14 November 2009
editorial
Once again leaked evidence of a behind-the-scenes Central Bank investigation led to a panic over Centenary Rural Development Bank forcing the regulator to hold a press conference to allay fears.
The frequency of financial fraud, a fraction of which makes it to the public view because of a need for the sector to maintain confidence, suggests not all is well with banking industry. Much of the evidence involves the ease with which huge sums of money are moved through our banks as if to suggest a weakness in internal controls and overall supervision of the financial sector.
There are several potential headaches here one of which is the security of domestic deposits which Ms Justin Bagyenda, the executive director in charge of supervision at the Central Bank, sought to address.
One is that money laundering is a cousin to several other known types of organised crime. If indeed the evidence is that large amounts of cash are sloshing through the financial sector unchecked, then the government must redouble its capacity to scrutinise what is happening. The chances that some of this money may be used to finance terrorism or support other types of crime cannot be over-emphasised.
It also points to a teething problem which has spoken about several times in Parliament and within the corridors of government; the lack of a national ID card and an inability to track information, financial or otherwise, across several areas. Another problem has to do with the generally low confidence that the Ugandan public places on regulators. Almost all sectors are plagued with weak or ineffectual regulators and it shows in the sort of wanting standards in many sectors.
Weak regulation can have potentially nasty consequences. For instance, bad roads resulting from no supervision of crooked contractors are partly blamed for the high incidence of accidents on the country's highways. If the financial sector is to discourage impunity and plug the growing number of fraudulent activities in banks and other financial institutions, the regulator must crack the whip. It must go further than press conferences and assure the Ugandan public that there are keeping a close eye on things.
Enough said.
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