KRA asks for DPP Tobiko's help to sort out tax case

Director of Public Prosecutions Keriako Tobiko speaks before the Senate Public Accounts and Investments Committee on May 24, 2017 following the failure of Kakamega Governor Wycliff Oparanya to appear before the committee to answer audit queries. KRA wants his office to finish prosecuting a managing director accused of tax fraud. PHOTO | JEFF ANGOTE | NATION MEDIA GROUP

What you need to know:

  • The KRA is demanding Sh45 million from HighChem Specialty Chemicals Ltd MD Wambugu.
  • Fellow directors of HCSL accuse Mr Wambugu of targeting the company’s lucrative foreign partners.

The Office of the Director of Public Prosecutions is on the spot over its delay to act on a Nairobi businessman’s file concerning alleged money laundering, tax evasion and fraud amounting to nearly Sh180 million.

The Kenya Revenue Authority (KRA) is demanding Sh45 million from HighChem Specialty Chemicals Ltd (HSCL) managing director David Njau Wambugu for income that is said to have been falsely declared as loans.

Two fellow directors are demanding Sh134,965,516 from the businessman, which they claim is commission earned from foreign partners concealed from them for years.

PROFIT

The firm is an importer and a local distributor for large international manufacturers of raw industrial chemicals used in the production of paints.

It was formed on December 2008 and is based in Nairobi’s Industrial Area.

The taxman claims $619,650 (Sh64 million) in the company’s books of accounts, which was categorised as loans, was, in fact, profit earned from one of its partners — Eagle Chemicals, El Shark Company, of Egypt.

Mr Wambugu, according to court documents, duped the Egyptian company into paying the commissions to his family-owned firm called Polychem East Africa Ltd between 2012 and 2016.

TAX LIABILITY

Mr Wambugu purportedly told the directors of HSCL that the money was a loan he had personally negotiated with the Egyptians to improve the liquidity of their fledgling company.

“It is clear the main intention of reclassifying the commissions received as loans was to reduce the tax liability of HighChem Specialty,” Mr D.M. Mwangi, KRA’s chief manager of audit programme, wrote to HSCL on April 11, 2017.

In another detailed explanation of the tax demand dated July 6, 2017, Mr Mwangi said: “It was established from payment remittance slips that the amounts were actually sales commissions received for the marketing activities done in the allocated (Kenyan) market.”

FORGERY

Fellow directors of HCSL accuse Mr Wambugu of targeting the company’s lucrative foreign partners.

For example, he is accused of forging a letter on August 2012, supposedly terminating a contract between HCSL and Germany’s Kronos and diverting profits amounting to $67,095 (Sh70,522,504) from the partnership to his family companies.

The matter came to light in 2016, when KRA conducted an audit of the company as Mr Wambugu sought to buy the other directors’ 50 per cent share in the firm by converting the “loan” into shares.

PROSECUTION

The aggrieved directors first reported the matter to the Central Bank of Kenya’s Banking Fraud Investigations Unit (BFIU) on January 13, 2017.

Mr Wambugu was arrested on March 7, 2017, and he was to be presented in court.

Mr Duncan Ondimu, the principal prosecution counsel at the Milimani Law Courts, asked for the file for perusal.

The plea taking was suspended for a further two weeks and Mr Wambugu was supposed to appear in court on March 28, 2017.

CASE STALLS

The aggrieved directors say they have not yet heard about the progress of the case from the ODPP or BFIU despite sending them three reminder letters.

They are now worried that the case file might have been tampered with.

“Our follow-up efforts through the ODPP and the BFIU have not yielded results,” lawyer David Kimani of Mwamuye Kimathi and Kimani Advocates, who is representing the other two directors, said.

He added: “On August 23, 2017, we wrote to Mr Daniel Karuri (in charge of prosecutions, Nairobi Area), and on September 5, 2017, we wrote to Mr John Mungai Warui (in charge of prosecutions Nairobi County) but we have had no response.

"When we visited them recently, they told us that the file is now with Mr Nicholas Mutuku, another senior officer at the ODPP.

REPORT

"We wonder why they are taking us in circles. Our humble prayer is for a speedy perusal and/or prosecution to save our business, which has suffered immensely as a result of the loss.”

DPP Keriako Tobiko said he was not aware of the case but promised to look into it.

“I have no personal knowledge of the matter, but I have asked the relevant officers to give me a detailed report on the same by Monday,” he said through an SMS.