
Despite this knowledge, Crane Bank accepted these plots as securities.
The credit policy defines bank lending as purpose-based and not-security based. Security is meant to cushion to fall backing face of adversity.
However, Crane Bank continued to advance facilities to Infinity despite clear indications that there was no business in place to warrant the facilities.
Interestingly, when the loans were disbursed, cheques for Shs 6.1bn and $2.68m were drawn in the name of Mahmud Barwani and money deposited on his personal account.
Auditors discovered that Infinity Company had not provided a registered office location at the time of registration and the company secretary at the time was Valentine Ajay, a personal secretary of Sudhir Ruparelia.
The company was never registered for tax hence did not pay tax or file annual returns until 2014.
By setting up an overdraft position which allowed it to put in place standing orders to repay loans’ principal interest from its current accounts, Infinity created an illusion that the loans were performing despite there being very little net cash flow from outside.
On April 1, 2011, the limit for OD increased from Shs 1bn to Shs 2.5bn.
Six months later, Infinity’s credit facilities were renewed and a withdrawal of Shs 1.4bn via cheque number six was made and funds ended up in Barwani’s personal account.
There was a dramatic turn in May 2012 when Crane Bank released the securities and in turn reduced the Shilling OD limit from Shs 2.5bn to Shs 0.7bn. At the time, Infinity was Shs 147m above the new limit.
Auditors said this “left Crane Bank at a weaker position as security coverage dropped to 67 percent.”
On November 2, 2012, the credit facilities were renewed (direct loans $2.42m, Shs 5.61bn and OD Shs 0.75bn) despite arrears of Shs 415m and $66,000 in accounts.
Thereafter, it appears a bailout was given to the company to normalize its accounts.
On November 11, 2012, $86,890 and $126,122 was transferred from Infinity’s USD current account to Shillings loan account to clear arrears in these accounts.
Auditors discovered that the “funds for the transfer had come from a cash deposit of Shs 200,000 by Mohamed Ali and a transfer of $200,000 from Meera Investments Limited.”
Mohamed Ali was a director Premier Commodities and a very close associate of Sudhir Ruparelia.
Indeed, on January 6, 2014, Infinity’s credit facilities worth Shs 12bn were renewed.
Lack of registration details
In April 2014, Oundo & Co Advocates told Crane Bank that Infinity’s mortgage charges could not be registered because documents for several plots were “missing at the files registry.”
A month later, MMAKS Advocates informed Crane Bank that Infinity had never filed annual returns and hence debenture and board resolutions could not be registered.
Investigators observed that it was not a surprise when Crane Bank, 11 months after renewing Infinity’s credit facilities amid mysterious circumstances, requested for payment of facilities advanced to infinity.
“As at then,” said PwC auditors, “Crane Bank’s exposure with Infinity stood at Shs 8.148bn and $3.56m.”
Eventually, the audit report indicated, on December 12, 2014, “Crane Bank wrote off 3.5m and Shs 8.2b advanced to Infinity, making up 20 percent of all write-offs to date.”
The revelations underscore how Crane Bank’s failure to adhere to its credit policy and banking rules led to an accumulation of non-performing loans and erosion of capital before grappling with a liquidity crisis.
As at June 2016, Crane bank’s non-performing loans stood at 14.5 per cent, nearly twice the market average of 8.3 per cent.
The auditor’s fresh finding appear to counter Crane Bank’s claim that its liquidity challenges were caused by a poor economy that suffocated many of its borrowers who failed to service their loans.
Auditors used the example of Infinity to show a long standing pattern of Crane Bank’s dubious loan policy that saw newly formed companies advanced large sums of money barely a week after they had been formed.
Aureco Investments Limited owned by Amina Moghe received billions of shillings eight days after application for a loan.
Auditors implied that Crane Bank’s problems were compounded by advancing loans to companies “even though it should have been clear that there was no business of any kind being conducted by the companies in question.”
For Infinity, Crane Bank waivered the requirement that applicants should have banked with it for 6 months or provide statements from other banks before advances are made to them.
“The same is true for loans to Minutan and Aureco which were justified on the basis of the property held by the promoters,” the audit report reads in part.
Legally, experts advised that borrowers and Crane Bank officers should be “investigated for the charges of embezzlement and conspiracy to defraud under the Anti-corruption Act and the Penal code respectively.”
In the case of Sudhir who owned the bank, the audit report recommended that he should face charges of conspiracy to defraud; making false or misleading statements; embezzlement; causing financial loss; receiving stolen property; influence peddling and nepotism among others.