CMA goes after Imperial bank bosses as CBK flexes its muscles

A move by the Capital Markets Authority (CMA) to go after directors of the fallen Imperial Bank may be an indicator that the Central Bank of Kenya (CBK) is finally flexing its muscles to bring perpetrators of the biggest banking fraud to book.

CBK is expected to take action once it receives a comprehensive report on the actions of the bank bosses leading to its going under.

The CMA has instituted disciplinary action against the directors for misstating facts in its Sh2 billion bond issue before the lender collapsed, just a few weeks before conclusion of the bank’s audit.

Central Bank is expecting a comprehensive audit report from FTI Consulting on Imperial Bank this month that will set the stage for a legal battle the regulator has vowed to win.

In his latest press briefing, CBK Governor Patrick Njoroge said that although investigations have taken nine months, it was important to build a solid case.

CBK says the days of internal fraud in the banking sector with directors getting away scot free must end.

“There have been so many bank frauds in the past, but where are the people who were involved in them? Partly maybe because we were too quick in gathering the information and so for whatever reason these people walked away free; we do not want that to happen.

I can actually indicate that this is why we need the evidence to be painstakingly put together,” he said.

The regulator, hell-bent on getting the culprits, has heavily invested in the investigations which have reportedly cost Sh1.4 billion in the last seven months.

Auditors have already unearthed about 1.2 terabytes of electronic data and identified over 700 accounts it considers being of interest that require more time to be checked.

Through the receiver Kenya Deposit Insurance Corporation (KDIC), CBK has been dropping hints about the cache of information it has gathered including connections with a secret firm to open another bank.

Imperial Bank owners registered a separate company which they used to acquire a stake in Dubai Islamic Bank and to apply for a banking licence to open a Kenyan subsidiary of the Middle East lender.

While the looting was going on, the bank shareholders allegedly induced its auditors PKF Kenya with Sh500 million in loans through a real estate company they owned to bring them into the multi-billion-shilling scandal.

KDIC has also revealed how Imperial Bank Chairman Alnashir Popat colluded with his brother, Simba Corporation owner Adil Popat, to withdraw Sh729 million just four days before the lender went under.

MULTIPLE BENEFICIARIES
The revelations have been made to retaliate against several suits the bank’s shareholders have filed to have Central Bank divulge the amount of intelligence it has gathered.

CBK came under a flurry of litigation in the last nine months against the bank’s seven owners, including Imaran Ltd, Reynolds & Company Ltd, East Africa Motors Industries Ltd, Momentum Holdings Ltd, Rex Motors Ltd, Kenblest Ltd, and Abdumal Investments, a Mombasa- based billionaire Ashok Doshi and his wife Amit and two of the late managing director Abdulmaleck Janmohammed’s family.

The CBK governor has also revealed that his staff have been threatened over the investigations by “forces that wanted us to go the other way”.

Dr Njoroge had earlier this year told the National Assembly’s Finance Committee that the Imperial Bank scheme had footprints all over the banking sector but stated that it would be difficult to track all the players in the scam.

“This matter has shown that it is an intricate web that we have out there. You pull on one element and several other elements come along and this is why it is better to be sure where everything is. To understand exactly much more clearly how the scheme was being done, or the schemes, this wasn’t one scheme, there were many going on,” the CBK boss said.

A preliminary report done by FTI for the bank owners showed that the blatant theft of Sh38 billion from Imperial Bank was concealed in multiple transactions and accounts to break the paper trail.

Court filings by Imperial Bank owners seeking to be enjoined in the case shows a web of interconnected accounts that siphoned money, which was not directly channelled to some of the late managing director Janmohamed’s properties, which means many more people benefited from the scheme.

The bank’s former chief finance officer, Mr James Kaburu, and the former head of credit Naeem Shah, who continued to draw money even after Janmohamed died, are included in the suit.

The filings also raised questions around the circumstances under which Mr Janmohamed died, with his death coinciding with a rush to hide his wealth from possible attachment to the bank’s loss.

According to the filings, the shareholders received an anonymous note disclosing that on the day Mr Janmohamed died, Janco UK Limited, registered in the United Kingdom where he held 33 per cent stake, was dissolved.

The note also indicated that the deceased’s personal banking facilities held at Imperial Bank were moved after he died.

His trust was immediately taken over by his brothers Mehdi and Salim Janmohamed who are in the process of having their names registered as the settlers of the trust in place of the late Janmohamed.

The shareholders said in the suit to be enjoined in a case filed by CBK that the late managing director ran two sets of accounts with flexcube system.

“One regularly reported, which did not reflect the true financial position of the bank, while the other, not disclosed to the board, comprised fraudulent disbursements,” the suit seeking to adjoin owners of the bank in a case against the alleged fraudsters reads.

HUGE WITHDRAWALS

FTI Consulting apparently found that Sh20 billion was disbursed to W E Tilley, Jade Petroleum and Arda between 2006 and 2015. Some Sh18 billion in accrued interest was also lost.

The money was then channelled to a network of accounts belonging to 20 firms and individuals listed in the suit including a company, Hanscomb Management Limited, that was closed down in 2002.

According to the filings, Tilley operated a dollar account and a Kenya Shilling account. Money was moved to the Kenya Shilling account from which withdrawals of Sh10 million to Sh100 million were done by Mr Shah every week regardless of the money in it.

This was concealed by sending money to a secret overdrawn account 0102026004. The overdrawn account was then drained and the money was sent to 25 special accounts which moved Sh18 billion between 2006 and 2015.

Both Tilley shilling account and the overdrawn account retained interest during the period.

The interest was then sent to an account 0012265026 held by Mr Zulfikar Jessa and Zarina Mohamed through cash and internal transfers to the tune of Sh1.1 billion.

Mr Janmohamed and Mr Shah then opened an account called Mr Barkatkhan where some money from the Zulfikar account was sent.

Since Sh3.2 billion was withdrawn from this account, the owners say they have reason to believe that some money from the Special loan accounts and the Overdrawn accounts were sent here.

Mr Shah withdrew Sh162 million after Mr Janmohamed died from this account between September 15 and October 7.

The shareholder also believed that the Barkatkhan account was used to channel money into an account held in the name of Mr Janmohamed’s mother.

The Gulshan Janmohamed account, which was operated by Mr Janmohamed and Mr Shah, received cash deposits which coincided with the amount withdrawn from the Barkatkhan account.

Some Sh363 million was withdrawn from the Gulshan Janmohamed account.

On another platform of the flexcube system, an account held by Hanscomb Management Limited before it shut down in 2002 was kept open, reflecting some Sh30.3 billion.

As at September, well after the death of Mr Janmohamed, under Mr Shah who was then appointed acting managing director, entries of between Sh3 billion and Sh17 billion were still being moved through the Hanscomb account.

Mr Janmohamed, Mr Shah and Mr Kaburu hid the Overdrawn and Special loan accounts from scrutiny and suppressed deposits to balance the money stolen.

The preliminary audit found that Janmohamed and six other managers were involved in the alleged fraud.