Part two: Tracking Eurobond funds to the final destination

During the period up to September 8, 2014, the funds at JP Morgan Chase Bank earned $245,957 in interest revenue, and Sh2.4 billion in exchange gains at a time when the US prime rate, the main borrowing rate in America, was under one per cent.

One may agree or not with these actions but what concerns us is whether the money was stolen.

What is clear is that no money was stolen at JP Morgan Chase and that interest was earned while it was there.

It may not have been the most efficient way of doing this, but to jump to a conclusion from this and allege theft is preposterous.

Another twist has been brought into the saga — that the JP Morgan statements, which support the National Treasury’s case, were “redacted”, thereby lending an air of mystery as to what was being hidden.

This conundrum is easily resolved. Both the Auditor-General and the Ethics and Anti-Corruption Commission (EACC) must insist on seeing the full statements, which the National Treasury, as a client of JP Morgan Chase, must have.

If the redaction is to protect, for example, bank security coding, then let these two institutions confirm the full details under confidential cover, which they do anyway for a whole host of government entities.

The National Treasury has unnecessarily allowed this redaction to create suspicion. This is plain silly, incredibly dumb, and should be corrected post haste.

SOUTH AFRICA CONNECTION

Yet another allegation is that because JP Morgan’s documents also mention other offices, then the Kenya Eurobond proceeds must have been routed to South Africa, or so it is alleged.

I am not even sure how to start addressing this one. Why should any bank in its right mind send money to South Africa, whose currency is depreciating vis-à-vis the US dollar, thereby risking a certain exchange loss, only to bring it back to America intact in US dollars? The mind boggles.

5. On September 8, $999 million was transferred to the Federal Reserve Bank of New York (the “New York Fed”). Once more a lot of heat has been generated by this move. How and why did this money end up at the New York Fed?

Some background is in order here. The US Central Bank is called the Federal Reserve System. It consists of a Board of Governors sitting in Washington, DC, and 12 regional reserve banks, of which the Federal Reserve Bank of New York is by far the most crucial since it sits alongside Wall Street, the world’s largest financial market.

This federation structure is why the US Central Bank is called the Federal Reserve SYSTEM. But make no mistake, the New York arm of the Federal Reserve System is a 100 per cent US Government entity.

Among many of the New York Fed’s functions is to act as banker to central banks. The New York Fed does not accept any other customer accounts other than from the banks it regulates and central banks.

Since its foundation in the mid-1960s, the Central Bank of Kenya has had an account at the New York Fed, and that account is the Central Bank’s main US dollar operating account, responsible for more than 60 per cent of all US-dollar activities by the Central Bank of Kenya.

An example: Whenever you read of the Central Bank having bought dollars from Kenyan banks, those dollars end up at its account at the New York Fed. Note that in the UK, the Central Bank of Kenya has similar accounts with the Bank of England for Pound sterling accounts and in Europe, the Central Bank has euro accounts with European Central Bank.

This means central banks prefer having their main offshore accounts with other central banks.

$1BN IN NEW YORK FED

So, why did the $999 million end up in the New York Fed? Because the Central Bank of Kenya bought the $999 million from the National Treasury and in return credited the National Treasury’s Kenya shilling-denominated Sovereign Bond account at the Central Bank with Sh88.46 billion.

In other words, the $999 million ceased being the property of the Kenya Government, through the National Treasury, on September 8.

That is why the $999 million “disappeared” — it was sold and now belongs to the Central Bank of Kenya as part of our reserves. Still in doubt? Check the Kenya Foreign Exchange Reserve Movement at www.tradingeconomics.com.

Those who want to know what happened to the $999 million are best advised to ask the Central Bank or to request the Auditor-General to audit the Central Bank of Kenya.

If, on the other hand, you are genuinely truly interested in what happened to the Sh88.46 billion, then forget that red herring called the New York Fed and instead follow the Sovereign Bond Account at the Central Bank of Kenya and the movements thereon.

Unless, of course, you want to tell President Barack Obama that the New York Fed, the main operating arm of the US Central Bank,  consists of a bunch of thieves.

6. The immediate key movements which should now concern us are the debits from the Sovereign Bond Account to the Consolidated Fund.

Why was the Sh88.46 billion left in this Sovereign Bond account instead of being transferred to the Consolidated Fund? Again we asked the National Treasury, and again have been advised that funds were released to the Consolidated Fund only upon request — see also the National Treasury’s website www.treasury.go.ke.

On the face of it this makes sense, but we will have to await the proper institutions’ conclusions once they have delved into this account. 

There are, of course, questions to be asked of the National Treasury, and we have set out some of these in this article.

What we are confident about, though, is that Kenya received the entire $2,815,000,000 minus the syndicated loan repayment and bond issuance expenses.

Whether these monies were used wisely and productively, or whether they were stolen in our “usual” budgetary shenanigans through procurement and other devious routes is another matter altogether, which we must debate.

But to accuse individuals and institutions of wholesale theft of the money before receipt is unfair, unjustified and must be proven by those who claim it was.

The writer, Habil Olaka, is the chairman of the Public Finance Sector Board of the Kenya Private Sector Alliance and Chief Executive of the Kenya Bankers Association. This is the last instalment of a three-part article on Eurobond.