In a ruling that could redefine customer-bank relationships in Uganda’s financial sector, the High Court of Uganda has found Equity Bank Uganda Limited guilty of unlawfully freezing a customer’s account, a decision that may set a precedent for financial institutions operating in the country.
The case, Barigye Innocent Herbert Baitwababo v. Equity Bank Uganda Limited, stemmed from the bank’s decision to freeze Barigye’s account over what it deemed suspicious transactions. However, Hon. Justice Ssekaana Musa ruled that Equity Bank acted in breach of its contractual obligations, as the customer had provided sufficient documentation to justify the funds in question.
Background of the Dispute
Barigye, a businessman, had deposited UGX 85 million (approximately USD 22,500) into his account on July 18, 2024, after selling 150 heads of cattle. Two days later, Equity Bank flagged the transaction and froze his account, citing concerns over the source of funds and potential violations of the Anti-Money Laundering Act.
Despite the applicant furnishing the bank with a sale agreement detailing the cattle transaction, Equity Bank insisted on further proof, including a cattle movement permit and a declaration to the Uganda Revenue Authority. Barigye could not provide these documents, leading the bank to escalate the matter to the Financial Intelligence Authority (FIA). However, the court found that the bank failed to comply with statutory timelines for reporting suspicious transactions and continued withholding Barigye’s funds without justification.
Court’s Determination
Justice Ssekaana ruled that while banks have a duty to ensure compliance with anti-money laundering regulations, they must do so within the confines of the law and reasonable due diligence. The judgment noted that Equity Bank did not report the transaction to the FIA within the legally mandated 48-hour window but only did so 16 days later, after legal action had commenced.
“The respondent failed in its duty to the applicant as its customer to carry out the expected due diligence in establishing that the transaction was not questionable,” the ruling stated. “The actions of the bank were in total breach of the law and the banker-customer relationship.”
The court declared the freezing of Barigye’s account illegal and ordered the bank to pay the costs of the lawsuit. However, it advised Barigye to seek damages through a separate legal action.
Implications for Uganda’s Banking Sector
Ugandan enterprises urged to explore regional oil and gas opportunitiesThis ruling raises critical concerns for Uganda’s banking industry, particularly regarding customer rights, due diligence obligations, and anti-money laundering compliance. Legal analysts suggest the judgment could force banks to reassess their internal compliance mechanisms and ensure that regulatory actions do not infringe on legitimate business transactions.
Speaking on the ruling, a financial expert at a leading commercial bank noted, “This case underscores the importance of striking a balance between regulatory compliance and customer service. Banks must ensure that their fraud detection measures do not infringe on customer rights or result in reputational damage.”
Reputational Risks for Equity Bank
Equity Bank Uganda now faces potential reputational fallout from this ruling. Freezing customer accounts without justifiable cause can lead to loss of trust, customer withdrawals, and increased regulatory scrutiny. The ruling may also encourage more affected customers to take legal action in similar cases.
As Uganda’s banking sector continues to evolve, financial institutions will likely have to improve transparency and customer communication to avoid legal battles of this nature.
Looking Ahead
For Barigye, while the ruling affirms his rights, his battle for financial compensation is far from over. Should he pursue damages, the case could set further legal precedents regarding customer protection and liability for wrongful account freezes.
Meanwhile, Uganda’s financial regulators, including the FIA and the Bank of Uganda, may use this case as an opportunity to refine guidelines on account monitoring and customer engagement, ensuring that banks do not misuse anti-money laundering laws to withhold client funds unjustly.
The ruling serves as a reminder that customer rights remain paramount in the ever-evolving financial sector, and banks must tread carefully to maintain credibility and trust.
