THE REPUBLIC OF UGANDA
IN THE HIGH COURT OF UGANDA AT KAMPALA
ANTI CORRUPTION DIVISION
CRIMINAL APPEAL N0. 24 OF 2013
(Arising from Anti Corruption Session Case No. 64 of 2010)
BETWEEN
BALIKOOWA NIXON ::::::::::::::::::::::::::::::::::::::::::::::::::APPELLANT
AND
UGANDA ::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: RESPONDENT
BEFORE: HON. JUSTICE LAWRENCE GIDUDU
JUDGMENT
The appellant, being dissatisfied with the judgment, conviction and orders of the Chief Magistrate her worship Akankwasa Irene delivered on the 14th day of May 2013, appealed to the High Court against the conviction, sentence and orders.
He was convicted of the offence of Transacting Financial Institutions Business without a license C/s 4(1) and (11) of the Financial Institutions Act, 2004 and Embezzlement C/s 268 (b) and (g) of the Penal Code Act Cap 120. He was sentenced to 7 years imprisonment, and ordered to pay the complainants ¾ of the embezzled amount of UGX 3,366,926,390/= as compensation to the victims. An order was also made disqualifying him from acquiring a license under the Financial Institutions Act, 2004 and any other law authorizing the taking of deposits.
The facts of the case as gathered from the record of appeal are that Dutch International was a company limited by guarantee incorporated on 13/11/06 as per Exhibit “P.E 30”.
The Appellant was a general secretary, one of the directors and signatory to the company bank accounts.
The Appellant and other company employees appealed to members of the public to make contributions/deposits promising to refund the same with interest/top up. Most of the promised payments were not made and the monies were never recovered hence these charges.
He pleaded not guilty and after a trail, he was convicted on two counts of Transacting Financial Institutions Businesses without a license C/s 4(1) and (11) of the Financial Institutions Act, 2004 and Embezzlement C/s 268 (b) and (g) of the Penal Code Act Cap 120.
The appellant, who is represented by M/s. Sseguya Samuel, Masereka Martin and Kiyemba Mutale Mathias contested the judgment of the trial court on the following grounds; that:-
1. The learned Trial Chief Magistrate demonstrated bias against the Appellant throughout the trial thereby depriving him of a level ground to ably defend himself against the charges.
2. The learned Trial Chief Magistrate’s holding that the Appellant transacted financial institutions business without a valid license and the order disqualifying him from acquiring such a license under the act or any other law authorizing the taking of deposits was not based on factual or legal findings.
3. The learned Chief Magistrate erred in law and fact when she convicted the Appellant on acts/or omissions of the Company.
4. The learned Trial Magistrate failed to evaluate the evidence and to properly construe the law in respect to the charge of embezzlement thereby arriving at wrong conclusions which caused injustice to the Appellant.
5. The learned Chief Magistrate misdirected herself on the burden and standard of proof applicable to cases of embezzlement.
6. The order to refund shs. 2,525,194,794/= (two billion five hundred and twenty five million one hundred and ninety four thousand seven hundred and ninety four) to Dutch international victims was ungrounded, without justification and lacked concrete proof of loss by the alleged victims.
7. The sentence of seven years imprisonment for the offence of embezzlement was excessive given the attendant facts.
It is trite law that the duty of the first appellant court is to re-evaluate the record of the proceedings so as to make its own findings and conclusions in the case. This court has a duty to review the entire evidence on record including that which it may decide to admit, re-evaluate and to make its own findings of fact. See Selle & Another vs Associated Motors Boat Co. Ltd & others (1968) EA 123
I will be mindful of this duty in my analysis of the grounds of appeal below.
Ground One.
The gist of the complaint here is that the trial Chief Magistrate demonstrated bias against the Appellant throughout the trial.
Mr. Joseph Lubega, learned counsel argued that the Appellant was denied bail throughout the trial which demonstrated bias. He relied on the case of Stephen Kachwano vs Kyeyamwe William C.A 39/2010 which is to the effect that denying a party an opportunity to be heard should be the last resort unless the Court has pronounced a Judgment or by consent of the parties.
Counsel conceded that the record does not reveal what happened. There is no evidence that the appellant was denied a right to be heard on his bail application!
On the contrary, perusal of pages 31 to 33 of the transcribed record reveals that the appellant was granted bail of 1,000,000= and each surety bonded in 50,000,000= not cash. It is not clear why they failed to meet those conditions.
At pages 803,857, 873 and 874 attempts were made to apply for bail again before another trial Chief Magistrate when prosecution was about to close. He repeated the application for bail when the defence case had opened! The trial chief magistrate declined to grant bail to the appellant because the case was at an advanced stage. In my view the trial Chief Magistrate properly exercised her discretion to deny bail to persons who had known all the evidence against them and could jump bail at the slightest opportunity.
Lastly I was asked to find that there was bias on the basis that the High court directed that the appellant be granted bail if the case was not disposed of within 60 days but the trial Chief Magistrate ignored that order.
With the greatest respect to my learned sister, the order of Bamugemereire,J dated 13th January, 2011 was without legal foundation or indeed jurisdiction. If the matter was before her for bail application then with respect, the judge should have either granted it or rejected it without directing the lower Court to exercise discretion in a particular direction. Though the High Court has supervisory powers over magistrates’ Courts under the Judicature Act, no such powers exist to direct a Magistrate on how to exercise her discretion.
Besides, if the High court had read the record, it would have found out that bail had been granted by another chief magistrate. At that point it should have dismissed the fresh application and advised the appellant to appeal against the terms of bail granted by the lower court if they were considered too stiff.
Perhaps I should also observe that this case was heard by two Chief Magistrates. The first was Mr. Mugabo who granted bail and recorded evidence of 12 prosecution witnesses. The second was Mrs Akankwasa who heard the case to completion and wrote the judgment.
It is difficult to trace bias to the two chief magistrates since the first one granted bail and the second one had no jurisdiction to grant bail because the first one had done so. It was not proper for counsel to apply for bail before the second chief magistrate who had no power to reduce the terms set by her predecessor. Moreover, the case was at such an advanced stage that the possibility of applying for bail just to jump it was valid.
The refusal by the second chief Magistrate to exercise her discretion pursuant to an order of the High court given irregularly cannot amount to bias. Moreover, the high court order was not a definite direct to release the appellant on bail but to consider the release on bail. The chief magistrate retained her discretion not to release for reasons she gave. It is my finding on appeal that the second Chief magistrate exercised her discretion judicially. The criticism in ground one is, with respect, without merit. Consequently ground one fail.
Ground two
Mr. Sseguya Samuel, criticized the trial Chief Magistrate for finding the appellant guilty of transacting financial institution business without a valid license and disqualifying him from obtaining a future license whereas it was Dutch International Ltd at fault.
The reason for this complaint was that the evidence on record by the Registrar of companies and the memorandum and articles of association show that Dutch international Ltd had no objective of dealing in financial transactions. He submitted that the appellant was just an employee who should not be held responsible for the crimes of the company. Further, that what the company was running was not a business of deposit taking but a scheme where people voluntarily made contributions and were given top ups and not interest to which the financial institutions Act applies.
In reply Ms Atim Jackline, contended that the action of receiving money from the public disguised as contributions and paying out what was called top ups was another way of doing banking business which required a license to do so under Act 2 of 2004. She submitted that deposits were disguised as contributions while interest was disguised as top ups.
Exhibit 30 which is the memorandum and articles of association of Dutch International Ltd has aims and objectives which dwell on training micro entrepreneurs in order to enhance their competitiveness. It includes marketing products through exhibitions and through participation in AGOA. There is no objective for running a scheme by receiving contributions and paying back the principal plus top up.
The culpability of the appellant is be based on his actions of transacting business which is similar to that operated by deposit taking institutions. To argue that because the memorandum does not have those objectives therefore the appellant should be acquitted is, with respect, misleading. The appellant signed the memorandum as a subscriber and General Secretary. A subscriber is an owner of the company and in this case a guarantor for the faithful discharge of the business. He was not a mere employee as learned counsel had submitted.
The evidence of several witnesses like PW2, PW3, PW8, PW9 is that Dutch International collected deposits “contributions” from them, with a promise to have the same refunded after 31 working days, with an “interest” called a top up.
The Financial institutions Act, 2 of 2004, prohibits the operation of a deposit taking business unless one is a company licensed to do so. See section 4 of the Act:
4. Prohibitions against transacting financial institution business
(1) A person shall not transact any deposit-taking or other financial institution
business in Uganda without a valid licence granted for that purpose under this Act.
(2) No person shall be granted a licence to transact business as a financial
institution unless it is a company within the meaning of this Act.
There is overwhelming evidence which is indeed admitted by the appellant that he was one of the directors of Dutch International Ltd. They operated a business not related to what they registered it for. They would get money from the public and pay back the principal and top up. They coined various terminologies such as soft grant, top up, membership, contribution etc in order to avoid being called a Financial Institution but for all intents and purposes, they operated a bank or micro deposit institution and since they had no license within the meaning of section 4 above, the appellant and his co-subscribers committed an offence.
The appellant’s testimony from page 853 of the transcribed record puts him on the spot as one of the persons who were rightly charged for transacting a deposit taking business without a license. The submission that it was Dutch International Ltd which should have been charged is superfluous because the section prohibits persons and not companies. Besides, a company operates through its board which is made up people such as the appellant. The purported scheme was a fraud designed to beat the requirement for the license and would have gone un-noticed if the appellants had not failed to meet their obligations to the depositors who were conveniently called voluntary contributors.
To uphold the submission of counsel would open a flood gate for fraudsters to fleece the public through bogus schemes. It is immoral for a court of justice such as this to protect fraudsters who cheat the public. On the contrary it is the duty and mandate of this court to bring fraudsters to book.
I find no merit in ground two which must fail.
Grounds 3
It was the appellant’s complaint that he was convicted for the acts of a company. The last paragraph above disposes of this ground. The offence in section 4 of Act 2/2004 was created for persons and not companies. Companies are the ones required to be licensed while persons are prohibited from operating as such unless their company has a license. The conviction is proper. Ground three fails.
Ground four.
The complaint in ground four is that the charge of embezzlement was misplaced. Mr. Kiyemba Mutale argued that if the trial court had evaluated the evidence properly, it would not have found evidence of embezzlement.
Counsel made a lengthy argument that the prosecution did not prove that the money received from the depositors and deposited on the accounts of the church operated by PW4 and PW5, was eventually withdrawn and given to the appellant so as to trace the culpability of the appellant. He referred to the case of Balikowa Nixon and another Vs Uganda, Kabale Appeal 3 of 2011 where this same appellant was acquitted of similar charges on appeal after defrauding the public using a company called COWE. It was counsel’s contention that the trial court was bound to follow that decision and acquit the appellant unless she distinguished the case.
Counsel for the state countered this argument by stating that the bank accounts of the church belonged to and were operated by the witnesses (PW4 and PW5). The appellant approached the two witnesses to allow him use their accounts and they gave elaborate testimonies of how the appellant was introduced to the bank. This evidence is not controverted leaving no doubt that monies deposited on those accounts from depositors were withdrawn by the appellant. She argued further that once the accounts of COWE were blocked, the appellants incorporated Dutch International Ltd as a vehicle for perpetuating the fraud they had been committing in COWE.
The law under which the appellant was charged is section 268 of the Penal Code Act which provides as follows:
268. Embezzlement.
Any person who being—
b) a director, officer or employee of a company or corporation;
g) to which he or she has access by virtue of his or her office,
commits the offence of embezzlement and shall on conviction be sentenced
to imprisonment for not less than three years and not more than fourteen
years.
The accused must be a director or officer of a company and should have accessed the money by virtue of that office. The chief magistrate resolved at pages 8 to 10 of her judgment that the appellant was a General Secretary and therefore an officer of the company and that from the evidence, people who contributed money to the scheme were given membership receipts. That money received by the company belonged to the members and the company was a special owner within the meaning of section 254 of the Penal Code Act. She found that the appellant accessed this money by virtue of his position in the company and stole it.
Unlike ordinary theft where the thief has no authority to access the property, embezzlement is committed by the person who accesses the property legally by virtue of office but later converts it to his/her own use. A relationship of trust exist between the thief and the owner in a case of embezzlement.
Counsel for the appellant argued that there was no proof of theft because there was no evidence tracing the money from the depositors to the appellant. That the money the appellant was getting from the pastors could perhaps have been a loan.
The evidence of Keya Lawrence (PW4) at page 53 is that the appellant who is his church member had just left prison in Kabale. He approached him seeking the use of a bank account because his had been frozen for the activities of COWE. PW4 consulted the bank that advised that the appellant signs bank forms as an agent who would operate the account with PW4. The arrangement worked. The appellant would deposit and withdraw money at his will.
PW5 had a similar arrangement with the appellant and testified at pages 58 and 59 giving a breakdown of the deposits by the appellant. The appellant would call PW5 who would go to the bank to sign a cheque. The appellant would fill in the amount he wanted and would withdraw it.
This evidence when read together with the testimonies of the cahiers like PW7, leaves no doubt that the appellant was the man in charge of receiving these funds which he eventually took. This is supported by the testimonies of PW4 and PW5. Learned counsel’s submission that there was no evidence tracing the deposits to the appellant is contrary to the evidence on record.
I was asked to consider that there was no theft because the company was not the complainant. I was asked to consider the holding of my learned brother Kwesiga, J, in Balikowa Nixon and another Vs Uganda(supra) where the appellant committed similar acts in kabale. My learned brother held that the complainants in the Kabale case were not members of the company and so the appellant could not steal their money. He advised that the complainants should pursue civil suits against the appellant and also ask Bank of Uganda for indemnity. He acquitted the appellant of the charges of embezzlement.
I have carefully read the judgment of my learned brother and noted his views. While I am not bound by his decision, I am grateful for and respect his conclusions. My brother noted in that judgment that the deposits to COWE and the repayments with interest created a banker/ customer relationship. However, he observed that since Bank of Uganda intervened, it should have caused the recovery of those funds by indemnifying the depositors. It is for that reason that he advised the depositors to pursue their claims with Bank of Uganda as regulator.
Patrick Kiggundu, PW23, an auditor, tendered a report, exhibit P42 which put the total claim against the company at Shs. 3,373,676,390= All the claimants names and deposits are verified in that report based on acknowledgements given to individual depositors by the company.
This evidence gives a specific amount of money taken by the company operated by the appellant. There is ample evidence that monies received from depositors was first banked in post bank but when that account was frozen, the appellant sought the assistance of two pastors(PW4 and PW5). He deposited monies there and withdrew it at will. That money was not from his private business but was from depositors. It was on that understanding that the two pastors allowed him free use of their bank accounts. It is, true that some money was stuck in post bank account that was frozen while the monies deposited on the pastors’ accounts was withdrawn by the appellant. The evidence on record by some depositors like PW8 and others named in exhibit P.42, is that they never got back their deposits or indeed the interest.
The appellant testified for several months in a lengthy testimony which was interrupted with other witnesses such as D/IP Mugisha. The gist of the appellant’s evidence is that depositors were paid back their money and that if it was not his arrest, he would have produced documentary evidence. He attributed some money to other employees of the company. From pages 853 to 904 of the record, the appellant did not explain the withdrawals that PW4 and PW5 attributed to him. He shifts blame to other officers of the company. The evidence of PW4 and PW5 is so clear that the money withdrawn from the pastors’ accounts were funds got from depositors or contributors which the appellant withdrew at will. Submissions by counsel that it could have been a loan are a speculation from the bar. The defence did not raise the necessary doubt in the prosecution case on the charge of embezzlement.
The company operated three bank accounts on which part of the money collected from these witnesses was being deposited and the Appellant was a signatory to these accounts. Where he used other peoples’ bank accounts, he would still personally withdraw the money. The money banked after receipt from depositors is traced to the appellant. This evidence was not challenged in the lower court. To say that the appellant did not steal that money and that the depositors should pursue civil claims through Bank of Uganda is, with respect, to allow crooks to fleece unsuspecting members of the public which this court would not countenance.
It is my finding that monies deposited with the company were stolen by the appellant. In his own evidence, the appellant stated that the depositors did so willingly. He acknowledges that the company he and others set up received money from these depositors and after 31 days, it would be paid back with interest which they called top up. There was a relationship of a contractual nature. The money though in company coffers belonged to the depositors who were the special owners. Like banks owe depositors money, so did Dutch International Ltd owe money to depositors! As special owners within the meaning of theft as defined in section 254 of the Penal Code Act, they were permanently deprived of their property by the appellant who is a proven thief. Consequently, the charge of embezzlement was properly founded.
The Bank of Uganda does not indemnify customers of a company they have not licensed to operate. Even when the Bank of Uganda has licensed a bank, it only indemnifies up to a certain limit per customer. It is with respect that I differ in my understanding of the role of Bank of Uganda as given in the judgment of Balikowa Nixon(Kabale case) by my learned brother Kwesiga, J.
Such a decision would promote fraud rather than curtail it. It would be against public policy to allow conmen get away with colossal sums of money collected from the public. This court says no to such fraudulent schemes that are not licensed. Even the objectives of Dutch International Ltd did not include this scheme. It is justifiable to conclude that the scheme was designed to steal. Ground four fails.
Perhaps I should note that section 268 of the Penal Code Act was repealed by section 69 of the Anti-Corruption Act after the later Act had re-enacted the old provisions of section 268 PCA in section 19 of the Anti corruption Act. The Constitutional Court has in a number of cases held that the re-enacted provisions carried into the new law the old offence. The proceedings under the penal code provisions are, therefore, valid.
Ground 5
That the learned Chief Magistrate misdirected herself on the burden and standard of proof applicable to cases of embezzlement.
In all criminal matters, it’s the duty of the prosecution to prove all the elements of the offence charged except in a few statutory exceptions and the standard of proof is beyond reasonable doubt. See Woolmington vs Dpp [1935] 464, Oloo S/o Gai vs R [1960].
The trail magistrate in her judgment at page 8 clearly pointed out who bore this burden and the position of the law is the same in all criminal cases including embezzlement. There was nothing to demonstrate that the court shifted the burden to the appellant.
I therefore find no misdirection as to the burden or standard of proof in this case. This ground hereby fails.
Ground 6
The complaint here was to the effect that the order against the Appellant for compensation of the victims was without justification and lacked concrete proof of loss by the alleged victims.
The trail chief magistrate ordered the Appellant to pay the complainants ¾ of the embezzled money which was UGX 3,366,926,390/= as compensation.
The Appellant was ordered to pay 2,525,194,794/= representing three quarters of his culpability. Mr. Masereka, learned counsel for the appellant argued that there was no audit report upon which the court based its order of compensation. That there were no witnesses who testified that the appellant took their money. Finally that on the authority of Balikowa Nixon vs Uganda criminal appeal 3 of 2011(Kabale High Court), it was the responsibility of the company or Bank of Uganda to refund deposits and not the appellant.
Ms Atim for the state supported the compensation order submitting that it was mandatory upon conviction once evidence of loss is adduced during the trial. That there was evidence from victims which showed that they deposited money and did not get it back.
The prosecution tendered exhibit “P42” which is a compilation of names of claimants and the amounts being demanded. Page 29 of exhibit 42 under item 10.0 headed conclusion and way forward it concludes as follows:
The purpose of our engagement was to primarily review the complainants’ files at CID headquarters with emphasis on providing reasonable confirmation as to the amounts of money owed to each complainant and also derive the liability due to the clients as a group.
We have examined the information of former clients of Dutch International Ltd availed to us and in accordance with the instructions set out in your letter.
Basing on our review of the supporting documents, the claims verified totaled Shs. 3,373,676,390= and therefore the clients of Dutch International Ltd are demanding Shs. 3,373,676,390=( Uganda shillings Three billion three hundred seventy three million six hundred seventy six thousand three hundred and ninety) from Dutch International Ltd.
It is very clear from the above excerpt that the claims were verified and found to total Shs. 3,373,676,390=. This was found to be the owing to the depositors. This report was challenged on grounds that it was not an audit report. With respect, what was at stake was the amount being demanded back by depositors. The review report clearly documents the names and amounts of depositors in detail based on evidence availed to the review team. An audit report using the same documents would come to the same figure. Having established this figure, it was up to the appellant to contest it by showing that the claimants had been paid back their deposits and perhaps the so called top ups. It is only then that he would have created doubt in the prosecution case.
This was not done yet the defence was in possession of that report which contained the names and amounts of depositors. By admitting exhibit 42 in evidence, the trial court was entitled to rely on it and ascertain that amount due from the report. There was sufficient justification for the compensation order.
I have already expressed my opposite views on the case of Balikowa Nixon in Kabale High court by my learned brother Kwesiga,J. With the greatest respect, I don’t share his views and conclusions. It is against public policy for a court to hand a fraudster a lifeline to continue cheating the public. If my learned brother had stopped the appellant in his tracks by upholding the conviction, the appellant would not have come out of jail to commit a similar crime as he did when he operated a similar scheme with a company called COWE.
Bank of Uganda cannot legally compensate the depositors when Dutch International was not licensed to transact business. Similarly, to argue that the loss should be claimed from the company and not the appellant is to miss the point. Dutch International was not licensed to receive deposits. If it had been licensed to do so, then it would be legitimate to claim deposits from it as well as Bank of Uganda.
Dutch international was registered for different purposes. It had no objective of running a scheme of contributors being paid soft grants and top ups. The moment the directors deviated from the memorandum and articles of association and went on to operate a business whose objects they had not registered nor obtained a license for, then they became personally liable for the consequences of their illegal actions. They cannot hide under the company because by operating a deposit taking scheme, they were not carrying out the objects of the company. They were on a frolic of their own and cannot hide under company law. To hold otherwise is to promote crime in the country. Dutch International Ltd was set up as a vehicle for committing acts of fraud which in this case amounted to a crime of embezzlement.
The victims of that fraud need to be compensated. The apportionment of the amount to be paid was in the discretion of the trial court regarding the degree of culpability. The orders of the chief magistrate regarding compensation by the appellant were justified under. Ground six fails.
On ground 7
Mr. Kiyimba Mutale argued that the sentence of imprisonment for seven years was excessive given the fact that the appellant had been on remand for 4 and half years by the date of sentence on 14th May 2013.
Ms Atim supported the sentence contending that the amount of money involved is colossal and the appellant were not restrained by the fact that they had been charged for similar actions when they operated a company called COWE. I understood her to say the appellant is a repeat offender.
The trial court considered the period of 4 ½ years spent on remand and decided that it exceeds the maximum of 2 years provided on count one. She did not sentence him on that count but made a disqualification order under Act 2 of 2004.
With respect, she should have made a decision on the sentence even if it would have been overtaken by the remand period. It was an error not to impose a sentence on the first count after convicting him. Under section 34 of the Criminal Procedure Code Act, I would have sentenced the appellant to 2 years but since he had been on remand for a greater period than the maximum, I sentence him to a caution.
On count two, the maximum under the law is 14 years. The chief magistrate acknowledged this and sentenced him to 7 years.
Under our recently enacted Sentencing Guidelines the starting point is 7 years and the lowest point is 3 years while the maximum is 14 years.
The court has to consider mitigating and aggravating factors before deciding whether to go up or down the scale. The mitigating factor put forward by the appellant is the period of 4 ½ years spent on remand. The prosecution aggravated this by submitting that the amount of money lost in the scam is colossal- over three billion and the appellant never learns from his mistakes. Having caused similar losses to the public in Kabale, he repeated the same crimes in Kampala soon after his release from prison.
The aggravating factors in my view outweigh the mitigating factors. The period of 4 ½ years spent on remand if deducted from the maximum of 14 years leaves him with 9 ½ years to serve. By imposing 7 years, the trial court had discounted off only 2 ½ years. Was that excessive? I would say no. In my view this would be a proper case for the court to impose a maximum because the appellant is habitual in his criminal schemes. The sentence of 7 years was reasonable.
I hope that when the appellant leaves prison, he will find a better job to do than fleecing the unsuspecting public of their resources. The complaint against sentence is not justified.
In conclusion, the appeal is dismissed. The conviction is upheld. The orders of the chief magistrate regarding compensation and disqualification from operating a deposit taking business under Act 2 of 2004 are also upheld.
Ms Atim asked me to direct that money lying in Post Bank A/c No. 1039999015962 be relinquished to the victims. The evidence on record is that that account was being operated when the appellant was using COWE as the vehicle to steal from the public. If that is the case then it is the depositors of COWE who should be compensated from the Post Bank account. If the said account is in the names of Dutch International ltd, then those funds should be used to offset the depositors’ losses
LAWRENCE GIDUDU
JUDGE
7th May 2014.