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Trouble escalates for BoU as Court nullifies legal sections protecting it from public prosecution

Governor Mutebile has been effectively striped of the powers under section 118 and 124 of the FIA (PHOTO/File)

KAMPALA, UGANDA: The Constitutional Court of Uganda has nullified sections 118 and 124 of the Financial Institutions Act that has been shielding the Bank of Uganda and its employees from being sued.

The five justices of Constitutional court in their ruling said it was unconstitutional for BoU to hide under sections 118 and 124 to shield themselves from the law and yet under 21 of the same constitution, it gives powers of equal treatment before and under the law. The justices were Muzamiru Kibeedi Elizabeth Musoke, Egonda Ntende, Irene Mulyagonja and Cheborion Barishaki

“This gives unjustified and arbitrary protection to the BoU, which is contrary to article 21 of the Constitution which provides that all persons are equal before and under the law in all sphere of political, economic, social and cultural life and every other respect and shall enjoy equal protection of the law. Given that BoU’s directives to freeze a person’s account have a bearing on the constitutional right to property, it is vital in safeguarding those rights that the courts retain the powers to scrutinize the actions of Bank of Uganda on their merits. This will ensure, not only freezing orders are not unjustly made but also that the BoU’s receives equal treatment as other persons who in similar circumstances will be amenable to legal proceedings”

The landmark ruling arose out of constitutional petition No 50 of 2013 of Peter Ssajabi and Swift Commercial Establishment Limited versus Attorney General and Bank of Uganda.

The petitioners challenged the constitutionality of provisions in certain acts of parliament and hence seeking court’s interpretation of the constitution so as to determine whether certain acts were allegedly done by the respondents in contravention of the constitution. The petition was brought in pursuant to articles 2,137 (1) (1) & (4) and 150 of the constitution and the constitutional court.

Freezing of accounts

1 “The Central Bank shall if it has reason to believe that any account held in any financial institution has funds on the account which are the proceeds of crime, direct in writing the financial institution at which the account is maintained to freeze the account in accordance with the direction.

2 A financial institution acting in compliance with a direction under subsection (1) of this section shall incur no liability solely as a result of that action”

The present petition alleges that when the BoU exercises its powers under section 118 of the FIA, there will be no recourse for the aggrieved bank account owner to the courts.  In its answer to the allegation the 2nd respondent submitted that it acted in accordance with the law because it had reasons to believe that the impugned accounts held funds which were proceeds of crime arising from illicit accumulation of wealth by public officials who allegedly conspired to create ghost pensioners causing substantial loss to the Ministry of Public Service.

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Protection of central Bank

No suit or other legal proceedings shall lie against the Central Bank or any officer, employee or agent of the central Bank for anything which is done or is intended to be done in good faith under this Act

According to court, it said that when read together, section 118 and 124 of the FIA make it impossible for a person aggrieved by the act of the BoU directing the freezing of his bank accounts to bring an action challenging the property of the freezing orders. This is potentially problematic. For example, assume the BoU directs for the freezing of A, a company’s bank account pursuant to section 118 of the FIA. BoU insists that its directives against A were done in good faith. It turns out that the freezing orders against A were made because of its connection with B who is suspected of corruption, B is actually a minority shareholder in A yet freezing its bank account will impede the proper functioning of A to the benefit of the other shareholders.

“In the above scenario, it would be just for A to commence proceedings so that a court can examine the property of the BoU’s directives to have its bank accounts frozen. Yet by virtue of section 124 of the FIA, such legal proceedings will be barred by law as the BoU will be insulated from against any legal proceedings by arguing that the directives were made in good faith so that no legal proceedings can be determined against it”.

The judges further reminded that the general principle of law is that a party must be given an opportunity to be heard before these rights are prejudiced or affected by another’s decision. “No one not even BoU can be shielded from being answerable to the dictates of justice. Unfortunately, section 124 of the FIA does just that and gives section 118 of the FIA that undesirable effect. Accordingly, I would hold that to the extent alluded to above, Impugned sections 118 and 124 of the FIA are inconsistent with and in contravention of articles 2, 20 (2), 22, 28 (1), (3) (a), 42,44(c) and 126 of the constitution.

“The petition also succeeds regarding sections 118 and 124 of the FIA which when read together have an unconstitutional effect in that the provisions empower the BoU to make directives cannot be subject to court scrutiny for purposes of determining whether they are justified. This is unconstitutional in that it denies the account holder access to court and shields the BoU from scrutiny in court proceedings. The section gives the BoU favorable and unequal treatment which is contrary to Article 21 (1) of the Constitution.” Reads the judgement which was delivered by Justice Cheborion Barishaki on August 26, 2021.

Legal experts welcome ruling

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According to Mr Peter Walubiri, a constitutional lawyer and lecturer of law at Makerere, the ruling of the Constitutional Court is a landmark because no authority should never have absolute power which sometimes they abuse.

“But clearly it would be very unfair to close any person or institution with powers. If an authority has power that can’t be checked by court, then it can be abused. Imagine if BoU infringes on my property? I think the judgement of the Constitutional Court is much welcome. I can imagine how sometimes they could base on hearsay to close your account and yet you aren’t involved whatever they accuse you for” said Mr Peter Walubiri

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