The Constitutional Court has outlawed Section 118 and 124 of the Financial Institutions Act (2004) which previously gave the Bank of Uganda uncontrolled and unaccountable powers to freeze bank accounts held in Financial Institutions it supervises.
Section 124 further protected the central bank and its official from being sued for the same.
The Constitutional Court has also ordered that bank accounts of customers, can only be frozen by an order of the court, meaning that for the Bank of Uganda to freeze any account it has to seek a court order. But at the same time, customers will be given chance to defend themselves before the court against such orders.
Justice of Appeal/Constitutional Court, Cheborion Barishaki, in his lead judgment, also ordered the Attorney General to align existing laws to Section 34 of the Anti-Corruption Act which henceforth makes the Anti-Corruption Court as the only court designated to give orders to freeze accounts, in line with the 1995 Constitution.
Fellow Justices of Appeal/Constitutional Court Egonda-Ntende, Elizabeth Musoke, Muzamiru Kibeedi and Irene Mulyagonja, all concurred with Cheborion’s ruling.
The orders stem from a Constitutional Petition No. 51 Of 2013 in which one Peter Ssajjabi and Swift Commercial Establishment Limited dragged the Attorney General of Uganda and Bank of Uganda to court, for among others, freezing their bank accounts without affording them a fair hearing and continuing to maintain the freeze for an unreasonably long time― over 7 years.
Peter Ssajjabi was from September to November 2012 under investigation and eventually arrested and arraigned before the Anti-Corruption Court for the suspected commission of offences including among others, illicit enrichment, conspiracy to defraud and causing financial loss in the much-publicized corruption scandal involving payment of money to questionable beneficiaries of the East African Community who were entitled to pension by the Ministry of Public Service. Court heard that while Swift Commercial Establishment Limited had nothing to do with the scandal and was not on trial, had its accounts frozen simply because Sajjabi was one of the shareholders in the company.
Among other prayers, the petitioners wanted the Constitutional Court to declare that Section 118 of the FIA is unconstitutional in so far as it contravenes Articles 2, 20, 26, 28 (1), (3) (a), 42, 44 (c) and 126 of the Constitution. They also prayed for orders to unconditionally unfreeze all their bank accounts and the lifting of any restrictions by state institutions on the petitioners and their businesses as well as the handing over of the seized properties,
Bank of Uganda froze the accounts under Section 118 of the FIA which gives the Central Bank sweeping powers to freeze accounts 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.” Section 118 also exonerates the Central Bank’s officials from any liability resulting from the freezing of customer accounts.
“When read together, Sections 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 propriety of the freezing order. This is potentially problematic,” Cheborion ruled.
“This gives unjustified and arbitrary protection to the BOU, which is contrary to Article 21 (1) of the Constitution which provides that all persons are equal before and under the law in all spheres of political, economic, social and cultural life and every other respect and shall enjoy equal protection of the law. Given that, the BOU’s directives to freeze a person’s accounts have a bearing on the constitutional right to property, it is vital in safeguarding those rights that the courts retain the power to scrutinize the actions of the Bank of Uganda on their merits. This will ensure, not only that 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,” Cheborion further ordered.
“No one, not even the 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, the 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 the Constitution,” he concluded.
“Henceforth, Section 34 of the Anti-Corruption Act be considered as the exclusively applicable law with regards to bank account freezing orders because it conforms to the Constitution and balances the public interest in ensuring that crime does not pay but also takes into account the interests of the bank account owners. Under Section 34 of the ACA, the decision to freeze bank accounts is ordered by the Court which takes into account the interests of justice. The aggrieved bank account owner has an opportunity to move the Court to vary or set aside the order. These are hallmarks of fairness and go a long way in ensuring equal treatment of all those involved,” Cheborion ordered.
He also proceeded to order the state institutions to unfreeze the accounts of the petitions as well as properties, which he said had gone on for unjustifiably too long.
“In my view, regardless of the merits, a freezing order should never last for close to 8 years as it has in the present case. This situation would have been avoided if regulations had been put in place to limit among others the time the freezing orders can subsist. Accordingly, I would order that the bank account freezing orders placed on the respective petitioners’ bank accounts on the directives of the 2nd respondent (Bank of Uganda) are discharged,” Cheborion further ordered.
It is not justifiable for an order restricting the use of the property to subsist for over 7 years. The continued restrictions whether they emanated from a court order or elsewhere constitute a violation of the Constitution,” Cheborion said, adding: “The continued existence of a court order placing restrictions on the use of the property of the petitioners over a period of 7 years from when such orders were made is unconstitutional.”
“I would order that the 1st respondent (Attorney General) immediately puts in place regulations, in accordance with this Judgment, necessary to ensure that Section 34 of the Anti-Corruption Act is applied in a manner that complies with the 1995 Constitution,” Cheborion ordered in his 26th August 2021 ruling.