Pattni used links to State House

Kamlesh Mansukhlal Damji Pattni who is associated with the seven-star Prince hotel is a man of grandiose ideas. He is the brains behind one of Nairobi’s luxurious hotels, the Grand Regency Hotel, now renamed Laico Grand Regency after it was taken over by government and later offloaded to Libyan investors two years ago.

A nondescript businessman in the 1990s, Pattni managed to pull off one of the major deals that snowballed into one of Kenya’s major financial scandals. Goldenberg was a neatly packaged conduit of plundering public funds.

It all began with the little-known businessman registering a company, Goldenberg International Limited, that offered an alternative source of foreign exchange earnings from gold and diamond jewellery exports. Mr Pattni exploited the fact that the government was facing foreign exchange crunch due to suspension of balance of payments aid.

Moreover, President Moi and Kanu were desperate for money to finance the 1992 multi-party elections. By the time the scam blew up in the open, an estimated Sh160 billion is believed to have been siphoned from the Treasury.

Pattni was a little-known messenger in downtown Nairobi peddling gold bracelets and rings. At the age of about 27, he registered Goldenberg as a gold and export jewellery firm.

Pattni became the chairman of Goldenberg while his elder brother, Rohit Pattni, was the managing director (chief executive). How Mr Pattni got connected to the ruling elite remains unclear but by 1990, it was apparent that he had succeeded in selling the multi-million dollar scheme to the Kenyan authorities. 

There was also another significant dimension to Goldenberg. Besides Pattni, the only other original subscriber was Mr James Kanyotu, the head of Kenya’s dreaded security intelligence, then known as the Special Branch (now the National Security Intelligence Service).

The responsibility of approving the scheme was passed on to the minister for finance, Prof George Saitoti. Central Bank of Kenya (CBK), was to ensure that foreign exchange was actually received after the export of gold and diamond jewellery.

As a formality, Pattni applied to the Minister for Finance to be given exclusive rights to export gold and diamond jewellery from Kenya for an initial period of five years, with an option of another five years.

In his letter dated October 8, 1990, Mr Pattni argued that the trade was controlled by smugglers, hence, Kenya earned very little foreign exchange from such exports.

He guaranteed that he would earn and remit to the CBK at least US$50 million a year, provided he was accorded the monopoly status and was paid an export compensation of 35 percent.

The two conditions were significant; the first because it meant that Mr Pattni was to become the official exporter of the precious minerals from Kenya and all other dealers could only export the same through him.

The second one would give Mr Pattni an export subsidy that no other exporter enjoyed. The export compensation scheme — created in 1974 by the Export Compensation Manufacturer’s Act — was used by the government promote export of non-traditional products and the legal compensation rate under the law was 20 percent.

It is instructive that a year earlier, Mr John Keen, an assistant minister in the Office of the President, had written to the Treasury with a similar request, but this time asking for 50 per cent export compensation.

The application was subjected through a technical evaluation and the then Economic Secretary Prof Terrence Ryan advised Prof Saitoti that such a scheme would amount to devaluing the Kenya shilling by a similar percentage. The application was rejected.

But Goldenberg’s application in 1990 was swiftly approved by Prof Saitoti “on an experimental basis.” Pattni’s problems began as soon as he started filing his export returns. The CBK and Goldenberg’s first banker, First American Bank, observed that Goldenberg was not complying with the exchange control regulations.

By April 1991, the company had presented nine CD3 forms (export earnings declaration documents) for endorsement so that it could claim export compensation.

However, the bankers noted that Goldenbergs “earnings” were not remitted through the normal inter-bank channels; the CD3 forms showed numerous cash payments into the bank in various currencies, including dollars, pounds, Swiss francs, French francs, lira, Deutsche marks, and yen.

Mr Pattni found himself in a tight spot when Mr T. K. Birech-Kuruna, the CBKs exchange controller, wrote an internal memo to the then Governor Mr Eric Kotut reporting that Goldenberg was not complying with the regulations stipulated in the export contract, but was instead selling foreign currency to its bank to cover its transactions. This was irregular and illegal.

Mr Birech-Kuruna further told Mr Kotut that Customs and Excise had processed Goldenbergs export compensation claims and the Treasury had paid up. Suspicious of Pattni’s dealings, First American Bank closed its transactions with Goldenberg. Something strange was to follow.

Although Goldenberg International was not a financial institution, the CBK went ahead and granted the company a foreign exchange dealer’s license on April 8, 1991. With the arising discomfort by First American to deal with Goldenberg, the company moved its account to Citibank NA, a subsidiary of Citicorp, in May 1991.

With his ability to wriggle out of any fix with the government, he managed to put up the Grand Regency Hotel, which CBK put under receivership after he failed to pay a debt amounting to Sh2.5 billion. But it is not just the bureaucrats that he was rubbing the wrong way, even his fellow businessmen were not spared.

He managed to wrestle Marshalls East Africa and Nyali Beach hotel from businessman Ketan Somaia. In the last general elections, Pattni joined elective politics when he acquired a political party, KENDA.

While he sought a parliamentary seat in Westlands constituency, he sponsored candidates on the party ticket throughout the country. Only Linah Jebii Kilimo was elected to Parliament while the rest of the candidates, including Pattni himself, lost.