Analysis Of the Legal Framework for Combating Bank Fraud in Uganda

Abstract Bank fraud, defalcation and forgeries have unprecedented prepositions and dimensions in the banking industry. Fraud in Ugandan is epidemic and has its root firmly entrenched in the social setting1 . A report of the Uganda Bankers Association indicates that albeit the good performance of the financial system in supporting the economy through intermediation and operation of the payment system, the financial sector faces the problem of bank fraud which unfortunately is on the increase. Bank frauds take various forms ranging from alteration of cheques and / or counterfeit to skimming or cloning of cards2 . To combat bank fraud, a number of laws were enacted in Uganda but still fraud is in increase amid these existing laws. The study objectives included; finding out the types of bank fraud experienced in the commercial banks in Uganda, as well as examining the efficacy of the existing legal regime and control of bank fraud in commercial banks in Uganda. The study was a doctrinal and cross sectional. The study employed both qualitative and quantitative approaches. Findings on the types of bank fraud experienced in the commercial banks in Uganda indicate; online fraud wiring of money from accounts, ATM fraud, forged cheque fraud, Credit fraud as well as Money transfer fraud as major forms of frauds experienced and the major factors leading to increased bank fraud included; inadequate training on prevention of bank fraud, failure in management supervision, inadequate staff to carry out work banking operations meticulously, poor physical controls, lack of segregation of duties, lack of oversight by management on deviations from existing processes, business pressures to meet unreasonable targets, lack of tools to identify potential red flags are factors responsible for increased fraud. The legal challenges included poor coordination with law enforcement, lack of proper knowledge of the existing legal framework on bank fraud and inadequate knowledge of fraud investigation. There is need for continuous training of employee and customer education on bank fraud, review of the fraud detection mechanisms to be able to quickly detect fraud and harsh penalties should be imposed on those who are found guilty of the fraud so as to deter others who would be intending to do the same.

 TABLE OF CONTENTS

DECLARATION ........................................................................................................................... i

APPROVAL .................................................................................................................................ii

DEDICATION .............................................................................................................................iii

ACKNOWLEDGEMENT........................................................................................................... iv

LIST OF STATUTES.................................................................................................................vii

TABLE OF CONTENTS...........................................................................................................viii

ABSTRACT............................................................................................................................... xiv

CHAPTER ONE........................................................................................................................... 1

1.0 GENERAL INTRODUCTION............................................................................................... 1

1.1 BACKGROUND TO THE STUDY.................................................................................. 1

1.2 Statement of the problem........................................................................................................ 5

1.3 Objectives of the Study........................................................................................................... 6

1.3.1 General Objective........................................................................................................... 6

1.3.2 Specific Objectives......................................................................................................... 6

1.4 Research Questions............................................................................................................ 6

1.5 Scope of the Study .................................................................................................................. 7

1.5.1 Geographical Scope........................................................................................................ 7

1.5.2 Content Scope ...................................................................................................................... 7

1.6 Significance of the Study........................................................................................................ 7

1.7 Literature Review.................................................................................................................... 8

1.7.1 Bank Fraud........................................................................................................................... 8

1.7.2 Types of bank fraud ........................................................................................................... 15

1.7.3 Causes and Effect of Fraud in Commercial Banks............................................................ 17

1.7.4 Fraud Prevention and Detection......................................................................................... 21

1.8 Methodology......................................................................................................................... 28

1.8.1 Research Design................................................................................................................. 28

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1.8.2 Sample Population and Size............................................................................................... 28

1.8.3 Sampling Techniques......................................................................................................... 29

1.8.4 Sources of Data .................................................................................................................. 30

Primary data ................................................................................................................................ 30

Secondary data ............................................................................................................................ 30

1.8.5 Data Collection Instruments .............................................................................................. 30

1.8.5.1 The Questionnaire........................................................................................................... 30

1.8.5.2 Interview Guide .............................................................................................................. 31

1.8.6 Data Quality / Error Control .............................................................................................. 31

1.8.6.1 Validity ........................................................................................................................... 31

1.8.6.2 Reliability........................................................................................................................ 32

1.8.7 Data Analysis..................................................................................................................... 32

1.8.8 Ethical Issues ..................................................................................................................... 32

1.9 Organizational layout of the dissertation .............................................................................. 33

CHAPTER TWO ....................................................................................................................... 33

OPERATIONAL DEFINITIONS, CONCEPTUAL AND THEORETICAL FRAMEWORKS34

2.1 Operational definition of terms and concepts....................................................................... 34

2.3 Theoretical Framework......................................................................................................... 38

2.3.1 The Agency Theory ........................................................................................................... 38

CHAPTER THREE .................................................................................................................... 41

ANALYSIS OF THE LEGAL FRAMEWORK FOR COMBATING BANK FRAUD IN 

UGANDA. .................................................................................................................................. 41

3.1 The existing legal framework ............................................................................................... 41

3.1.1 The Bank of Uganda Act Cap 51 ................................................................................... 42

3.1.2 The Financial Institution Act, 2004................................................................................ 43

3.1.3 The Foreign Exchange Act, (2004)................................................................................ 43

3.1.4 Anti-Money Laundering Act, 2013 as amended 2016 ................................................... 44

3.1.5 The Penal Code Act Cap 120 ......................................................................................... 45

3.1.6 Contract Act, 2010 ......................................................................................................... 45

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3.1.7 The Electronic Transaction Act, 2011............................................................................ 46

3.1.8 The Computer Misuse Act, 2011 ................................................................................... 47

3.1.9 Electronic Signature Act, 2011 ...................................................................................... 48

3.2 Bank of Uganda policies....................................................................................................... 48

3.3 Commercial Banks Policies .............................................................................................. 54

3.4 Government Policies............................................................................................................ 55

CHAPTER FOUR....................................................................................................................... 56

ANALYSING LEGAL FRAMEWORK.................................................................................... 56

4.0 Introduction........................................................................................................................... 56

4.1 Analysis of the field work data ............................................................................................. 56

4.1.1 Bank Frauds Experienced in Commercial Banks in Uganda............................................. 56

4.1.4 Types of Bank Frauds Reported by the Bank Staffs in Commercial Banks in Uganda .... 59

4.1.7 Reasons for increased Bank Fraud in Uganda ................................................................... 62

4.1.9 Efficacy of existing Legal Framework to combat bank Fraud in Commercial Banks in 

Uganda ........................................................................................................................................ 66

Application of the Laws on Bank Fraud in Uganda ................................................................... 66

4.1.10 Types of Legal Framework available on Bank Fraud...................................................... 68

4.1.11 How Bank Fraud cases are handled in Uganda ............................................................... 70

4.1.12 Challenges faced in Combating Bank Fraud in Uganda.................................................. 71

4.1.13 Loopholes in the Laws Governing Banks in Uganda ...................................................... 72

4.1.13 Strategies to Combat Bank Frauds in Commercial.......................................................... 73

4.1.14 Weaknesses in the Law ................................................................................................ 77

4.2 Challenges of the legal framework for combating bank fraud ............................................. 78

4.2.1 Challenges of combating bank fraud ................................................................................. 78

4.2.4 Trend and Criminal Situation......................................................................................... 81

4.2.5 Legal Framework and Investigative Methods................................................................ 82

4.2.6 Practice of the Criminal Justice System......................................................................... 83

4.2.7 Current Problems and Moves Relating to Fraud and Corruption in Uganda..................... 83

4.2.8 Lack of Sufficient Public and Victim Participation and Awareness.............................. 83

4.2.9 Lack of Specialization in Handling Corruption Cases................................................... 84

4.2.10 Insufficient Capacity .................................................................................................... 85

4.2.11 Complexity of the Cases .............................................................................................. 86

4.2.12 Lack of Co-ordination among Anti-Corruption Agencies ........................................... 86

CHAPTER FIVE ........................................................................................................................ 88

FINDINGS, CONCLUSION & RECOMMENDATIONS ........................................................ 88

5.1 INTRODUCTION ................................................................................................................ 88

5.2 SUMMARY OF THE FINDINGS ....................................................................................... 88

5.3 CONCLUSION..................................................................................................................... 96

5.4 RECOMMENDATIONS...................................................................................................... 97

5.5 Contribution to the Knowledge............................................................................................. 99

5.6 Future Research Avenues ................................................................................................... 100

BIBLIOGRAPHY..................................................................................................................... 101

APPENDIX A: SAMPLE SIZE DETERMINATION ............................................................. 108

Table giving recommended sample size (s) for given populations (N).................................... 108

APPENDIX B: QUESTIONNAIRE FOR BANK STAFF....................................................... 109

APPENDIX C: QUESTIONNAIRE FOR POLICE, LEGAL OFFICERS & JUDICIAL 

OFFICERS................................................................................................................................ 115

APPENDIX D: INTERVIEW GUIDELINE............................................................................ 121