KCB Bank sued for fraud, money laundering in fresh Court battle with Tirupati

By Our Senior Reporter

Tirupati Development (U) Limited, through her lawyers Aegis Advocates and Kirunda & Wasige Advocates, has dragged KCB Bank Uganda Limited (2nd defendant) and KCB Bank Kenya Limited 3rd defendant) to court for breach of contract, negligence, deceit, breach of fiduciary duty, fraud and money laundering among other ills.

In the same suit, logged in the high court of Uganda at Kampala (civil division), Civil Suit No. 015 of 2022, Tirupati also accuses Bank of Uganda (BOU) (1st defendant) and Financial Intelligence Authority of negligence (FIA) (4th defendant),  of negligence, breach of statutory duty and misfeasance in public office.

According to documents filed in court, the troubles between the two KCB Banks and Tirupati emanated from a loan deal that was reached on 17th July 2012 when the regional commercial bank agreed to advance a syndicated loan facility of US$ 7,000,000.

On their part, Tirupati staked a series of certificates of title to its properties as collateral, however, while the defendants (KCB Bank) had agreed to disburse a total sum of USD 7,000,000, the total sum disbursed was, in fact, USD 6,990,000.

The bank charged US $35,000 as loan negotiation fee, a thing the plaintiff says was irregular because it was above the agreed amount and the bank refused to provide breakdowns of how the loan negotiation amount charged was arrived at.

Tirupati also accuses KCB Bank of breach of fiduciary duties since the banks were acting as trustees of plaintiff’s name and reputation, assets, accounts, money and property that were in their possession or control.

Illegal Bank Accounts Opened

Uncharacteristic of banking norms, Tirupati says that in August 2016, the two sister banks opened and operated two separate US Dollar denominated loan accounts in their names without their knowledge or consent -these were account number 1059906732 with KCB Bank Kenya and account number 2150226057 with KCB Bank Uganda.

In a similar manner, in January 2017, KCB Bank Uganda opened and operated another new US dollar current account No. 2290351628 in the names of the Tirupati Development (U) Limited, the plaintiff, without the plaintiff’s authorization, consent or knowledge.

When Tirupati noticed the irregularities and the suspicious transactions on its current and loan accounts in 2018, the banks didn’t provide a coherent explanation when the plaintiff demanded. Even when the plaintiff demanded a reconciliation of accounts, clarity on the status of their loan repayments, and requested for the issuance of bank statements, none was honoured causing the plaintiff not to meet her loan obligations.

Tirupati notes that by opening these accounts without the plaintiff’s authorization, the banks appropriated themselves Tirupati’s name, goodwill, reputation, integrity and business acumen and did not act in good faith but rather for their own private gain.

“The plaintiff will aver and contend, as is pleaded further below, that these activities were illegal. Further, these transactions also constituted a conflict of interest between the interests of the plaintiff and those of the 2nd and 3rd defendant,” Tirupati’s lawyers said in the documents filed in court.

Fraud Allegations

In an attempt to sort out the impasse, Tirupati, between 2018 and 2021, wrote a series of letters to the banks raising a number of observed irregularities on its bank accounts including committed fraud and conspiracy to defraud.

Among the fraudulent irregularities noted, KCB Bank Uganda refused to give the plaintiff records of bank statements of her current and loan accounts, something that inhibited Tirupati from understanding the true extent of her debt.

KCB Bank Uganda and KCB Bank Kenya also failed to provide coherent explanations for the inconsistent loan statements and balances observed by the plaintiff on her accounts.

Also, the banks failed to explain the existence of an unknown US Dollar account 2290351628, numerous and unauthorized transactions and failed to account for money fraudulently taken from the plaintiff’s accounts to pay the defendants employees.

The banks similarly failed to provide a clear and coherent explanation for the continued and unlawful charge of inexplicable penalty interest on transactions that were not known or recognized by the plaintiff and refused to release all titles requiring release following receipt of funds from the Plaintiff.

Tirupati accesses the 2nd and 3rd defendants of misappropriating and occasioning the disappearance of the plaintiff’s funds in the sum of US$ 995,466.78 deposited on the plaintiff’s current accounts 2150226057 and 1059906732 to aid her loan repayments.

“The facts alleged above show that the 2nd and 3rd defendants on several occasions dealt dishonestly with the plaintiff by acting without the authority and knowledge of the plaintiff, failing to provide explanations for their actions and concealing information about the plaintiff’s accounts,” Tirupati said in the plaint.

KCB Bank Customers-at-a-taller-point

Money Laundering 

Tirupati also believes that the banks were using bank accounts they created in their names to launder money thereby exposing the plaintiff and its directors to the potential prosecution for money laundering.

The plaintiff received conflicting statements of transactions on its accounts covering the period of the entirety of the loan and beyond the consent judgment, which clearly indicate highly suspicious transactions akin to money laundering and theft by the 2nd and 3rd Defendants collectively.

These transactions, according to Tirupati, confirm that the 2nd and 3rd Defendants failed to manage the risk of financial crime and IT fraud when they maintained separate ledgers for the Plaintiff’s accounts.

Tirupati also believes that the banks utilized her accounts in the manner that made any audit trail difficult to avoid scrutiny by regulators and law enforcement in the two jurisdictions of Uganda and Kenya

Also, the banks occasioned or otherwise facilitated the unauthorized use of the plaintiff’s accounts to transact in varying amounts between 2014 and 2021 totalling US Dollars 79,900,000 and 62 similar transactions totalling UGX. 315,992,747 which transactions bore no relationship to the plaintiff or its businesses for the period evaluated but appear in the names of the plaintiff.

“The plaintiff avers and contends that the 2nd and 3rd Defendant continue to this day to launder money through her named accounts.  These actions did and continue to expose the plaintiff, its shareholders and directors to the legal and financial consequences and sanctions arising from the suspicion of engaging in illicit money laundering and probable terrorist financing, likely corruption, or payments procured through drug or child and sex trafficking through the illegal use of her accounts threatening her entire business enterprise.”

With this suit, Tirupati wants the court to declare that KCB Bank breached the contract, is a fraudulent bank, neglected its fiduciary duties, failed to manage plaintiff accounts, failed to manage risk of financial crime, cause the bank to return 20 certificates of title, account for all sums misappropriated with interest, declare that bank engaged in money laundering, pay fines and general damages and costs of the suit. 

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