banking and finance ENSight | 7 March 2018

Stifling Uganda’s secondary bond market: the case of David Chandi Jamwa

by Phillip Karugaba and Rehema Nakirya Ssemyalo

The recent decision of the Ugandan Court of Appeal to uphold a 12-year custodial sentence against a former managing director of the National Social Security Fund (“NSSF”) has sparked much debate among finance and legal professionals. Speculation is rife on the impact the decision will have on fund managers (falling within the scope of the Anti-Corruption Act, 2009), as they trade on the secondary bond market. 

In this case, David Chandi Jamwa, the appellant, was charged with abuse of office and causing financial loss contrary to the Anti-Corruption Act. The case against him was that he authorised the sale of government bonds held by NSSF before maturity (23 to 145 days) and caused a loss. 

The trial court convicted Mr Jamwa for causing financial loss and acquitted him of the offence of abuse of office. He appealed the conviction and the State cross-appealed the acquittal. 

Under the Anti-Corruption Act, a person is guilty of causing financial loss if, while in the employment of the government, a bank, a credit institution, an insurance company or a public body, he or she commits any act (or omission) knowing or having reason to believe that his or her act (or omission) would cause financial loss to his or her employer. 

In his defence, Mr Jamwa argued that he had sold the bonds before their maturity date in execution of a board policy on re-alignment of NSSF’s investments. He added that there was no evidence to prove that he knew selling the bonds before their maturity date would cause financial loss to his employer. He also argued that there was no loss, as the price at which the bonds were sold was still higher than that at which they were bought. 

The State argued that there was a guaranteed return on the bonds at maturity and by selling before maturity, Mr Jamwa knew that a loss would occur. The State pointed out procedural irregularities in the sale. For example, the consent of the chief investment officer, which was a prerequisite to Mr Jamwa’s authorisation to sell the bonds, came two days after Mr Jamwa authorised the sale. The State also argued that at the time of the sale, NSSF had no urgent need for cash. 

The Court of Appeal held that the sale of the bonds before their maturity occasioned financial loss to NSSF and that the bonds were sold at a price higher than the purchase price did not take away the loss. The variance between the price obtained by NSSF upon the sale of bonds before their maturity date and the guaranteed price upon maturity constituted loss. The Court of Appeal further held that Mr Jamwa was well aware that such sale would occasion loss but authorised the sale anyway. The Court of Appeal found no justification for the sale of the bonds before maturity.

The Court of Appeal upheld Mr Jamwa’s conviction of causing financial loss and also convicted him of the offence of abuse of office. Mr Jamwa is currently serving a 12-year sentence and is barred from working in public service for 10 years after the end of his sentence.

This case raises more questions than it answers. On the conduct of the case, it is curious that no evidence was led on the justification for the premature exit from the bonds by way of alternative investment made with the proceeds from the sale of the bonds. Given the nature of investments by the fund, the courts might have considered the fund’s overall performance at the end of the relevant financial year, instead of considering an isolated transaction. 

The sale of bonds in the secondary market is in the ordinary course of business for investors and fund managers. The spectre of a prosecution for causing financial loss, however, now rises as, invariably, the premature bond exit price will always be lower than the price at maturity. Will this conviction stifle the decision making of fund managers and/or liquidity in the bond market? As one commentator put it, is it always wrong to sell a pregnant cow and is it always best to await delivery of the calf and sell two animals instead of one?

An appeal to the Supreme Court has been filed and we eagerly await its decision. 


Phillip Karugaba

head of ENSafrica Advocates | Uganda
cell: +256 772 785 332

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Rehema Nakirya Ssemyalo

ENSafrica Advocates | Uganda | partner
cell: +256 772 506 802

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