Now MTN Uganda faces lawsuit over operating licence

 

“Multi-Siming” — a phenomenon where a subscriber owns a Sim card from every network — makes MNP an idea dead on arrival, says an industry expert. TEA GRAPHIC | NATION MEDIA GROUP 

By DANIEL K. KALINAKI, The EastAfrican

In Summary

• Issa Ssegawa and Tevin Casper Okiru want the court to order the Uganda Communications Commission, the industry regulator, to revoke the company’s operator’s licence over the allegations.
• MTN’s lawyer Anthony Katamba has dismissed the lawsuit as frivolous and the regulator, Godfrey Mutabazi, has sought to distance the UCC from the matter.
• At the heart of the matter is a separate $3.7 million dispute between MTN Uganda, Threeways Shipping Services Group Ltd, and two of the telco’s former employeesinShare

Two people have asked the High Court in Kampala to revoke MTN Uganda’s licence over allegations of falsifying declarations and tax evasion.

Issa Ssegawa and Tevin Casper Okiru want the court to order the Uganda Communications Commission, the industry regulator, to revoke the company’s operator’s licence over the allegations.

It is not clear what chance of success the lawsuit against the telco, which is also the country’s largest taxpayer, has.

MTN’s lawyer Anthony Katamba has dismissed the lawsuit as frivolous and the regulator, Godfrey Mutabazi, has sought to distance the UCC from the matter.

“We don’t really get involved in tax matters and I don’t think there is merit in that argument, but that’s just my view,” he told The EastAfrican by telephone.

However, the lawsuit is just the latest twist in a tax saga that has been running for several years and refuses to go away.

At the heart of the matter is a separate $3.7 million dispute between MTN Uganda, Threeways Shipping Services Group Ltd, and two of the telco’s former employees.

The money was paid out of MTN’s accounts to Threeways, which was providing clearing and forwarding services to the telco. MTN says two of its former employees, Naphtal Were and John Paul Basabose, connived with staff at Threeways to create and forge invoices against which the money was spirited out of the company. It has sued the trio in an attempt to recover the money.

Facilitate a tax evasion

In written pleadings before court, however, one of the defendants, Mr Were, says that senior MTN officials knew about the payments, which were made “to finance and facilitate a tax evasion racket.”

Mr Were says in the court documents that the alleged racket goes back to 1999, a year after MTN began operations, and revolved around importing equipment under the wrong classification codes that attracted lower tax rates.

“The float/fund was duly utilised to evade taxes of over Ush25 billion ($9 million) by facilitating Uganda Revenue Authority and Ministry of Finance, Planning and Economic Development officials responsible for keeping silent or giving a go ahead to the plaintiff’s misclassification, under-declaration and invoice alteration,” Mr Were alleges in an affidavit.  

The former employee is seeking protection from the civil suit and a separate criminal lawsuit under whistleblower protection laws. He said he turned on his former employer and helped URA discover Ush13.4 billion ($4.8 million) in unpaid taxes due to misclassification, under-declaration and invoice alteration.

Of this the company has paid Ush1.35 billion ($486,486) and Mr Were was in March paid a 10 per cent reward as a whistleblower by the tax authorities. This, he claims, is evidence of tax evasion and justification for protection from prosecution.

MTN denies any wrongdoing and tax evasion. The telco says the payment of Ush1.35 billion ($4.8 million) to URA “was a result of ordinary regular routine tax reclassification exercises that take place between the plaintiff and URA in the ordinary course of their business” and that it has not been informed of any tax evasion by authorities.

 he telco has detailed cases of reconciliation between itself and the URA, including instances of refunds from overpayments, to demonstrate that the non-payment was not deliberate or exceptional.

URA Commissioner-General Doris Akol confirmed to The EastAfrican that the tax body had initiated an investigation into the matter, but could not confirm its findings or whether it was complete.

It will be up to the court to determine whether the payment to URA was as a result of a routine misclassification as MTN claims, or a make-good on evaded taxes as the defendants allege.

If tax evasion is proven, the two plaintiffs in the latest case seek to argue before court that it is in violation of the telco’s operator’s licence requirement to act in conformity with the laws of the country.

The bruising dispute between the telco, its former employees and clearing agent has straddled courtrooms and countries, swinging between criminal and civil court and, at one point, dragging in directors of MTN Group in South Africa.

Those charges, which arose out of a private prosecution by Mr Were, and which would have required MTN Group directors to attend criminal court in Uganda, were taken over by the Director of Public Prosecution who then asked court to dismiss them in March 2013.

In protest, Mr Were petitioned the Constitutional Court soon after seeking a declaration that the decision to drop the charges without a hearing or a trial contravened the Constitution.

Earlier, criminal charges of embezzlement and theft had been instituted against Mr Were, Mr Basabose and officials of Threeways over the $3.8 million. They all denied the charges.

However, police investigators applied to the Anti-Corruption Court (ACC) and obtained orders freezing Threeways bank accounts in August 2012. The matter appeared headed for an amicable resolution a few days later when MTN and Threeways signed a memorandum of understanding, in which the clearing firm agreed to pay back $4 million as a “no-fault gesture” and testify against the telco’s employees in exchange for MTN withdrawing a lawsuit in the ACC and lifting the freeze on the accounts.

However, Threeways reneged on the MoU and the High Court later ruled that it could not be enforced as it was irregular. It was that action that prompted MTN to file a fresh civil claim for the money in the Commercial Division of the High Court, which is pending, and which has offered insights into the allegations of fraud and the alleged tax evasion.

MTN argues that its employees colluded with officials of Threeways to steal from it. The defendants do not deny receiving the money, but argue that it was returned to officials from the telco or paid out to public officials allegedly to facilitate tax evasion — a claim MTN denies.

Documents before the court show back-and-forth correspondence, from 1999, between the telco, the URA and the Finance Ministry, in which it sought to import machinery under codes usually reserved for urgent and perishable commodities, or received exemptions to use specific codes.

An investigation by the URA covering 2005-2011 found that misclassifications of what was being imported under what code had led to underpayment of import duty and value added tax, triggering a demand for back taxes of at least Ush3.2 billion ($1.2 million).

Fictitious accounts

The court will have to decide whether the money paid out of the MTN accounts on the fictitious accounts was stolen by the former employees and Threeways officials as the telco alleges, or part of a slush fund used to minimise, avoid or evade taxes as the defendants allege

 
inShare

The lawyer, Mr Katamba, had earlier told the Daily Monitor that MTN would defend itself against the fresh lawsuit challenging its licence.

“It is a deliberate campaign by some individuals to undermine the integrity of the company but we shall address the issues before court,” he was quoted as saying.

It is not clear whether there is a connection between the new plaintiffs and the ongoing cases, but for MTN, the country’s biggest company and brand, the lawsuits and allegations are distractions it could do without.