Nairobi — The Bank of Uganda is in the spotlight following the revelation of massive fraud rackets under its watch by multiple investigations into the banking sector.

Security sources now warn that it is becoming increasingly risky to keep large sums of money in Ugandan banks because of sophisticated frauds that have led to losses of billions of shillings.

The fraudsters have used advanced information technology skills to fleece banks, taking advantage of an ill-equipped police force and security sector.

A secret investigation conducted by State House intelligence at the orders of President Yoweri Museveni has unearthed systematic collusion between fraudsters and central bank staff.

The findings, handed over to the president early last week, are expected to lead to new measures to curb financial fraud in Uganda's banking sector.

An earlier parallel investigation by the former Inspector General of Government, Justice Faith Mwondha, had implicated senior BoU officials in some of the fraud cases, prompting the president to assign his intelligence team to conduct wider investigations on the sector.

President Museveni was particularly perturbed by one case in which the IGG accused officials formerly working with the Co-operative Bank of conniving with BoU to mess up the financial position of one Chris Tushabe after he refused to give in to their extortionist demands.

Through a fraudulent IT transaction by officials from the Bank of Uganda, Mr Tushabe's account was overdrawn to the tune of over Ush780 million (about $400,000), which he disputed.

He had just been offered an overdraft facility of Ush600 million ($300,000) secured by property worth Ush1.4 billion ($700,000).

According to the IGG report -- also submitted to President Museveni recently -- Mr Tushabe was also in 2002 coerced into selling his property, a house block at Plot 27 Akii Bua Road, Nakasero, at a price of $395,000, far below its market value.

This was after two BoU officials "arm-twisted" him through threats that the bank would sell the property through public auction as he was still indebted to the defunct Co-operative Bank. Apparently, Mr Tushabe had lost his bank documents in an attack on his home by a rebel group.

"Officers of Co-operative Bank and BoU also unjustly and unfairly dismissed Mr Tushabe's claim for Ush688,672,613 when he all along had been denied documents for one of his bank accounts for nearly six years," the IGG noted.

The EastAfrican has learnt that the State House investigation has blacklisted senior employees in several banks, including BoU, who abetted scandals in which the public lost enormous sums.

"They are spearheaded by bank employees in IT departments. A lot of recruitment of staff with those skills is still going on," a source familiar with the investigation said.

In an interesting twist, the State House investigation was sanctioned as the central bank itself initiated its own probe.

"We are doing our own investigation. Wait for our findings," Mrs Bagyenda told The EastAfrican.

Two years ago, the central bank made it mandatory for companies paying their employees Ush20 million and above to use electronic funds transfer (EFT) rather than cheques, because EFT was "free of fraud."

But Mrs Bagyenda said the present fraud cases were internally generated. He added: "These fraud cases are generated internally by employees assisted by external fraudsters. So it is not a question of EFT. The cases of fraud we are talking about are those being fuelled by IT specialists."

BOU also last week directed commercial banks to issue it with their security programmes in the wake of rampant fraud related to IT transactions.

In addition, the bank has established an Economic Intelligence Unit to fight fraud.

State House investigators reveal that a former IT specialist with the bank is a mastermind of several fraud cases in the entire sector.

That former IT specialist who is still on the run after having been accused of involvement in theft at the bank where Ush50 million ($25,000) was siphoned off in October 2008, is believed to have procured software that easily breaks down bank security firewalls.

The bank was tight-lipped when The EastAfrican sought details of the scam, although intelligence sources revealed that the culprit had connived with bank cashiers with a target of stealing at least Ush500 million ($250,000).

"When the IT specialist was arrested, part of the evidence was a flash disk containing details of how to hack into the banking system. Field intelligence believes it is the data in the flash disk that was used to defraud a bank, where Ush3 billion went missing," sources said.

In January this year, employees of a bank, led by its area operations manager, wired money from one account to another with the intention of defrauding or causing a financial loss to the bank.

But investigations reveal clues suggesting that the fraud in the earlier bank and the attempt were the efforts of one mastermind.

Police acknowledge that the wire transfer system is the other most fraud-prone area.

However, they admit they have been overwhelmed by bank fraud due to lack of skills in IT.

"We do not have the capacity in that field to detect that kind of crime in time," said Moses Sakira, deputy chief of the Criminal Investigation Directorate.

Critics blame the government for liberalising the banking sector before putting in place the necessary laws and policies.

"The sector is heavily liberalised. Bank of Uganda has lost control, especially because of electronic transfers. The government also made a mistake in delaying the Anti-Money Laundering Act," said Jasper Tumuhimbise, executive director of the Anti-Corruption Coalition.