www.pwc.com/ Project Nyonyi Report on the Preliminary Forensic Review at Crane Bank December 2016 Strictly Private & Confidential The Executive Director Supervision Bank of Uganda Plot 37/ 43 Kampala Road P.O Box 7120 Kampala 21 December 2016 Dear Madam Subject: Report on the preliminary investigative and forensic review services at Crane Bank Uganda Ltd PricewaterhouseCoopers Uganda Limited (“PwC”) has performed certain services to assist Bank of Uganda (“BoU”, “Client” or “you”) in providing forensic services into specific concerns raised in relation to Crane Bank Uganda Ltd (“CBL” or “the Bank”). Our services were performed and this Report was developed in accordance with our engagement letter dated 28 October 2016 (“LoE”) and are subject to the terms and conditions included herein. Our services were performed in accordance with the scope and terms set out in the LoE. The procedures we performed did not constitute an examination or a review in accordance with generally accepted auditing standards or attestation standards. Accordingly, we provide no opinion, attestation or other form of assurance with respect to our work or the information upon which our work was based. We did not audit or otherwise verify the information supplied to us in connection with this engagement, from whatever source, except as may be specified in this Report. Our work was limited to the specific procedures and analysis described herein and was based only on the information made available through 20 December 2016. Accordingly, changes in circumstances after this date could affect the findings outlined in this Report. This Report and all PwC deliverables are intended solely for BoU for your internal use and benefit and are not intended to nor may they be relied upon by any other party (“Third Party”). Neither this deliverable nor its contents may be distributed to, discussed with, or otherwise disclosed to any Third Party without the prior written consent of PwC. PwC accepts no liability or responsibility to any Third Party who gains access to this deliverable. We appreciate the opportunity to assist you with this matter. Yours faithfully, Francis Kamulegeya Director, PricewaterhouseCoopers Limited PricewaterhouseCoopers Limited, Communications House, 1 Colville Street, P. O. Box 8053, Kampala, Uganda, Company Number 37792 T: +256 (414) 236018, +256 (312) 354400, F: +256 (414) 230153, www.pwc.com/ug Directors: C Mpobusingye D Kalemba F Kamulegeya U Mayanja A Eriksson# K Muchiru# RK Shah# (# Kenyan) PwC Important Notice: This report has been prepared solely for BoU for use in considering immediate steps to safeguard Crane Bank’s interests and the additional investigative and evidence collation work that is required on key areas of concern to enable the preparation of a report that can be adduced as evidence in a court of law. Confidentiality: This report has been prepared for the exclusive use of BoU. The contents of this report may not in whole or in part, be copied, quoted, referred to, disclosed or disseminated to any other party without our prior written consent. It is imperative that the contents of this report remain strictly confidential until the recommended additional investigative steps are concluded and relevant evidence is secured. PwC Table of Contents Glossary of Terms 7 Terms 7 Individuals interviewed 8 Individuals 8 List of Figures 9 List of Tables 9 Executive Summary 12 A. Introduction 12 B. Summary of findings of wrongdoing 13 B-1. Shareholding irregularities 13 B-2. The 2012 transfer of branch ownership 14 B-3. Accounting misstatements and the 2014 overstatement of fixed assets 15 B-4. Cash extraction through fraudulent IT payments 16 B-5. Review of loans and advances 17 C. Analysis of the financial impact of the noted irregularities 19 D. Assessment of corporate governance 20 E. Preliminary culpability assessment and options analysis 22 E-1. Assessment of culpability 22 E-2. Options analysis 24 F. Recommended next steps 26 Immediate next steps 27 Introduction, objectives and scope 29 A. Introduction 29 A-1. Purpose of the Report 29 A-2. Structure of the Report 29 B. Scope of work, methodology and work done 30 B-1. Scope 30 B-2. Methodology and work done 31 B-3. Sources of Information 32 B-4. Limitations 32 Background 36 A. Background to CBL 36 A-1. Ownership and leadership 36 PwC A-2. Growth 41 B. Background to our review 42 Reviews prior to 20 October 2016 42 Detailed Findings 45 A. Introduction 45 B. Shareholding irregularities 45 B-1. The source of funds for the procurement of CBL shares by Mr Kantaria 45 B-2. The destination of dividends payable to Mr Kantaria 50 B-3. The ownership and management of White Sapphire 51 B-4. The level of Mr Kantaria’s involvement in the affairs of CBL 52 B-5. Legal assessment 53 C. The 2012 transfer of branch ownership 54 C-1. Background to the transfer 54 C-2. Assessment of the facts around the transfer 55 C-3. Legal assessment of the transfer 58 D. Accounting misstatements and the 2014 overstatement of fixed assets 60 D-1. Irregularities in loan impairment 60 D-2 High percentage of interest income over total advances 61 D-3. Spike in Land and Buildings in 2014 - Interdico 64 D-4. Analysis of legal implications 73 E. Cash extraction through fraudulent IT payments 74 E-1: Acquisition of Bank Master 76 E-2. Additional payments made to TA for software in March and September 2013: 77 E-3. Acquisition of the T24 CBS 78 E-4. Ownership of Technology Associates 81 E-5. Legal analysis of the payments 82 F. Review of loans and advances 83 F-1. Noted patterns of irregularities in loans and advances 83 F-2. Analysis of the top customers with outstanding loans 91 F-3. Further detailed review of select loan accounts 92 Amina Moghe 92 Mohammed Ali Accounts 98 John Bosco Muwonge / Boost 102 Logic Real Estates and Developers Limited 104 F-4. Written off loans 106 1. Megabells Electronics (U) Limited. 107 2. Infinity Investments Limited 108 3. Ssebaggala & Sons Electro Centre. 110 PwC F-5. Analysis of securities and recovery options 113 F-6. Legal implications 114 G. Assessment of corporate governance 115 G-1. Assessment of the approved guidelines for the Board, its committees, and senior management 115 G- 2. Assessment operations of the Bank against the requirements of the FIA and FIA Regulations 123 Preliminary culpability and options assessment 128 A. Culpability Assessment 128 The CBL Board 128 Dr Sudhir Ruparelia 136 Mr Rasiklal Kantaria 139 Mr A R Kalan 139 Mr Ajay Kumar 140 Mr Vivek Sharma 141 Rakesh Gupta 141 Meera Investments Limited 142 Girisch Nair 142 Mr Nitin Vekaria 143 Specific Borrowers 143 B. Options analysis 144 Recommended next steps 146 A. Civil and Criminal Action 146 B. Further investigative work 146 Immediate next steps 149 Closing Statement 150 PwC Glossary of Terms Terms Table 1 - Glossary of terms Term Definition A1 A1 Construction Limited Advocates Act The Advocates Act, Cap 267 laws of Uganda ALCO Asset and Liability Management Committees Anglo Universal Anglo Universal Holdings Limited AML Act The Anti-Money Laundering Act, 2013 Anti-Corruption Act The Anti-Corruption Act, 2009 BoU Bank of Uganda Bowmans Bowmans Uganda, AF Mpanga Advocates CBL or “the Bank” Crane Bank Uganda Limited CBRL Crane Bank Rwanda Limited CBS Core Banking System CFS Crane Financial Services Companies Act The Companies Act, 2012 laws of Uganda FIA Financial Institutions Act, 2004 as amended Interdico Interdico (U) Limited IPO Initial Public Offer IT Information Technology KCCA Kampala Capital City Authority LC Letter of Credit LoE Letter of Engagement Ltd Limited MD Managing Director MIL Meera Investments Limited Megabells Megabells Electronics (U) Limited Misys Misys International Banking Systems NBC National Bank of Commerce OD Overdraft Penal Code The Penal Code Act Cap 120 laws of Uganda Premier Premier Commodities Limited PwC PricewaterhouseCoopers RFP Request for Proposal RTA Registration of Titles Act Ssebaggala Ssebaggala & Sons Electro Center Limited TA Technology Associates Limited Temenos Temenos Africa (PTY) Limited TT Telegraphic Transfer USE Uganda Securities Exchange URA Uganda Revenue Authority URSB Uganda Registration Services Bureau Veksons Veksons (U) Limited White Sapphire White Sapphire Limited PwC Individuals interviewed Table 2 - List of individuals interviewed Individual Full name and designation Mr Nair Mr Girisch Nair, Chairman Technologies Associate Limited Mr Sharma Mr Vivek Sharma, CBL Mr Gupta Mr Rakesh Gupta, CBL Finance Manager Mr Opio Mr Peter Opio, CBL Branch Manager Operations Mr Syed Mr Zaki Syed, CBL Senior Manager IT Mr Siva Mr Sivanandam Ramasami, CBL Senior Manager International Mr Jugdish Mr Srivastava Jugdish, CBL Head of International Mr Nitesh Mr Nitesh, Accountant Veksons Mr Deepak Mr Deepak, Accountant Veksons Mr Raza Mr Syed Anwar Raza, CBL Executive Director Operations and Services Mr Karama Mr Umar Karama, CBL Senior Manager Operations Ms Komuhenda Ms Lilian Komuhendo, CBL Banking Assistant Mr Nayak Mr Srinivas Nayak, CBL Company Secretary Mr Mutunga Mr Samuel Mutunga, CBL Senior Manager IT Mr Kiza Mr Ahmed Kiza, CBL Senior Manager Credit Individuals Table 3 – List of individuals Name Full names and designation Dr Ruparelia Dr Sudhir Ruparelia, CBL major shareholder and Vice Chairman Mrs Ruparelia Mrs Jyotsna Ruparelia, owner of Meera investments Mr Kantaria Mr Rasiklal Kantaria, CBL Director Mr Kalan Mr A. R. Kalan, CBL Director and Former MD Mr Kumar Mr Ajay Kumar, CBL Director and Former Deputy MD Mr Sharma Mr Vivek Sharma, CBL Former Director and Head of Finance Mr Gupta Mr Rakesh Gupta, CBL Finance Senior Manager Mr Nair Mr Girisch Nair, Chairman of Technology Associates Mr Vekaria Mr Nitin Vekaria, Proprietor of Veksons Mr Nagrecha Mr Jagdish Nagrecha Mr Kirumira Mr Godfrey Kirumira Mr Ali Mr Mohammed Ali Mr Sahai Mr Suneet Sahai, MD Technology Associates Mr Yoosuf Mr Mohammed Yoosuf, Director Infinity Investments Ms Ajay Ms Valentina Ajay, Dr Ruparelia’s Personal Assistant and Infinity Investments Company Secretary Mr Tharani Mr Azim Tharani, MD of Goldstar Insurance Mr Sanghani Mr Jitendra Sanghani, CBL Shareholder Ms Moghe Ms Amina Moghe Mr Nabukeera Ms Christine Nabukeera Mr Gupta Mr Manish Gupta, CBL Head of Credit Mr Nagarajan Mr V.