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The East African : March 31st 2014
46 CUSTOMERS LOST A TOTAL $4.4M Exim Bank (T) cyber fraud case goes to court The ≥uling is likely to set a p≥ecedent fo≥ custome≥ ≥ights and secu≥ity of deposits vis-a-vis thei≥ banke≥s’ By ADAM IHUCHA Special Correspondent A dispute between Exim Bank Tanzania and a section of its customers who lost a combined $4.4 million to cyber fraud last year, is headed to the courts, after efforts at arbitration hit a dead end. The outcome of the case is likely to set an important precedent for customer rights and security of deposits vis-a-vis their bankers’, in an increasingly digitised banking industry. According to court records, about Tsh7 billion ($4.4 million) was siphoned out of several Exim Bank customers’ accounts in the Arusha branch, in the biggest ever bank cyber heist in Tanzania. The techno-savvy criminals al- legedly colluded with bank staff to gain access to customers’ accounts from which they withdrew cash. Exim Bank subsequently sacked and sued 14 workers it suspected of colluding with the cyber fraudsters. However, the bank refused to recognise the customer’s loss claims, saying they weren’t valid. Consequently, seven of the eight customers who unsuccessfully tried to negotiate a settlement with the bank have filed a case in the commercial division of the High Court in Arusha, seeking to recover a combined claim of Tsh 1.6 billion ($1 million) from the bank. They are represented by John Ruwaichi, from Northern Law Chambers. “It is true we’ve filed the case and now we are waiting for the hearing commencement date,” Mr Ruwaichi told The EastAfrican. Another depositor, Pendael Mol- lel, a tanzanite gemstone dealer claims to have lost all his capital amounting to Tsh800 million ($500,000) in the heist. “I’ve turned into a beggar after my hard-earned capital evaporated into thin air under the watch of Exim Bank. It is agonising that the bank is denying responsibility,” Mr Mollel said. Through his lawyer Omar Iddi Omar from the Arusha-based Law Bridge, Mr Mollel is finalising few technicalities before lodging his case next week. According to Deloitte’s Finan- cial Crimes Survey Report 2013, fraud is a growing problem in Tanzania’s banking industry, and the country could be losing as much as $10 million annually as a result of thefts in financial institutions. However, notes the report, the actual amounts stolen could be higher, since financial institutions tend to conceal fraud committed by their staff over the fear that being transparent could drive customers away, according to researchers. “The majority of the players in the financial services industry opt not to report incidences of financial crimes, which may have a bearing on the perception of their prevalence and impact on the industry,” the researchers say. Deloitte’s director financial advi- sory Robert Nyamu added: “Due to poor reporting of financial crimes in Tanzania, the same fraudsters move from one financial institution to another committing the Exim Bank in Dar es Salaam. Records show that about Tsh7 billion ($4.4 million) was siphoned out of customers’ accounts at the bank’s Arusha branch. Picture: File IN EA, CASH THEFTS TOP THE LIST According to Deloitte’s Financial Crimes Survey Report 2013, the most prevalent forms of financial crime across the region are cash thefts, at 72 per cent in Kenya, 67 per cent in Uganda and 71 per cent in Tanzania. Cheque fraud accounts for 44 per cent in Kenya, 50 per cent in Uganda and 14 per cent in same crimes.” According to Finance Minister, Saada Mkuya, cybercrime was becoming a threat to the economy, warranting the government to fasttrack the enactment of the cybercrime law. “Looking beyond the numbers, cyber fraud spells economic disaster not only for bank customers, but also for the financial institutions, mainly banks,” she said. According to government offi- cials and bankers, the most commonly reported fraud cases in the Tanzanian banking sector involve card skimming and ATM withdrawals. Tanzania. Asset misappropriation stands at 33 per cent in Kenya, 25 per cent in Uganda and 29 per cent in Tanzania. The most likely causes of financial crimes across the region are abundant liquidity in the industry, which makes it attractive to fraudsters and weak or inadequate controls. Identity theft, electronic funds transfers, bad cheques, credit card fraud, loan fraud and investment scandals are other avenues that criminals are using to defraud banks. The Deloitte report reveals that across the region, financial crimes commonly involve a combination of internal and external parties through collusion, which has proven to be effective at compromising internal controls. “Non-management personnel were perceived to be the most likely to perpetrate financial crimes in organisations,” notes the report. In Uganda, govt secu≥ities ma≥ket is opening up By MARTIN LUTHER OKETCH Special Correspondent COMMERCIAL BANKS’ dominance of Uganda’s government securities secondary market is gradually being chipped away, as the insurance and pensions sectors whose stake now stands at 37 per cent, pose a threat. Combined with offshore investors, commer- cial banks’ share of the the market has dropped from 70 per cent to 51 per cent. The realignment is attributed to a deliberate policy push by the Bank of Uganda to diversify the investment base. The central banker said that Uganda’s domestic debt primary and secondary markets have been opened to all investors, while a shift to market-determined rates have been attracting more local and foreign investors for the various maturities. BoU director of financial markets Stephen Mulema, said that while policy does not necessarily seek to reduce holdings by any category, it is expected to broaden the investor base by encouraging other categories like insurance companies, retail investors and pensions and trust funds to put money in government securities. “Insurance companies, pension funds, and retail investors have seen a rise in holdings to “Combined with offshore investors, commercial banks’ share of the market has dropped from 70pc to 51pc.” about 37 per cent while offshore investor holdings have been stable at about 12 per cent. This is a healthy sign that suggests further deepening of this market,” said Mr Mulema. Although the proportion of their holdings has decreased, at 51 per cent, domestic commercial banks remain the single largest investor class in government securities. José Domingo, the corporate adviser and head, fixed income at Crested Stocks and Securities Ltd, told The EastAfrican that pension funds were turning to government securities because they are lucrative. Mr Domingo said commercial banks have the strongest position holding government securities because of their access to liquidity, their reduced commercial lending and access to the Central Depository System (CDS). Maize farmer. Pic: File The EastAfrican BUSINESS MARCH 29 - APRIL 4, 2014 D≥y spell to d≥ive up inflation By BERNARD BUSUULWA The EastAfrican A DRY spell that hit Uganda late 2013 is likely to drive up the country’s inflation in the second quarter of this year, owing to an expected rise in food prices. Analysts say that food prices are likely to go up between April and June, as the harvest from last seson depletes, because it is expected that schools will buy their supplies for the new term in bulk. Consequently, inflation could rise by as much as two per cent, they say. “I expect the effects of the drought to kick in around June as schools begin to buy food supplies. Big suppliers are also clearing their warehouses and are not restocking them, thereby generetaing new price pressures,” said Dr Fred Muhumuza, the economic advisor to Uganda’s Minister of Finance, Planning and Economic Development. Bank of Uganda (BoU) data shows that the cost of food increased by 3.7 per cent in February from January figures, pushing the price base from 21.4 per cent to 25.1 per cent. Senior executives at the Uganda National Farmers Federation, a lobby group, say the latest harvest season could suffer a 25 per cent drop in total output compared with the preceding one, due to the drought that affected farmers between November 2013 and January this year. Some lost more than half of their crop. And although heavy rains wit- nessed at the beginning of March have renewed hopes of better yields, farmers remain sceptical it may not be adequate for the new planting season. “Inadequate rainfall in April could frustrate the germination of first seedlings, and this could further demoralise farmers,” said Samuel Aseera, a farmer from Hoima district western Uganda, an area known for growing maize, beans and sweet potatoes. Food prices account for 27.2 per cent of Uganda’s inflation basket, followed by health and entertainment at16.8 per cent and rent, fuel and utilities at 14.8 per cent, statistics from the Bank of Uganda (BOU) show. Significant increases in food prices often affect other consumer items, leading to reduced growth in other sectors of the economy.
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