Emilian Kayima, police spokesman, said Kabafunzaki was arrested in Kampala Serena Hotel shortly after taking a bribe of 5 million shillings ($1,385).
His bodyguard and one other person were also arrested.
The amount was part payment of toal of 10 million shillings that he had demanded from Hamid.
“He had promised to help him (hotel owner) sort out that issue,” Kayima said.
“He was arrested shortly after he had received the first installment of 5 million shillings.”
According to Uganda Sunday Monitor, Hamid is the boss at Aya Group, the proprietors of the Hilton Hotel in Kampala.
One of his former employees alleged that he sexually harassed and molested her before she was summarily sacked last year.
Taking bribes and embezzlement of public funds is rampant in the east African country but arrest of ministers and other top government officials accused of graft is rare.
Government critics often blame graft on long ruling President Yoweri Museveni who they say is reluctant to punish corrupt but loyal supporters.
Museveni, 72, has been in power since 1986.
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