Sh60 bn lost in Charterhouse, shows US secret report

A secret dossier compiled by the US now claims that Sh60 billion was lost through financial malpractices by closed Charterhouse Bank.

The US ambassador to Kenya Michael Ranneberger said the money lost through fraud, tax evasion and money laundering.

In the dossier presented to the Kenya Anti-Corruption Commission (Kacc) director Patrick Lumumba, Ranneberger said Sh20 billion was lost in tax revenues alone.

Mr Ranneberger who visited the Kacc director last week also claims a further Sh40 billion was lost through other “financial malpractices”.

Past investigations by government agencies, including Kacc, and Parliament have cleared the bank of possible money laundering and even called for its reopening.

Even then, they argue, there was no money laundering law by the time the bank was closed in 2006 which could be used to punish it.

But Mr Ranneberger has opposed the reopening of the bank and petitioned Prof Lumumba to ensure its doors remains shut on claims there are fresh details of malpractices involving the bank.

Officials of the bank see no reason the bank should remain closed because offences allegedly committed could attract prudential penalties and court action.

They argue there are many banks currently operating despite of violating the banking regulations, suggesting they believe their institution was receiving unfair treatment, especially when investigations did not expose clear evidence of tax evasion or tax outstanding with the Kenya Revenue Authority (KRA).

In his letter, the envoy said key officials who appeared before a parliamentary committee on the issue had indicated there was no evidence to link the bank to any misconduct, money laundering or financial crimes.

“Key agencies are backtracking, contradicting their original statements about clear evidence of malpractice, irregular accounts and violation of the Banking Act,” he said.

He said the officials appeared to have forgotten findings of previous investigation reports. While the legacy of the coalition government was boosted by the passage of the new Constitution, he said, “your government must demonstrate that this is indeed a new day for Kenya”.

Reopening of Charterhouse would send a clear message to the contrary, he said. “Powerful forces are pushing for the reopening of this institution,” he said.

If nothing was done at the highest level, he said, “this would demonstrate that impunity and “business as usual” prevail.

He said the US played a key role in protecting the whistle-blowers who provided critical evidence of criminal activity within Charterhouse.

In the letter to the commission, a copy seen by Sunday Nation, Mr Ranneberger also attached seven reports of different teams that investigated the bank’s activities.

The first document was a brief of the bank, which also says that Prof Lumumba would find it difficult to work well given the existence of top managers at the commission.

Also attached to his file is the report of the Parliamentary Departmental Committee on Finance, Planning and Trade of 2006 on Charterhouse Bank investigations and a ministerial statement on the Inter-Agency Investigations on Economic Crimes by the bank and its related companies of 2006.

The envoy also provided a 2006 report by the Central Bank governor to the Finance ministry. The PriceWaterhouseCoopers report to the statutory manager of the bank completed in 2006 and three Central Bank of Kenya investigations reports of March 2005, October 2004 and September 2004 were also contained in his document.

In the letter, Mr Ranneberger blamed senior government officials for failing to take a common position on the saga.

Prof Lumumba has written to the envoy and assured him that fresh investigations will proceed, despite the commission earlier recommending that the bank be reopened.

“We thank you for your letter together with the accompanying support documents and the comprehensive summary on Charterhouse bank,” Prof Lumumba said.

“We believe the issues you have raised are within our statutory mandate and we undertake to deal with them expeditiously and in accordance with the law.”

The US pressure was at the heart of the recent clash between Prof Lumumba and members of Parliament’s finance committee over the continued closure of the controversial bank.

Prof Lumumba said his agency has additional, but not necessarily new, information on the bank, which it has used to re-open the file on its investigation.

He said that it would be necessary for the bank to remain closed so that investigations were not interfered with and the chances of evidence being hidden are reduced.

“It is safer to keep the bank closed... it would be neater that way,” said Prof Lumumba at the committee’s hearings over the bank.

He said the additional information had come in the form of a dossier handed to him by the American ambassador to Kenya, Michael Ranneberger, and an email written by an anonymous author.

Prof Lumumba said he had looked at the Charterhouse Bank file afresh and perceived it to be a “grave case”.

The Finance, Trade and Planning Committee has been investigating the Charterhouse Bank affair since July, when Yatta MP Charles Kilonzo presented a petition to Parliament on behalf of some 35 depositors whose money is held by the bank.

Some MPs argued that it would be wrong for Prof Lumumba to vouch for the bank’s closure despite the fact that it had gone beyond the period stipulated in the Banking Act, which is one year, and a provision to extend by another.

But the MPs also disputed Prof Lumumba’s claims that he has new evidence, saying everything that he had presented in their session was already in their possession.

Recently, investigations police accused the Attorney General of failure to act on criminal charges prepared against directors of Charterhouse Bank.

Criminal Investigation Department said repeated inquiries on the fate of the fraud case had received no response from the office of Mr Wako.

The Banking Fraud Unit first wrote to Mr James Warui, the State counsel handling the matter, in September 2007 asking for advice on whether to prosecute directors of the bank that had been placed under statutory management by the CBK.

Mr Warui wrote back on February 25 the following year that there was sufficient evidence to charge the suspects with various offences over the contravention of the Banking Act.

A senior official in the AG’s office had written to the CBK to advise that the bank be reopened. Deputy Solicitor General Muthoni Kimani also said in a letter written in June 2009 that CBK exposed itself to lawsuits by failing to prosecute anybody in connection with the bank’s dealings.

Previous witnesses from various government departments that have investigated Charterhouse have also disowned the decision to close the bank.

It is argued the charges were in relation to offences under the Banking Act rather than on allegations of money laundering or narcotics trafficking. “As much as it was mentioned, no evidence has been adduced to that effect,” said Ms Ligame.

Mr Muhoro said: “I can confirm that we have not investigated anything to do with drugs and the bank. We have no information to that regard. The investigations were based on audit queries only”.

Audit firm Pricewaterhouse Coopers had also produced a report outlining the violations of the Banking Act by the directors of the bank.

Among the violations cited by the Banking Fraud Investigation Unit was failure to report to CBK transactions that indicate attempts to conceal the true identity of customers.

PWC found breaches of the Banking Act and the prudential regulations. It then made its recommendations to the Central Bank, the regulator, to act on the recommendations.

“All we came up with were sort of to provide leads to other investigators,” said Mr Richard Njoroge, a senior partner at the audit firm who headed the Charterhouse investigation.

“We identified unusual transactions that could point to possible money laundering and tax evasion. On the evidence of what we did alone, we cannot point to criminal activity.”

The Attorney-General’s office has also faulted the Criminal Investigations Department for failing to prosecute directors of the beleaguered bank yet they breached 14 clauses of the Banking Act.

Chief public prosecutor Keriako Tobiko and Ms Kimani, the senior deputy solicitor-general, said the bank’s closure had exposed the country to suits of “potential serious liability”.

The two told Parliament’s Committee on Finance, Planning, Trade and Tourism that there was “no legal impediment” to the re-opening of the bank.

The chief public prosecutor told the team that there was a “danger” that the aggrieved depositors could file a case against government agencies for breaching the Constitution.