Category Archives: corruption

Kenya’s CBK risk safeguards against bank laundering and terror financing

The Central Bank of Kenya (CBK) has published new guidelines to assist Kenyan banks to assess and mitigate the risk that their institutions and systems may be used for money laundering (ML) or terrorism financing (TF).
They risk rules stipulate, among other proposals that:
  • Senior management of banks are to implement board-approved money laundering/terror financing policies.
  • Bank staff are to prepare periodic reports on money laundering and terrorism finance for their senior management and boards of the bank and also communicate these to the CBK. 
  • Financial institutions will be required to appoint a money laundering reporting officer who will be the point of contact for CBK.
  • Banks should assess and rank TF and ML instances and actions in terms of high, moderate, and low risk. 
  • They should identify countries and regions that are high risk for business; high-risk includes countries subject to sanctions from the UN and other credible organizations, countries that don’t have appropriate banking safeguards and countries known to sponsor terrorism.
  • Banks are to assess their customers for money laundering and terror financing risks; suspicious customer activities include frequent and unexplained movements of money to other accounts, or other institutions, and to far locations. They should also look at politically exposed persons who bank with them including prominent public figures, senior politicians, judicial officers, corporate CEO’s who dealing with them, or their families, may bring a reputational risk to the bank.
  • Banks are to assess their service delivery channels for money laundering risks. They are to pay attention to cash-intensive businesses, including supermarkets, convenience stores, restaurants, retail stores, liquor stores, wholesale distributors, car dealers. 
The guidelines follow an earlier directive on paper bag banking from two years ago. The new ML and TF rules are in draft form and bankers and any interested persons are invited to send comments to the CBK on the proposals before January 31, 2018.

Kenya’s Money in the Past: Spymaster Memoirs by Bart Kibati

Excerpts from the Memoirs of a Kenyan Spymaster, a unique autobiography by Bart Joseph Kibati who worked in national intelligence for over two decades, where his job was to, with others in the business, identify and analyze threats and advise the government. It is a revealing look at many sectors of his life (he got married the same day that Tom Mboya was shot), Kenya’s transformation in the independence era, the business environment, and the state of security in East Africa and international relations, while serving in two administrations during  which he interacted with Presidents’ Kenyatta and Moi.

Spymaster excerpts

Police & Cattle & Remote areas

  • Cattle rustling by cattle raiders – Ngorokos (former soldier) has long been a feature in Kenya, with Laikipia and Samburu raids spilling over to Turkana, Baringo and Isiolo areas. Suguta Valley where over 40 police were killed in 2012 is a place that police have long avoided going to for years because of the dangers.
  • While the ‘Ngoroko’ plot against Moi, was a myth, it was based a well-intended idea to have an elite fighting unit to chase and deal with bandits.
  • For decades, Lamu’s Boni forest, which is near the Somalia border, has been a hideout for poachers & bandits and this has been sustained by poor policing practices in the area and support by local tribes.

East Africa & Leadership Styles

  • Some keen observations on some of the factors such as economic desires, ideology & actions of leaders  – Kenyatta, Nyerere and Obote/Amin and other political party & government officials in the run-up to why the East Africa community collapsed.
  • Two days after the signing of an East African a treaty in 1963, there were coup attempts in all three EAC countries.
  • To make their decisions, Kenyatta relied on finished intelligence information, while Moi wanted raw information.
  • Moi wanted to know why the Kikuyu hated him and Bart told him about quotas in education and government, and the collapse of their banks (which were rolled into Consolidated Bank) and area infrastructure, to which Moi replied: “How can the government build infrastructure if they ask donors not to release funds?”

Industry & Economy

  • Beach plots allocated by the President and partnership with hoteliers resulted in massive hotel empires at the coast or wealth from selling utility plots – by people around the president.
  • The greed of property developers and corruption of environmental regulators.
  • The government moved to grant duty-free cars to university lecturers in a move to pacify their radical ways.
  • Coffee smuggling from Uganda, through Chepkube, opened the eyes of many people in government, including police, to quick great wealth that could come from corruption.
  • The Numerical Machine Corporation was a success. It just could not shed the ‘Nyayo car’ tag.

Human Resources  & Working in the Government: 

  • When he finished form four at Mangu High School, he had job offers to work at East African Airways, Barclays Bank, the Post Office, Kenyatta University, and also the option to continue his schooling at A levels!
  • The recent repeal of indemnity for security forces (and TJRC) makes it hard to do police work such as combating terror threats and is a demonization of patriots.
  • How colleagues, and politicians scheme to transfer, promote or demote other security staff.
  • There is no pension for older Kenyans who, while experienced, are discarded under the guise that they are preventing youth from getting jobs. It seems the Government hopes they will die soon and stop draining the meagre government pension.
  • There were no successful coups in Kenya due to (long-term spymaster chief) Kanyotu and the Special Branch. The 1982 coup was unnecessary;  It could have been stopped but for a leak and bureaucracy. But Kanyotu was later misled by Pattni into the Goldenberg scam.
  • The more open that national intelligence services become, with things like having a visible head (of tee NIS) and a website, the less effective they have become.
  • Finally, he ends by asking if Kenya is facing more terror attacks, urban crimes, and rural banditry today because the country doesn’t have a functional intelligence collecting unit. Or there’s more reliance on technical intelligence than human intelligence by a demoralized, ethnicized spy unit.

Some revelations in Spymaster are shocking, but many of the stories have been cited elsewhere with different interpretations, and many of the people named have passed on, or circumstances have changed. Also another story elsewhere, quotes Lee Njiru a long time civil servant who says that: (the) Official Secrets Act binds civil servants to keep secrets for 30 years and the period had elapsed and he was now free to share what he knows.

Also read The Birth of an Airline by Owaahh, which narrates from the Spymaster book, about the break-up of East African Airways and the birth of Kenya Airways.

KQ EGM 2017

Kenya Airways (KQ) held an EGM – extraordinary general meeting of its shareholders today in Nairobi. KQ Chairman, Michael Joseph opened the KQ EGM with a statement that this was essential to the future of the airline, as it restructured their debt and reduced their cash payments. He cited the origin of the airlines’ problem as the fleet expansion, ordering new planes back in 2005, that arrived later than expected, and soon after there were issues like terrorist attacks, economic decline, Ebola and the airport fire. This was at a time that there were a lot of state-owned Middle East airlines allowed to Nairobi who did not have a profit motive and who undercut their KQ’s prices.

KQ’s first Dreamliner arrives in April 2014

He said the board had made responses such as offloading some aircraft to leases till the situation improved and they had also hired Sebastian Mikosz as CEO, who is a turnaround specialist.

Excerpts from the KQ EGM and the hour-long Q&A with shareholders

The Michael Joseph factor: Shareholders seem to have a lot of faith in Michael Joseph as a person to lead the turnaround. This is because of his legacy at Safaricom; he himself admitted as much in the challenge ahead of him, but he said that turning around KQ was much more complicated than Safaricom.

Hot button issues:

What Went Wrong? When it’s not clear what happened, Kenyans typically assign blame to corruption or mismanagement and several shareholders ask about a forensic audit query that had been done at KQ. Joseph said they had not forgotten the forensic audit, and he was going to clean the airline; he said that action had been taken with staff several dismissed or in court (He said justice was slow in the country cited a case where the former CFO had sued the airline and that case had not been heard a year later).

Payment to advisors; This came up several times and the figure cited was Kshs 1 5 billion. Joseph said the payment was a lump sum figure for the many advisors engaged in the complex restructuring deals. He cited Mckinsey as one case he was not happy and which had been terminated. Others were international competitively sourced and they had negotiated them down but had to pay.

Management ownership and staff pay: Shareholders asked the board and management to show commitment, by becoming shareholders. Joseph said he was a big investor at Safaricom and the KQ restructuring had an employee share ownership plan (ESOP) as part of the ownership plan, while disclosures about directors shareholdings would be forthcoming. Another shareholder asked the board and management to take a pay cut in line with what was expected of other employees.

Role of Government: Joseph said that the Government had allowed many new foreign airline flights to Kenya and that whenever the president visited abroad, other presidents asked if their airlines can fly to Kenya, or the tourism minister allows them to fly tourists to Mombasa – forgetting about KQ. Part of their future engagement with government will be on licensing of other airlines. On a question about nationalizing the airline, Joseph said that this had been ruled out and that KQ would remain a public company.

Banks left out to dry: Some shareholders asked if the banks agreed to the conversion? Banks lend depositors money to get it back and not for shares – and do not take KQ’s problems to other banks where this will make us miss dividends. There is a court case brought by some banks that will be ruled on August 10.

Fleet and performance CEO Mikosz spoke about monitoring the perception created in media about delays and cancellation at KQ and which unfairly gave the airline a bad impression. He said that flying 160 flights per days you expect 2-5% are expected to have some delays and this was standard in the aviation industry, but their stats were good.

Minority shareholders: Several minority shareholders said they had voiced issues at past AGM’s about high ticket prices, low dividends, and other issues who had been ignored and who were told that the airline was alright. Michael Joseph said he was an independent director and he and others were there to look out for minority shareholders.

Shareholders at the KQ EGM unanimously voted for the lengthy balance sheet restructuring that was done in a single vote.

Another circular will be issued with terms for shareholders investing afresh in the airline.

The next meeting will be a regular shareholder’s AGM on September 21.

KQ EGM swag: transport to/from town, t-shirt, packed lunch by NAS.

WDR 2017: Governance and the rule of law

WDR2017, the World Development Report from the World Bank for 2017, looks at governance and the rule of law around the world and how they can impact countries and economic development.

Illustrative pic from the Star Newspaper to show what a large sum of cash will look like

some excerpts;

  • Elections alone are not enough to bring change – even when citizens manage to remove politicians whose performance is poor or diverges from their preferences, elections alone offer no credible guarantee that, once elected, new leaders will not shirk their electoral promises and credibly commit to citizens’ demands.
  • Local elites can capture public spending despite participatory programs; as they can disproportionately sway expenditure decisions
  • Inequality begets inequality In societies in which inequality is high as the effectiveness of governance to deliver on equity outcomes can be weakened structurally because those at the top of the income ladder not only have control over a disproportionate amount of wealth and resources, but also have a disproportionate ability to influence the policy process.
  • Devolve: By multiplying the number of more or less autonomous arenas within which public authority is exercised, decentralization increases the opportunities for policy innovations and the emergence of effective leaders. Often these innovations are spurred by political outsiders, who may not have access to the national policy arena but are more likely to acquire citizen support locally and spur local institutional reforms.
  • Female leaders are less prone to patronage politics and corruption.
  • Media content is often defined by elites leading to a bias, but new media can counteract this.
  • Political parties are on average the least-trusted political institution worldwide
  • Politically connected firms gain undue advantage in countries through using market regulations to favor firms, granting import licenses to favored firms, and diverting credit.
  • Land redistribution policies often fail due to transaction costs, incomplete contracts, and political agreements.
  • The Panama Papers highlighted legal and illegal ways in which assets found their way to 40 countries: Funds are legally earned through tax evasion and evading currency controls and shifting profits, but also illegally by exploiting natural resources, violating intellectual property rights, corruption, embezzlement, drug trafficking, and human smuggling etc.

See the 2016 WDR report.

Tegeta Escrow

Yesterday Harbinder Singh Sethi and James Buchard Rugemarila were charged with obtaining $22 million and 309 billion Tanzania shillings from the Bank of Tanzania in what’s been dubbed the Tegeta Escrow case.

Perhaps the best summary of the Tegeta Escrow case comes from Africa Confidential (Vol 55 – N° 19) dated 26 September 2014 –

  • Heads may be about to roll after revelations about the contested transfer of 200 billion Tanzania shillings (US$124 million) from an escrow account in the central bank, the Bank of Tanzania, to Harbinder Singh Sethi’s Pan Africa Power Solutions Tanzania Limited (PAP, AC Vol 55 No 13). The complex details of how Sethi acquired Independent Power Tanzania Ltd. (IPTL) and then raided the BoT account have now been pieced together by two opposition members of parliament, Zitto Kabwe and David Zacharia Kafulila, with the help of The Citizen and Mwananchi newspapers.
  • If Sethi’s critics are proved right, this is the country’s biggest corruption scandal to date. Based in South Africa, Sethi is a Tanzanian-born businessman with a reputation for dubious past dealings in Tanzania, Kenya, South Africa and the United States. Sethi claims to have bought 70% of IPTL’s shares from Malaysia’s Mechmar Corporation, now in receivership. Yet Standard Chartered Bank Hong Kong (SCB-HK) claims to have purchased IPTL’s debt for $76 mn. in August 2005 and says Mechmar was already in liquidation when Sethi claimed to have acquired the shares.
  • The Tanzanian behind IPTL, former BoT employee and self-styled international consultant James Rugemalira, is also under investigation over the $75 mn. that he was paid by Sethi for his company’s 30% share in IPTL.
  • Both Sethi and Rugemalira have lived up to Kabwe’s description as ‘aggressive litigators’. Their strategy has been to steer the acquisition of IPTL away from non-Tanzanian jurisdictions (Malaysia and Britain), from other interested parties (SCB-HK) and lawyers, receivers and liquidators in Malaysia and Hong-Kong. In this way, SCB-HK’s property rights in IPTL have been summarily dismissed and attempts by SCB-HK’s lawyers to negotiate a compromise with Tanesco have all been blocked. Furthermore, the findings of the International Centre for Settlement of Investment Disputes over IPTL’s overcharging Tanesco for power supplied and the proposal for a solution involving SCB-HK claims have been ignored. Tanzanian courts have been complicit in rubber-stamping IPTL’s transfer to Sethi’s PAP. None of this helps improve the country’s image abroad.

Other

  • The unfolding details about the Tegeta Escrow case resulted in the removal of four ministers back in 2014. On Saturday, the energy minister, Sospeter Muhongo, resigned over his alleged role in the affair last year that saw $180m (£116m) taken from the country’s central bank. The move follows the removal from office of the attorney general, Frederick Werema, the energy secretary, Eliakim Maswi, and the housing minister, Anna Tibaijuka, who was sacked over the transfer of $1m to her private bank account Chairs of three parliamentary committees have also resigned following the scandal: Victor Mwambalaswa, energy and minerals committee; Andrew Chenge, parliamentary budget committee; and William Ngeleja, legal affairs and governance committee.
  • Back in December 2014, Stanbic Bank Tanzania released a short statement on the-then parliamentary report on Tegeta Escrow and their role.