ELECTRONIC BANl

UGANDA

THE MODES, RISKS AND THE LEGAL CHALLENGES OF ELECTRONIC

BANKING

BY

MUl

LLB/42113/91/DU

A RESEARCH DISSERTATION SUBMITTED TO THE BOARD OF EXAMINERS IN

PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF A

BACHELORS DEGREE OF LAWS AT INTERNATIONAL UNIVERSITY. DECLARATION

I MUKASA CHARLES declare that this research paper is my original work and has never at any one time been submitted for any award in any university or institution.

Signed

MUKASACHARLES APPROVAL

This research report has been submitted for examination with my approval as a university supervisor

Approved by

...... ~ ~ ......

JOSEPH KYAZZE

(Supervisor) e!jlb ~ ~I~ Date ......

ii DEDICATION

I dedicate this dissertation to my parents, "MAAMA ROSE NASSOZI SSEMUJU" and my dear Father "TAATA JOSEPH SSEMUJU" (RIP), who have always been there to support me in anything I do. My Aunt HAJATI FARIDA NANOONO for the endless Love you have exhibited to me ever since I came into this world and the great support towards my academic carrier, may the almighty reward you abundantly.

iii ACKNOWLEDGEMENT

My acknowledgements go to the almighty GOD who was always by my side since I started my course up to date.

My dear classmates and good friends, Opio Richard, Okoth Ronald, Kizito Tonny, Muhumuza Bashir, Adrupio Gloria, Charity Maiia 0, Mbeganye Wim1ie, Njoroge Jill, Silla Jackline, Nakiranda Phiona, Atuhairwe Nicholas, Biryomumeisho Blazio ,Luzinda Bernald ,Haguma Diana, Bukenya Hassan, Kaiiuki Caroline Wangui, Atuhairwe Phiona, Njuguna Margaret, Nicholas my Class head and all my class members, especially those who belonged to my discussion group for all the assistance they rendered to me throughout my LLB Course that led me to the wiiting of this thesis. Thank you so much for being there for me!

In a special way I acknowledge my sweet 'Berbie' BALISANYUK.A BARBRA for the endless company and materi:11 support she offered to me throughout, I will always can·y you · on!

My supervisor MR. JOSEPH KY AZZE for being such a mentor to me, I wish you the best Sir and thank you so much for the services rendered.

Finally to my brothers and sisters for your support which can never be quantified. Thank you so much, may God bless you all.

iv ACRONYMS

BOU BANK OF

CAP CHAPTER

CRB CREDIT REFERENCE BUREAU

E-BANKING ELECTRONIC BANKING

E-COMMERCE ELECTRONIC COMMERCE

EFTA ELECTRONIC FUND TRANSACTION ACT

FIA FINANCIAL INSTITUTIONS ACT

FTC FACTS FOR CONSUMERS

IDS IDENTIFICATION DOCUMENTS

KCB KENYA COMMERCIAL BANK

MAGSTRIP MAGNETIC STRIP

MITB MAN-IN-THE-BROWSER

MR MISTER

PHD DOCTOR OF PI:-IYLOSOPHY

QB QUEEN'S BENCH

SMS SHORT MESSAGES SERVICES

U.K UNITED KINGDOM

V LIST OF LEGISLATIONS

The 1995 Constitution of the Republic of Uganda

The Financial Institutions Act 2011

The Computer Misuse Act201 l

Electronic Transactions Act 2011

Electronic Signatures Act 2011

Bank of Uganda Financial Consumer Protection Guidelines, 2011

The Financial Consumer Protection Guidelines, 2011

vi TABLE OF CONTENTS

DECLARATION ...... i

APPROVAL ...... ii

DEDICATION ...... iii

ACKNOWLEDGEMENT ...... iv

ACRONYMS ...... v

LIST OF LEGISLATIONS ...... vi

TABLE OF CONTENTS ...... vii

ABSTRACT ...... ix

CHAPTER ONE ...... •...... 1

1.1 Introduction ...... 1

1.2 Background of the Study ...... 2

1.3 Statement of the problem ...... 4

1.4 Objectives of the Study ...... 5

1.4.1 Specific Objectives ...... 5

1.5 Hypothesis ...... 5

1.6 Significance of the Study ...... 6

1.7 Scope of the study...... 7

1.8 Literature Review ...... 8

1.9 Methodology ...... 17

1.10 Synopsis ...... 18

CHAPTER TWO ...... 19

2.0 The Modes of Money Transfer under Electronic Banking ...... 19

2.1 Introduction ...... 19

2.2 Automated Teller Machines (ATM) ...... 19 2.2.1 Using an ATM Machine ...... 20

2.2.2 Merits of ATM Machines ...... 21

2.2.3 Risks associated with ATM machines ...... 22

2.3 Online banking/ Internet banking/ E-banking ...... 24

2.3.1 Merits of Online banking ...... 25

2.3.2 Risks associated with online banking ...... 26

2.4 Telephone Banking/ Mobile Banking ...... 27

vii 2.4.1 Merits of Telephone Banking ...... 28

2.4.2 Risks of telephone banking ...... 29

2.5 Home Banking ...... 31

2.5.1 Merits of Home Banking ...... 32

2.5.2 Risks of home banking ...... 33

CHAPTER THREE ...... 36

3.0 The Legal Frame Work Governing Electronic ...... 36

3.1 Introduction ...... 36

3.2 Enactment of the Law ...... 36

3.2.1 The Computer Misuse Act 2011 ...... 36

3.2.2 The Electronic Signatures Act 2010 ...... 37

3.2.3 The Electronic Transactions Act 2011 ...... 37

3.2.4 The Brnk of Uganda Fi'lancial Consumer Protection Guidelines, 2011...... 38

3.4 Relevancy of the laws ...... 38

CHAPTER FOUR ...... 46

4.0 The Legal and Practical Challenges of Electronic Banking in Uganda ...... 46

4.1 Introduction ...... 46

4.1.1 Electronically generated evidence ...... 46

4.1.2 Contract Laws ...... 46

4.1.3 lncomprehensiveness of the available law ...... 47

4.1.4 Criminal liability...... 47

4.1. 5 Jurisdictional impediments ...... 49

4.1.6 Money Laundering ...... 49

4.1.7 Credit and Debit Card Frauds ...... 50

4.1.8 Privacy ...... 51

CHAPTER FIVE ...... 54

5.0 Summary offindings, Recommendations and conclusion ...... 54

5.1 Summary of findings ...... 54

5 .2 Recommendations ...... 55

5.2.1 Modes of Electronic Funds Transfer ...... 55

5.2.2 Electronic banking risks ...... 56

5 .3 Conclusion ...... 58

BIB LI OG RAP HY ...... '...... i

viii ABSTRACT

The research aims at analysing the modes, merits, risks and the legal framework of electronic banking in Uganda. It extensively addresses issues concerning the content of elech·onic

banking. Electronic banking is proven a success and relevant in this error of technology, that

almost all countries around the world have embraced it, however it is associated with several

risks that the research is addressing.

Following the evolution of electronic banking in Uganda, the Legislature has drafted laws

regarding electronic transactions, and these include; The Electronic Signatures Act 2011, The

Electronic Transaction Act 2011, The Computer Misuse Act 2011 1 among others, with the

major aim of regulating the use and preventing all un authorised h·ansactions and access of

one's account by third parties and such other related unauthorised acts. The legal framework

being the key element regulating banking activities, the research is also aimed at examining

the legal framework of electronic banking and identifying the challenges facing it.

In Uganda, the banking community is seen as a move towards more active Internet strategies

in response to competitive pressures from non-banking financial service companie; and as

Internet technology continues to advance. It must be accepted as a challenge and stand in

position to overcome all dangers associated to it for the good of the finm1cial business.

1 Laws of Uganda

ix CHAPTER ONE

1.1 Introduction

The very beginning of modem internet banking was way back in the 1980s, and it is when

banking services were available over electronic media for the first time. If one had a tenninal,

monitor and a phone line he/she could access the banking system. One could also use a

numeric keypad to send messages down the phone lines to his/her bank. These services were

first offered in New York in 1981 by some of the city's biggest banks including Citibarl and

Chase Manhattan. The concept soon spread to the UK, where it was used by the Bank of

Scotland in 1983.

T e early system allowed bank customers to view their statements and their bill payments

online. If one wanted to make a transfer or pay a bill, one would need to send a written set of

instrnctions to the National Banl(S of Scotland which would then set up the details for the

consumer. This type of banking service was awkward and clunky, but it set the stage for fu1iher development in the coming years.

In 2001, the Bank of America was the first bank in the world to reach 3 million online banking customers. Over the next ten years, online banldng grew exponentially, and some banks came into existence which only existed online! These banks were able to offer better

1 interest rates, more features, and other services because they had the advantage of not having

to maintain the expenses ofb1ick and mortar bank buildings.2

In Uganda, electronic banking is said to have evolved around the late 1990's and the related

laws were enacted around 2011, that is; The Electronic Signatures Act 2011, The Electronic

Transaction Act 2011, The Computer Misuse Act 2011 among others.

Electronic banking, also known as e-banking, virtual banking and online banking, can be

defined as a service that allows customers to access their bank information, conduct financial

transactions, make deposits, withdrawals and pay bills through the Internet without having to

physically visit their bank. It provides the convenience of accessing banking facilities from

the comfort of their home or office. 3 There are different types of e-banking. They can be

process/sed as with A TM transactions, home banking transactions, phone-banking

tranJons, and Internet transactions. 4

Electronic banking, as a service allows customers to access their bank information, conduct financial transactions, make deposits, withdrawals and pay bills through the internet without having to physically visit their bank. 5

1.2 Background of the Study

Following the recent convictions of the four Bulgarian nationals, that are, Ivan Ganchev,

Milen Katsarsld, Adr:an Dimitrov and Anton Ivanov who were accnsed of forging ATJ\,I c·irds of customers of Stanbic Bank, pa1i of Afiica's leading banking and financial services

2 Guestauthor, The History oflntemet Banking December 28, 2011 3 Natasha Gilan, eHow Contributor, Electronic Banking Definition 4 Liao, Shao, Wang, and Chen, I99 5 Natasha Gilani, Electronic Banking Definition

2 organisation, Standard Bank Group, Uganda was introduced to a new e1Tor of offences that

th few Ugandans had lmowledge cf. These criminals where a1Tested on 30 / August/ 2012 as

they were h-ying to rob Stanbic Bank in the Kampala suburb of . 6 This alone was a

clear call to financial institutions, Ugandans and law makers, for a need to sensitise U g.1ndans

of this new electronic system of banking, its nature, offences associated therewith and the

laws in place, which justifies the timing of the research.

~ Ugandans have revealed their ATM pin codes to their friends, girlfriend, relatives and

/colleagues carelessly, without addressing their minds to the associated risks. Most of them do

so because they have limited knowledge of the details concerning E-banking, with false

confidence that the machines will sympathise with the good intentions of the owner and

prevent the user from acting conh·ary to the right instrnctions. May be it's even the reason

why Electronic Banking has ath·acted less interest amongst the Ugandans.

Toda1banks in Uganda have made developments in the banking system to embrace the e1Tor of technology. today most of the banks in Uganda have embraced electronic banking as a

form of banking. Parliament also has enacted laws to suit the prevailing banking

developments. Since it is a constitutional Right under Article 41 of the 1995 Constitution,7

access to infonnation is fully attained, by putting such infom1ation in place, the right is then

fully constituted.

6 Written by BENON TUGUMISIRIZE, 'Four Bulgarians held over Nateete Bank Robbery', the Observer, Kampala 31 August 2012 7 Article 41 ofThe 1995 Constitution of The Republic of Uganda as Amended

3 1.3 Statement of the problem According to the findings, Uganda is still faced with a problem of incomprehensive laws,

social economic realities and technological advancements. This calls for an urgent remedy to

the banking industry in Uganda, by creating awareness on the different modes of electronic

banking, the merits, risks and legal framework. The research is therefore educating and

sensitising Ugandans about the effectiveness of the different modes of electronic banking, the

risks involved and assessing its 1-egal frame work and the legal challenges.

Electronic banking systems offer a multitude of advantages over traditional, physical banks.

They provide a convenient, reliable and safe method of online transactions, allowing

customers to access their financial records from anywhere in the world at any time.

Electronic banking also saves time, costs and allows information to be processed quicker than

at standard brick-and-mortar banks. However, much as it contains all these merits, there

several risks involved which are addressed in this research that Ugandans need to be

s have a tendency of disclosing to the customers the merits of Electronic Banking only

and abandon the various risks associated with electronic banking. This is of the possible reasons as to why cyber hackers have now opted for Uganda with poor technology. Cases like that of, Ivan Ganchev, Milen Katsarski, Adrian Dimitrov and Anton Ivanov who were accused of forging ATM cards of customers of Stanbic Bank.8 It is therefore right to address this problem and suggest possible solutions if any, in order to save the finances of Ugandans.

8 Written by BE NON TUGUMISIRIZE, 'four Bulgarians held over Nateete Bank Robbery', the Observer, Kampala 31 August 2012

4 1.4 Objectives of the Study The general objective of the study is to examine electronic banking in Uganda and the legal

framework, conpled with the challenges emanating from the adoption of the modem banking

technology in Uganda.

1.4.1 Specific Objectives

Specifically the study was aimed at .ichieving the following objectives:-

1. To identify the different modes of electronic banking, and how they operate, together

with the challenges attendant thereto. /

2. To examine the me1its and risks associated with electronic banking in Uganda.

3. To examine the legal frame work and legal challenges of electronic banking.

4. To make possible recommendations to the stake holders in the Banking sector.

1.5 Hypothesis

This section covers the hypothetical findings basing on the already available research as seen bellow; ')7 i) The incomprehensiveness of the existing law has hindered the development of

Electronic Banking in Uganda.

ii) The technological advancements 111 Uganda today are not tallying with the

number of skilled personnel, the effectiveness of Electronic

Banking in Uganda.

5 iii) The social economic realities in Uganda control has slowed the public

involvement in the embracing of technological advancements towards Electronic

Banking.

iv) The insufficiency of the existing literature has hindered the public awareness of

Electronic Banking in Uganda.

1.6 Significance of the Study

This research was aimed at putting in place better infon11ation regarding electronic banking in

Uganda. The strategic response of the banking community to the emergence of the electronic

system and the opportunities it presents has vaded considerably. The study has filled the

lacunas in the available literature in place regarding electronic banking in Uganda by

attention to the legal implication and the lisles associated with electronic banking. The have been promoting only the meiits of electronic system of banking and no attempts had been made on the different m7deso electronic banking, the legal implication and Dangu-s there to.

This research identifies and addresses the different modes of elech·onic banking in Uganda, the dsks associated with each fon11 and the legal implication. While making study on different modes, the research has focused on the operation of each mode, its med ts and dsks.

This will help businesspeople, bank customers and all those involved in banking business to choose the most approp1iate mode or channel or h·ansacting money under electronic banking.

While addressing the dsks involved, the study pa1iicularly ensures that it covers the likely problems a customer or bank may face in case of miss managing of the functioning of the

6 system. It further covers issues to do with losing the password, A TM card, phone and other

related risks. This will also help the bank customers to know when and where to sr,ek for

assistance and this also apply to the proposing customers to be forewarned of the risks related

with electronic banking.

Under the legal perspective, the study is assessing the legal implication towards electronic

banking. It is also educating the banks, customers and future customers on the Laws

governing Electronic Banking, the likely offences in case of any illegal access or

unauthorised financial services and transactions. The study is further assessing the

effectiveness of the available Law to ensure its comprehensiveness.

The study is targeting the aggrieved banks, customers and those intending to join the business

and the future customers. Basmg on the findings in this research much infonnation 1s

gathered to ensure that the consumer's money and business are safe and understandable.

1.7 Scope of the study

The scope covers the subject matter of the study, the time the research has taken and the geographical area it has covered.

The subject matter of this research is the finding of the different modes of electronic banking in Uganda, the 1isks associated and the legal implication on electronic banking and the research has fu1iher attempted to assess its effe/eness. The researcher is addressing each mode of transacting under electronic bankinyexhaustively and the risks associated before embarking on another fonn. A general assessment on the legal framework then follows in the next chapter to reflect on the different modes money transfer under electronic banking to

7 ensure their effectiveness. This is then followed by the legal challenges faced with electronic

banking, summary of findings and the rec01runendations.

The research has covered a period of seven month and it was carried out during day time to

evening hours since this is the right time for interviewing bankers and customers. Three hours

a day was dedicated for field research while the rest of the time was reserved for compiling

the data obtained and attending studies and the supervisor.

The geographical study covered areas of Kampala and specifically the Banking areas.

Kampala is the capital city of Uganda and located in the central region of Uganda.

1.8 Literature Review

There is research available to the effect both at national and international levels but all seams

not relevant and sufficient hence this research. The literature review is classified into

categ01ies that is; literature on the different mode f transfening money under Electronic banking, Ris1,s and the legal framework respec ·vely.

In an attempt to resolve the question of what amounts to e-commerce, Anthony C.K

9 Kakooza; Embracing E-Commerce in Uganda prospects and challenges , the paper highlights on the likely constraints that stand in the way of effective conversion from the traditional ways of doing business to taking on a touch of modem technology in commercial transactions. The paper fu1iher discusses the challenges of E-commerce but does not

9 Advocates and Lecture in Law, a paper presented at Annual Lawyers Day ofK.IU Law Society, on the theme, Legal Directions in E-Commerce and Human Rights against Development in the region.

8 elucidate on electronic banking. The paper is of some relevancy since it !lies to give a

detailed discussion on E-commerce, but it is silent on the modes of e-commerce and it is not

exhaustive on the risks associated with e-commerce, hence a need for a better research to the

effect.

The evolution of payment system in Uganda is discussed by Akampmira, in his Article on the

Evolution ofpayment system in Uganda. According to this article, the evolution of payment

system in Uganda is traced from 1988 to date. In order to provide a vaiiety of adequate

payment instrument to the gi·owing number of corporations and corresponding increase in

transactions. The Bank of Uganda implemented both credit and debits in 2003. The article

s':rongly disagree with the fact that payment system has ai1y legal framework for monitoring

the efficiency of safety and secmity of the cashless payments that are introduced in the

mfoet by commercial banks, luck of hardware or softwai·e malfunction. Regarding the

.!evolution of payment system in Uganda, the article is relevant but since it is mainly

addressing the evolution, a lot is left out hence a need for a better reseai·ch.

In tenns of the definition of a bank, Lord Denning MR described it by reference to the

essential characteristics of which, constituting banking business and stated that such

characteristics include, stability and probity and in case of doubt, one should look at the

reputation of the finn amongst intelligent commercial men other words the banking

community should lesson a banker when they see one. 10

10 Charley and Smart; Leading cases in Banking at page 276

9 ~9/, ~;the different modes of transfening money under electronic banking,

Engineer Adriana Chovanova, PhD. Forms of Electronic Banldng, BIATEC, Volume XIV,

(6/2006), noted that an automated telephone system works on the basis of a menu through

which clients can move around using buttons on the telephone. Phone banking is the

provision of banking services using a classic telephone line. SMS banking is another mode

which uses short text messages sent through the client's mobile phone. The GSM SIM

Toolkit service can only be used from a mobile phone supp01iing this technology. GSM SIM

Toolkit is a software interface that enables arbitrary changes to the mobile phone menu. Mail

banking is another electronic banking service that makes it possible to communicate with the

bank by electronic mail or e-mail. Internet banking, this can be used from the home or the

office, as well as an internet cafe, although the latter is not recommended for security reasons.

WAP (Wireless Application Protocol) is a fon11 of gateway to various services prepared by a

mobile network operator or another firm. Home banking is another service that euables a

bank client to handle his accounts from a computer from a place selected in advance, at home

or in the office. 11 Engineer Adriana Chovanova is credited for his research on the different

modes of money transfer under Elech·onic Banking drawn, but his research was not made

basing on the Ugandan context and therefore it is ofless relevancy to Uganda which rnem not

to even have some of the modes stated and has not fully appreciated the new sysrem of

Electronic Banking

On the same issue of the modes of transfemng money under elech·onic banking, Liao, Shao,

Wang, and Chen, in their A1iicle on E-Banldng,1999, noted that elech·onic banking can be

process-based as with ATM transactions, home banking transactions, phone-banking

h·ansactions, and Internet transactions (Liao, Shao, Wang, and Chen, 1999).

11 Ing. Adriana Chovanova, PhD. Forms of Electronic Banking, BIATEC, Volume XIV, /6/2006)

10 ATM (Automatic Teller Machine); Automated teller machines work 24 hours a day, and are

located in many different places, especially in the most populated places, which makes them

easy to find. Using an ATM requires an ATM card and a personal PIN allowing customers

secure 24 hour access to baPking services such as deposits, withdrawals, transfers, inquiries

about account balances, requests for cheque books, account statements and direct deposits.

(FTC FACTS for Consumers, 2009).

Telephone Banking allows customers to conduct banking services using the phone from

anywhere and anytime. This is divided into two types that are operator attended which is for

customers who have very complicated inquiries and needs that can't be completed through

automated services, or who are not comfortable with automated services, or who have need

for services that require high security. Automated, these functions are for the requests that

~/.e executed and solved by the automated system without the need for human operators .

./.~:~le e-commerce & e banking is a solution that enhances business to consumer

interactions over the Internet. People use their cell phones' Internet features to conduct

Internet banking and other business h·ansactions.

Home Banking; The roots of Internet banking can be found in home banking. Consumers

were allowed to pay bills, transfer funds, and check their accounts. By the mid-l 980s, banks

staiied to offer home banking services to customers by allowing them to install software that

enabled them to connect to the bank through a dial up co1mection. Home banking allows

customers to complete some specific financial services directly from home.

Internet Banking is conducted by completing bank h·ansactions by directly accessing the

bank through the Internet.

11 However, although this research of Liao, Shao, Wang, and Chen, 1999 exhaustively states the

different modes of transferring money under electronic banking, but this article does not

show the risks associated with these different modes of transferring money under electronic

banking and the legal implication of the system.

The Brochure Issued by the Commonwealth Bank of Australia on Electronic banking, 13

October 2011, there is a risk that one may not be able to access his/her account information

or make transactions through a service which is reliant on computer and/or

telecommunications system. There is also a possibility of unauthorised transactions on one's

account. 12 The consumer may suffer loss if he/she doesn't sufficiently safeguard his/her

account agamst. unauth onse. d access. 13

If the customer instructs the Bank to accept Facsimile signature to authorise debts from his account, he/she will need to provide a separate authority and indemnity. Unless the customer has provided a separate authority and indemnity th~! not accept facsimile signatures

4 as authority to debit the customer's account 1 •

The Brochure Issued by the Commonwealth Bank of Australia on Electronic banking, 13

October 2011, states some of the possible risks associated with Electronic banking, but this is according to Australia and not Uganda. The commonwealth bank of Australia has no single

Branch in Uganda and whatever the brochure states it is in accordance with Australians, hence a need to design a Ugandan based article to end the lacuna in our banking literature.

12 Page 3 of the Brochure Issued by the Commonwealth Bank of Australia on Electronic banking, 13 October 2011 13 Page 27 of the Brochure Issued by the Commonwealth Bank ofAustralia on Electronic banking, 13 October 2011 14 Page 3 of the Brochure Issued by the Commonwealth Bank of Australia on Electronic banking, 13 October 2011

12 The article of Federal Trade Commission Bureau of Consumer Protection, FTC Facts For

Consumer on electronic banking, March 2012, If unauthorized use occurs before the

customer report it, the amount he/she can be held responsible for depends upon how quickly

he/she reports the loss to the card issuer. If the customer fails to report the loss within two

business days after he/she realize the card is missing, but do report its loss within 60 days

after his/her statement is mailed to him/her, he/she could lose as much as $500 because of an

unauthorized transfer. If the customer fails to report an unauthorized transfer within 60 days

after the card issuer mails his/her statement to him/her, he/she risk unlimited loss. 15

The Article which was developed by the Federal Trade Commission Bureau of

Consumer Protection identifies some of the risks associated with E-Banking, but their research is based on the American status and not the developing Uganda where even a

er can spend two month without checking his financial status and as the article stated,

e customer would have lost all of his savings. This is therefore one of the reasons why this research is important to the banking sector in Uganda.

The Bits Fraud Reduction Steering Committee; Fraud Prevention Strategies for Internet

Banking, April 2003; Internet fraud risks are present for all financial institutions. The information provided here seeks to minimize the risks and make the Internet a safer, sounder, and more trusted environment for everyone. For example, a hacker may compromise a server database containing online banking user IDs and passwords, which can then be used to commit fraud against legitimate users. In this case a network weakness is used to enable an application attack. Technical personnel and application and fraud personnel must work

15 Page 6 of the Federal Trade Commission Bureau of Consumer Protection, FTC Facts For Consumer on electronic banking, March 2012,

13 together to understand the threats and ensure that they are being addressed structurally as well

as in response to a known hacking penetration. 16

The publication of The Bits Fraud Reduction Steering Committee on Fraud Prevention

Strategies for Internet Banking, April 2003; has expressed 1isks associated with internet

banking, but there research was based on only one mode of money transfer under electronic

banking, ignoring the different varieties available , yet customers need knowledge of the

entire system of electronic banking, hence a need for an exhaustive research regarding

electronic banking which is much more relevant to the cmrent situation.

Regarding the legal challenges, the Brochure Issued by the Commonwealth P.ank of

Australia; Electronic banking, 13 October 201], the brochure noted that; as Australia is a member state of the United Nations, were they are obliged to implement United Nations

Security Council sanction. Consequently the bank may be prohibited from dealing with

certain persons or entities. This means that if the bank is aware that the CU3tomer is a prosc1ibed p,~rson or entity, then the bank may be required to suspend, cancel or refuse one services or close or tenninate any arrangement with the customer. The Banlc may also be required to freeze assets of the customer. The customer could incur significant costs as a result of these actions. 17 The literature addressed in this brochure is of no relevancy to the

Ugandan context since it was prepared to cater for the Aush·alian Banks and not Uganda; hence a need for a home based research.

16 Page 5 of a publication of The Bits Fraud Reduction Steering Committee on Fraud Prevention Strategies for Internet Banking, April 2003; 17 Page 4 of the Brochure Issued by the Commonwealth Bank of Australia on Electronic banking, 13 October 2011

14 Regarding the legal framework and e-money, Ross Creston; Principles ofBanking Law, the

book discusses the legal framework issued to banks. It further discusses the challenges of e­

money and in particular the regulatory problems in e-commerce. The book also provide~. for

the insight of e-money in the developing nations. However, the book emphasises so much on

the developed countries which makes it to be of less relevancy to the Ugandan context.

On the issue of the legal framework, the Bank of Uganda; Annual Supervision Report

December 2011/ssue No. 2, the second which involves a review of the legal framework, had

fae following to put down;

The Bank of Uganda is currently reviewing the Credit Reference Bureau (CRB) legal and

regulatory framework. The legal and regulatory framework of the CRB needed further

development and strengthening before extending the credit reference services to non­ regulated Pls.

The proposed amendment to the existing laws and the principles behind the proposed amendments to permit access to credit information held by non-regulated is submitted to the

First Parliamentary counsel for consideration.

The Bank of Uganda's annual report is of great relevancy since it identifies the legal challenges and further draws recommendations to the effect. However, this report was made in 2011 which is 12years back, hence a need for a more updated research to revise the current legal situation.

Regarding the issue of legal frame work and challenges, Ruiru James N_joroge

LLB/10067/81/DF; Electronic Banldng; An Examination of the Law and Practice in Kenya

15 May 2012 page 37&38, noted that; Section 9 18 provides for the general reserve fund for

banks, intended for emergency purposes, the said section should be made applicable to the

said service provider, enabling them to deposit a certain amount of money into the said fund

and this would ensure that consumers' deposits in their mobile phone accounts are more

secure.

It is commendable that the United Nations and its member states make provision for

electronic contracts in an endeavour to keep up with the changes in the nature of contracting.

Legislations around the world have lagged the Electronic-Revolution and this problem is

more acute in Kenya because most of the legislations are over out-dated.

However, Ruiru made brilliant legal rec01mnendations that can help addressing the issue of

Electronic Banking in Kenya, but this recommendation is made in favour of Kenya and not

Uganda and yet Electronic Banking in Kenya is as alien as the case with Uganda. It is

therefore 1ight to make a search and raise the most fiuitful legal rec01mnendation for Uganda for a proper use ofE!ech·onic Banking.

Okagbue and Aliko, 'Banking Sector Reforms in Nigeria; The Central Bank of Nigeria, in line with its supervisory and regulatory role, inh·oduced what it called its 13-point refonn agenda for the Nigerian financial system, which programme was announced by the Governor of the apex bank on 6 July 2004. Uganda like Nigeria needs refonns in the banking sector so as to embrace the new systems and realise all errors that may affect full use of the advancing technology in the banking sector. Laws must be amended in favour of these new changes saw as to keep cybercrimes and fraudster off the banking business.

18 Central Bank of Kenya Act Cap 491 Laws of Kenya

16 Attempts have been made by several authors and researchers regarding Electronic Bank:ng,

but most of their research does not exhaustively analyse electronic banking in Uganda. S,:ime

research from Uganda has managed to trace the evolution of electronic baking in Uganda and

the world at large, but they have not done enough hence a need for a better research regarding Electronic Banking in Uganda. L,..:b-~r

1.9 Met odology

The esearch is both qualitative and quantitative, this because there is a need to consult

1tten ruiicles, textbooks runong others in order to ascertain the relevru1t information

regru·ding this research. It will also enable the corroboration of the w1itten research with

infonnation from the experts in the banking business regarding Electronic Banking in

Uganda.

With the qualitative method, the research is focused on published documents, ru1icles, textbooks, Law repo11s, International Laws, Newspapers ru1d internet repo11s relating to

Electronic banking. It will also include interviewing expe11s in the banking sector and these may include the sales agents in the different bru1ks in Kampala. It will also attempt to make finding on the knowledge of electronic banking among customers.

Regarding the quantitative, the research is focusing on selected expe11s in the banking business, who will advise the researcher on how electt·onic banking operates ru1d the measures put in place to control the various risk involved in Elech·onic Banking in Uganda among others.

17 1.10 Synopsis

This part covers the content likely to contain in each chapter and the number of chapters the

dissertation is likely to cover. This research is divided into five chapters and these shall be

classified as follows;

Chapter one is generally containing the introductory part of the dissertation, the background of the study, statement of the problem, the significances of the study, literature review and methodology among others.

Chapter two addresses the different modes of money transfer under electronic banking the merits and the risks associated with each form. Here each mode shall be explained exhaustively and the risks there too, before attending to the subsequent form.

Chapter three is exhaustively ad 1fressing the legal framework of electronic banking in

Uganda and also to rprehensiveness of the law to the effect

Chapter four is covering the legal challenges of electronic banking.

Chapter five is consisting of the summary of the findings of the researcher, recommendations and Conclusion.

In conclusion, this chapter contains the foundation for this research and all the issues raised in this chapter shall be extensively addressed in the subsequent chapters. The authors under the literature are highly credited for their efforts and research toward banking.

18 CHAPTER TWO

2.0 The Modes of Money Transfer under Electronic Banking.

2.1 Introduction

This chapter covers the different modes of money transfer under electronic banking and the risks associated with each fonn. This chapter will exhaustively discuss all the modes available to customers, the merits of each mode both to the customer and the banks, the risks associated with each and how such risks can be prevented. / 2.2 Automated Teller Machines (ATM)

Automated Teller Machines (ATM) is one of the different modes of transfening money under electronic banking commonly used by Ugandans. ATMs are electronic machines, which are operated by a customer himself to deposit or to withdraw cash from bank. For using an ATM, a customer has to obtain an ATM card from his bank. The ATM card is a plastic card, which is magnetically coded. It can be easily read by the machine.

ATMs are electronic tenninals that let one bank almost virtually any time. To withdraw cash, make deposits, or transfer funds between accounts, the consumer generally inserts an ATM card and enters his/her PIN. Some financial institutions and ATM owners charg0 a fee, particularly if the user doesn't have accounts with them or if his/her transactions take place at remote locations. Generally, ATMs must tell the consumer they charge a fee and the amount on or at the terminal screen before he/she complete the transaction. The consumer is required

19 to check with his/her institution and at ATMs he/she uses for more info1111ation about these

iees.

The account holder may use any ATM machine, but some charge fees. The machine will tell the user

ahead of time what the fees are and ask him/her to accept those fees to continue.

2.2.1 Using an ATM Machine

To use an ATM machine, the user inserts the card into the machine and type the PIN t],at was

established when the account was opened. Next, choose the type of account from which the money will be withdrawn. He/she can then enter the amount of money he wants to withdrawal. The ATM machine then dispenses the money and a receipt, and then returns the card. /

An ATM card (say debit card, visa prepaid card, master cards among others) can be used at just about any ATM machine or shopping store which accepts that kind of transaction. When the user gets to the counter, he/she hands the cashier his/her card and tell him/her it is a debit card. He/she will instruct the user on how to swipe his/her card tlu·ough the machine and enter the PIN number. If he/she wants cash back (in place of going to an ATM machine), this amount will be added to the total of his/her purchase and will be deducted from the account that matches the ATM card. 19

Transactions can take place in-person, online, or by phone. The process is similar to using a credit card, with some imp01iant exceptions: a debit card purchase or payment transfers money quickly from the user's bank account to the company's account, so he/she must have

19 Article by Alice Bodine, eHow Contributor; how does ATM cards work?

20 sufficient funds in his/her account to cover the purchase. This means he/she needs to keep

accurate records of the dates and amounts of his/her debit card purchases, payments, and

ATM withdrawals. The user must know the store or business before providing his/her debit

card infonnation to avoid the possible loss of funds through fraud. Such liability for

unauthorized use, and the user's 1ights for dealing with errors, may be different for a debit

C'lrd than a credit card.

2.2.2 Merits of ATM Machines

ATM provides 24 hours service; ATMs provide service round the clock. The customer can

withdraw cash up to a ce1iain limit du1ing any time of the day or night. ATMS have not only eased congestion in banking halls, offered round-the-clock services to customers but also earned banks extra revenue from withdrawals and deposits. / ATMs provide convenience to the customers. Now-a-days, A TMs are located at convenient places, such as at the air po1is, railway stations, and many specious places. And not necessaiily at the Bank's premises. It is to be noted that ATMs are installed off-site. (Away from bank premises) as well as on site (installed within bank's premises) ATMs provide mobility in banking services for withdrawai.20

ATMs ai·e of great help to travellers. They need not carry large amount of cash with them.

They can withdraw cash from any part of the town where the ATM machine is installed, across the country and even from outside the country with the help of ATM card.

An automated teller machine provides additional revenue streains. Each ATM withdrawal transaction generates surcharge income for the owner of the automated tell"r machine.

20 Kalyan City Life, Research by Manoj Patil; Automated Teller Machine ATM-Advantages of ATM 2013

21 Additionally, an automated teller machine can provide revenue from on-screen advertising,

couponing, and alternative media dispensing opportunities. Hence benefiting the Banks,

Government and Customers since increase in revenue may in return improve on the security

of the state which puts the banking business in a safe position for both the bank and

customers.

2.2.3 Risks associated with ATM machines

If the user forgets his/her PIN number he/she cannot use the card or access the account through the card. This may affect or slows the customer's business plan as it will require the

customer to visit his or her bank.

The system -~an be off-line and affect the user. This is an indirect denial of access to ones account through ATM. 24 hours service is one of the advantages stated, but where the system is down it seizes being an advantage to the customer. /

Training is needed to customers since electronic banking is still alien to the banking system in Uganda. Many banks aim at issuing ATM cards to customers and tend to avoid the expenses of hiring experts to educate customers.

Thieves can attach elech·onic devices (skimmers) to ATM that record the user's card infonnation and PIN code. They can then use that infonnation to quickly withdraw money at another location before theft is discovered. Most of the magnetic strip (magstrip) technology which comes with a lot of A TM cards commercial banks issue their customers is questionable. The cards can easily be forged by criminals who use the duplicates to steal bank client's deposits. By the end of 2011, customers of Fina Bank, Ecobank, Stanbic Bank,

22 Equity Bank, , Bank of Baroda and DFCU had fallen victims, losing millions

of shillings according to Ibin SSenkumbi, the spokesman, Kampala Metropolitan Police.21

Difficult to maintain spending discipline is another risk associated with A TM. Since it is a 24 liours service, the youth mostly find it hard to control the spending discipline since holding

the A TM card near an A TM machine is like having money in the pocket. Kampala being the

capital city almost on a daily basis, customers can hardly avoid spending since the machines

are so close to bars and pubs and money consuming sources.

Risk of robbery when one leaves the ATM mostly where it is night time or if the machine is situated an unsecure place. Many customers around Kampala ATM machines complain that thieves ambush them during night time while drawing money on A TM.

The A TM can break down or run out of cash and operating it or refilling it takes some time.

Since most of the machines in Uganda are imported and banks have few expe11s who can carry out maintenance, when machines brake down it takes a while to attend to them.

Fees charged to use ATMs of other banks can become expensive and cause the customer to lose a lot of money than he or she intended. Banks in Uganda have a policy where one can use an A TM card of one bank and draw money using an A TM machine of another bank where he didn't register as a customer. But however, this policy though some time is advantageous but can be at times so expensive that the customer loses more money than the intended.

21 Written by BEN ON TUGUMISIRIZE, 'four Bulgarians held over Nateete Bank Robbery', the Observer, Kampala

23 2.3 Online banking/ Internet banking/ E-banking

Online banking is the practice of making bank transactions or paying bills via the Internet.

Internet Banking is the Bank's Internet Service, offering the following facilities to the User: balance enquiry, statement of account, request for issue of cheque book, view personal account information, details of accounts and other facilities as the Bank may decide to provide from time to time such as the Fund Transfer Facility.22 Online banking allows customers of a financial institution to conduct financial transactions on a secure website operated by the institution, which can be a retail or virtual bank, credit union or building society.

Online banking offers a quick and convenient way to manage money. In fact, though it vuries from bank to bank, there are generally few types of transactions or other management actions that cannot be done online with an established account. Because this type of process deals directly with people's money, security measures must be robust, and most banks have layers of security at work. Overall, online services are a type of banking that opens access to an efficient way to manage money.

To access a financial institution's online banking facility, a customer having personal Internet access must register with the institution for the service, and set up some password (under various names) for customer verification. The password for online banking is normally not the sam~ as for telephone banking. Financial institutions now routinely allocate customer numbers (also under various names), whether or not customers intend to access their online banking facility. Customer numbers are norn1ally not the same as account numbers, because a number of accounts can be linked to the one customer number. The customer will link to the

72 ; Internet Banking terms and conditions

24 customer number any of those accounts which the customer controls, which may be cheque,

savings, loan, credit card and other accounts. Customer numbers will also not be the same as

any debit or credit card issued by the financial institution to the customer.

To access online banking, the customer would go to the financial institution's .website, and

enter the online banking facility using the customer number and password. Some financial

institutions have set up additional security steps for access, but there is no consistency to the

approach adopted.

2.3.1 Merits of Online banking

Online banking is convenient, reliable and safe method of online transactions, allowing customers to access their financial record from anywhere in the world at any time. Online banking lets customer take care of h' ?her banks needs by logging on to the bank's website with a customer number or use name and password. One can access his/her checking, savings, credit card, mortgage and loan accounts with just a few mouse clicks, anytime and anywhere.

The customer need not have to leave his/her home to do the banking. He/she can access the accounts online in a matter of seconds. Internet banking is an environmentally friendly option. One can choose to receive his/her monthly statements electronically instead of by mail and saw· a lot of paper :n the process. The customer can view his statements in order of date and are likely to find the infmnation he/she is looking for quicker than flipping through

25 pages of old paper statements. This system can help the customer stay more organized and save space.

2.3.2 Risks associated with online banking

There are risks associated with online banking that one should be aware of among others include the following;

Since technology is never 100% reliable, the customer may have trouble connecting to the

Internet. The bank's website may be temporarily down. If the customer has no time '.o get to the branch or contact it by phone, then is at risk of7111· ssin ayment deadlines, whkh will result in penalty fees.

Online banking can also compromise the customer's security and privacy. Hackers can obtain his/her account number or Social Security number and make unauthmized transactions on his behalf. Someone may get the users security details ifhe didn't close the browser window or if the password memorization feature is enabled for his/her bank's website.

While electronic banking systems ensure the provision of the highest levels of security by installing high-end firewalls and encryption software, breaches do occur. Hackers and malicious software can break into even the toughest of online vaults and steal personal information.

26 System failures or technical hitches in servers can also cause an electronic banking network

to go offline temporarily, which can prove a nuisance, especially if a bill or payment is to be

r.iade or cash transferred urgently.

2.4 Telephone Banking/ Mobile Banking

This allows customers to conduct banking services using the phone from anywhere and

anytime. This is divided into two types that are operator attended which is for customers who have very complicated inquiries and needs that can't be completed through automated services, or who are not comf01iable with automated services, or who have need for services that require high security. Automated, these functions are for the requests that can be executed and solved by the automated system without the need for human operators.

To use a financial institution's telephone banking facility, a customer must first register with the institution for the service, and set up some password (under various names) for customer ve1ification. The password for telephone banking is nom1ally not the same as for online banking. Financial institutions now routinely allocate customer numbers (also under various names), whether or not customers intend to access their telephone or online banking facility.

Customer numbers are nomially not the same as account numbers, because a number of accounts can be linked to the one customer number. Customer numbers are also not the same as any card number which may have been issued to the customer by the financial institution.

The customer will link to the customer number any of those accounts which the customer controls, which may be checc1e, savings, loan, credit card and other accounts. Some financial institutions have restrictions on whir.h accounts may be access via telephone banking.

27 To access telephone banking, the customer would call the special phone number set up by the

financial institution, and enter on the keypad the customer number and password. Some

financial institutions have set up additional security steps for access, but there 1s no

consistency to the approach adopted. Most telephone banking services use an automated phone answering system with phone keypad response or voice recognition capability. To ensure security, the customer must first authenticate through a numeric or verbal password or through security questions asked by a live representative.

In Uganda, this system of banking started with telecom companies and it is referred tu as

Mobile money transfer business. At first it had emerged as the biggest threat to Ugandan banks, executives said as more lenders sought partnerships with telecom firms to roll out mobile banking products. Bankers said lenders have had to partner with the Telco's instead of directly competing with them as Uganda joined the ranks of countries like Kenya, where mobile-money services has become big business over the past five years. 23 Big lenders like

KCB, Equity, The Housing Finance Bank, and DFCU bank are rolling out mobile banking services in Uganda as other local banks, which currently offer some form of Internet and mobile banking, seek to expand this platfonn.

2.4.1 Merits of Telephone Banking

The biggest advantage that mobile banking offers to banks is that it drastically cuts down the costs of providing service to the customers. For example an average teller or phone transaction costs about $2.36 each, whereas an electronic transaction costs only about $0.10

23 Written by ISAAC KHISA, 'Ugandan banks join race for mobile money transfer', the East African, Kampala 22nd December 2012

28 each. Additionally, this new channel gives the bank ability to cross-sell up-sell their other c::>mplex banking products and services such as vehicle loans, credit cards etc. 24

For service providers, Mobile banking offers the next surest way to achieve growth.

Countries like Korea where mobile peneh·ation is neming saturation, mobile bm1king is helping service providers increase revenues from the now static subscriber base. Also service providers are increasingly using the complexity of their supported mobile banking services to attract new customers and retain old ones. 25

It utilizes the mobile connectivity of telecom operators and therefore does not require a11 internet connection. With mobile ba!lking, users of mobile phones can perfonn several fina11cial functions conveniently and securely from their ~/le. The user can check his/her account balance, review recent transaction, transfer /' pay bills, locate ATMs, deposit cheques, ma11age inveshnents, etc. ·

Mobile bm1king is available round the clock 24/7 /365, it is easy a11d convenient a11d an ideal choice for accessing financial services for most mobile phone owners in the rural areas.

Mobile ba!lking is said to be even more secure than online/internet banking.

2.4.2 Risks of telephone banking

Mobile ba!lking lucks anti- virus progrmn to protect the data against spmn. Ma11y mobile phones are like mini-computers, yet they do not have the same capability as regular computers to host anti-virus a11d anti-spyware programs. The phone will not be 2ble to recognize a situation where the user's device files and progrmns have been compromised by

24 Advantages of Mobile Banking Submitted by gc on Mon, 02/18/2013 - 20:57 25 Advantages of Mobile Banking Submitted by gc on Mon, 02/18/2013 - 20:57

29 malware. So when one performs banking activities on his/her mobile phone frequently, he/she could be leaving himself vulnerable to spying.26

Some mobile banking services text the customer updates regarding his/her account. These text messages are not encrypted, so any third party, including strangers and the people around him/her, can read them. If the phone is left unattended to or got lost, someone can easily access infonnation about the customer's account by reading his/her message inbox. Howe·1er, one way to prevent this problem is it to set a password on the phone so that the user is the only person who can view his/her text messages. One can also delete the messages as soon as he/she finishes reading them.27

It is hard to prove fraud if the phone falls in the hands of fraudsters. If the phone falls into the wrong hands and someone is able to process transactions using the device, tl1ere is no telling what his/her bank will do. It could be difficult to prove that he/she is not the person who performed the action on his/her phone. Because mobile banking is a relatively new service, some banks do not yet have clear procedures to address this potential problem.

Mobile banking users are at risk of receiving fake SMS messages and scams. The loss of a person's mobile device often means that criminals can gain access to his/her mobile banking

PIN and other sensitive infonnation. Modem mobile devices like Smartphone and tablets are better suited for mobile barlking ilian old models of mobile phones and devices.

26 Louise Balle, Mobile Banking Risks eHow Contributor, last updated July 02, 2012 27 Louise Balle, Mobile Banking Risks eHow Contributor, last updated July 02, 2012

30 P.egular users of mobile banking over time can accumulate significant charges from their banks. In recent years mobile banking has become quite popular and convenient for many people.

2.5 Home Banking

This is the practice of conducting banking transactions from home rather than at branch locations. Home banking generally refers to either banking over the telephone or on the internet. The first experiments with internet banking staiied in the early 1980s, but it did not become popular until the mid-1990s when home internet access was widespread. Today, a variety of internet banks exist which maintain few, if any, physical branches.

The roots of Internet banking can be found in home banking. By the beginning of 1970s home bai1king was available via touch-tone telephones, at the time banks considered this service as home banking even though it involved the use of phones. Consumers were allowed to pay bills, transfer funds, and check their accounts. By the mid-1980s, banks started to offer home bailking services to customers by allowing them to install software that enabled tl-iem to com1ect to the bank through a dial up connection. Home baill

28 • Braunschweig: Vieweg; Electronic banking: the ultimate guide to business and technology of online banking (2001)

31 2.5.1 Merits of Home Banking

Expecting the local branch to stay open 24 hours a day is umealistic. Expecting the financial institution as a whole to do the same, however, is perfectly reasonable. With home banking, a computer screen can present all the benefits of the local branch. Now, when the customer needs to check his/her balance or make a quick transfer, it's easy to do it with a couple clicks of the mouse in the conveninnce of the user's own home. It's all about giving the customer opportunity to spend less time dealmg with his/her finances while offeiing a quick way to responsibly manage his/her funds.

Home banking offers several different features to help /tl1is process work efficiently. With e-

Statements, one's statements from as far back as a couple of years are accessible with one quick download. The e-Notices feature allows one to set up alerts that notify him/her about the status things like loans or overdraft protection. Another feature of home banking is the ability to sign up for mobile banking, which allows one to access account history and balances from his/her cell phone.

The convenience of home banking makes it easier for one to manage his/her accounts from anywhere at any time. Travel is a big part of many jobs. Sometimes a job may require one to travel to a place where there is not a branch. Home banking makes it possible for the customer still to do virtually anything he/she wants to, relating to his/her accounts from the laptop. In addition, most branches close at 5:00pm. With home banking, one can log in to his/her accounts at any time of the day, or night.

32 The speed at which one can make his/her transaction presents another advantage of home banking. When on home banking, there are no lines, no busy teller booths or parking lots.

The spaces allotted for the customer's transfers are clearly shown. All of this makes home banking advantageous to the user.

Online banking is the way of the present. The idea is to get the user in and out efficiently, giving him/her more time to enjoy the activities that he/she wants to do. Home banking is here for the user's convenience, to give him/her an even quicker way to manage his/her funds.

2.5.2 Risks of home banking

Criminal gangs are constantly investing new ways to outwit the banks. The best online banking systems offer multi-layered security- providing many levels of protection th1t act as a deterrent to fraudsters and a cover for customers.

Man-in-the-browser attack; in recent years the 'man-in-the-browser' (MitB) attack has become increasingly common. A type of 'Trojan', the MitB infects one's web browser a.nu can alter his/her transactions. An example, the MitB can make it look like one is paying his/her gas bill as normal but can change the destination bank and account, and even the an1ount. Afterwards, it may even alter account so everything in one's online statement looks normal.

33 Key loggers; Key loggers are another major online threat. These are devices and viruses that covertly record one's keystrokes, enabling fraudsters to collect his/her password,

Pin and other security information.

Software key loggers, these are viruses that infect the computer and which one can pick up unknowingly from email attachments and malicious websites. They can sit undetected on one's computer. The best method of protection is to ensure that the 11ser has up-to-date anti-virus software installed, but unfortunately even these may not catch all software key loggers.

Hardware key loggers, these are small devices that can be plugged into the back of a computer and unless one knows what he/she is looking for, they can be hard to detect. The user is most at risk of these if he/she uses a public or;trk computer to do the online banking. /

In Hosni Tayeb V HSBC Bank PLC29 while analysing EFT court was of the view !hat, all banks and building societies, as providers of a wide range of money transmission and lending services, are vulnerable to being used in the layering and integration stages of money laundering as well as the placement stage. Electronic funds transfer systems increase the vulnerability by enabling the cash deposits to be switched rapidly between accounts in different names and different jurisdictions. Mortgage and other loan accounts are often used as part of this process to create complex layers of transactions.

It was further argued that, some banks and building societies will additionally be susceptible to the attention of the more sophisticated criminal organisations and their professional money

29 Tayeb v HSBC Bank Pie & Anor [2004] EWHC 1529

34 launderers. Such organisations, possibly under the disguise of front companies and nominees, will create large scale but false international trading activities in order to move their illicit monies from one country to another. They will create the illusion of international trade using false/inflated invoices to generate apparently legitimate international trade wire transfers, and will use falsified/bogus letters of credit to confuse the trail further. Many of the front companies may even approach their bankers for credit to fund the business activity. Banks and building societies offering international trade services should be on their guard for laundering by these means.

Electronic banking in conclusion, takes the above various modes of transferring money and the findings show that A TM as a mode is the most desired method by Ugandans. This is because of the summarised infonnation regarding its operation and services that are almost in three quotas of the country. This has made it accessible to customers though it has several risks involved, as the findings state above.

35 CHAPTER THREE

3.0 The Legal Frame Work Governing Electronic Banking in Uganda

3.1 Introduction

This chapter is covering the legal implication and framework of electronic banking in Uganda basing on the available Law, and it is fmiher evaluating the sufficiency of the available Law in Uganda. There are various laws drafted in favour of electronic banking in Uganda and these include; The Electronic Signatures Act 2011, The Electronic Transaction Act 2011, The

30 Computer Misuse Act 2011 .

3.2 Enactment of the Law /

Aliicle 79 (1) of 1995 constitution of the republic of Uganda mandates parliament with the power to make laws on any matter for the peace, order, development and good governance of

Uganda. 31 Basing on this provision,' the legislature enacted laws to legalise this new development of banking in Uganda. Several legislations including the following were enacted to address the new digital world of banking;

3.2.1 The Computer Misuse Act 2011

This legislation was enacted to ensure that electronic banking is fully constituted in the legal jurisdictions of Uganda. It is aimed at making provisions for the safety and security of electronic transactions and info1111ation. systems; to prevent unlawfol access, abuse or misuse of infom1ation systems including computers and to make provision for securing the conduct

30 Laws of Uganda 31 1995 constitution of the republic of Uganda as amended

36 of elech·onic transactions in a trnstworthy electronic environment and to provide for other related matters. 32

3.2.2 The Electronic Signatures Act 2010

This is aimed at making provisions for and to regulate the use of electronic signatures and provide for other related matters. 33 Electronic Signature means data in electronic fonn affixed to or logically associated with a data message, which may be used to identify the signatory in relation to the data message and indicate the signatory's approval of the information contained in the data message and in.eludes an advance electronic signature and the secure signature. 34 / 3.2.3 The Electronic Transactions Act 2011

In early 2011, The Electronic Transaction Act came into force in Uganda to govern all such transactions. This legislation was enacted to provide for the use, security, facilitation and regulation of elech·onic communications and transactions; to encourage the use of e­

Government services and to provide for related matters. 35 Electronic h·ansaction" means the exchange of infonn1tion or data, the sale or purchase of goods or services, bet\\ een businesses, households, individuals, governments, and other public or private organizations, conducted over computer-mediated networks.36

31 Preamble of the Computer Misuse ACT 2011 33 Preamble of the Electronic Signatures Act 2010 34 Section 2 of the Electronic Signatures Act 2010 35 Preamble of the Electronic Transactions Act 2011 36 Section 2(1) of the Electronic Transactions Act 2011

37 3.2.4 The Bank of Uganda Financial Consumer Protection Guidelines, 2011

These Guidelines according to Provision 2 apply to all financial services providers reg1lated by Bank of Uganda in respect of business they transact in Uganda; and the agents of all financial services providers regulated by Bank of Uganda in respect of business the agent transacts in Uganda.37 The guidelines according to provision 1 came in force on June 1,

2011.38

3.4 Relevancy of the laws . / In regard to penalties arising out of computer misuse, Part 3 of the Computer Misuse Act

2011 provides for offences related with computer misuse. Where a person intentionally accesses or intercepts any program or data without authority or permission to do so, or if where one intentionally and without authority to does so, interferes with data in a manner that causes the program or data to be modified, damaged, destroyed or rendered ineffective, such person according to Section 12 commits an offence and is liable on conviction to a fine not exceeding two hundred and forty currency points or imprisonn1ent not exceeding ten years or both.

The provision also extends to the persons who unlawfully produces, sells, offers to sell, procures for use, designs, adapts for use, distributes or possesses any device, including a computer program or a component which is designed primarily to overcome security

37 The Bank of Uganda Financial Consumer Protection Guidelines, 2011 38 The Bank of Uganda Financial Consumer Protection Guidelines, 2011

38 measures for the protection of data or performs any of those acts with regard to a password, access code or any other similar kind of data. 39

This provision is aimed at deterring people from unlawfully tempering with the electronic information of another or unlawfully accessing the password or enable others to access the finances of the customer.

It is an offence under Section 13 of the Computer Misuse Act where one does any act which causes an unauthorised modification of the contents of any computer with requisite intent and the requisite knowledge, at the time when he or she does the act. 40 Modification is unauthorised if the person whose act causes it, is not entitled to determine whether the modification should be made, and he/she does not have consent to the modification from a person who is entitled.41 Such a conviction attracts a fine not exceeding two hundred and forty currency points or imprisonment not exceeding ten years or both. 42 This provision therefore makes it an offence where one knowingly without authorisation modifies the contents of a computer. A e0mputer under Section 2 means an electronic, magnetic, optJ-::al, electrochemical or other data processing device or a group of such interconnected or :ehted devices, perfonning logical, arithmetic or storage functions; and includes any data storage facility or communications facility directly related to or operating in conjunction with such a device or group of such interconnected or related devices. 43

Where there is unauthorised use or interception of computer service by a person who knowingly, secures access to any computer without autho1ity for the purpose of obtaining,

39 Laws of Uganda 0 ' Section 13 of the Computer Misuse Act 2011 41 Section 8 of the Computer Misuse Act 2011 42 Subsection (4) Laws of Uganda 43 The Computer Misuse Act 2011

39 directly or indirectly any computer service, intercepts or causes to be intercepted without authority, directly or indirectly, any function of a computer by means of an electro-magnetic, acoustic, me0hanical or othc:r device whether similar or not, such person according to

Section 15 commits an offence and is liable on conviction to a fine not exceeding two hundred and forty currency points or to imprisonment not exceeding ten years or both; and in the case of a subsequent conviction, to a fine not exceeding three hundred and sixty currency points or imprisomnent not exceeding fifteen years or both.44

Where there is unauthorised obstruction of use of computer by a person who, knowingly and without authority or lawful excuse and such person interferes with or interrupts or obstructs the lawful use of, a computer, or impedes or prevents access to or impairs the usefulness effectiveness of any program or data stored in a computer, such person according to ection

16 of the Computer Misuse Act 2011, commits an offence and is liable on conviction to a fine not exceeding two hundred and fo1ty currency points or to imp1isonment not exceeding ten years or both, and in the case of a subsequent conviction, such person is subjected to fine not exceeding three hundred and sixty currency points or imp1isomnent not exceeding fifteen years or both. 45

Where the act done constitute the offence of electronic fraud under Section 19 of the

Computer Misuse Act 2011, such a person is liable on conviction to a fine not exceeding three hundred and sixty currency points or imprisonment not exceeding fifteen years or both.46 Electronic fraud means deception, deliberately performed with the intention of securing an unfair or unlawful gain where part of a communication is sent through a

44 The Computer Misuse Act 2011 45 Laws of Uganda 46 Laws of Uganda

40 computer network or any other communication and another part through the action of the victim of the offence or the action is performed through a computer network or both. 47

In Hosni Tayeb V HSBC Bank PLC comi argued that, some banks and building societies will additionally be susceptible to the attention of the more sophisticated ctiminal organisations and their "professional money launderers". Such organisations, possibly under the disguise of front companies and nominees, will create large scale but false international trading activities in order to move their illicit monies from one country to another. They will create the illusion of international trade using false/inflated invoices to generate apparently legitimate international trade wire transfers, and will use falsified/bogus letters of credit to confuse the trail further. Many of the front companies may even approach their bankers for credit to fund the business activity. Banks and building societies offering international trade

48 services should be on their guard for laundering by these means. /

The Electrnnic Transactions Act 2011 constitutes provisions regulating electronic transactions, consumer protection among others.

The major objects of the Electronic Transactions Act according to Section 4 include providing for a legal and regulatory framework which enables and facilitates electronic communication and transactions.

• To remove and eliminate the legal and operational barriers to electronic transactions.

• To promote technology neutrality 111 applying legislation to elech·onic

communications and transactions; provide legal certainty and public confidence in the

use of electronic communications and transactions.

47 The Computer Misuse Act 2011 48 Tayeb v HSBC Bank Pie & Anor [2004] EWHC 1529

41