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.