Central Bank on the spot over saga of paper Treasury bills

Central Bank of Kenya. The way I see it, it is possible that we have unscrupulous individuals just waiting to crawl out of the woodwork to lodge huge claims against both the Central and Settlement Depository Corporation Ltd and the Central Depository of the Central Bank.

What you need to know:

  • Does the Central Bank of Kenya still keep a register of transactions that happened when Treasury bills and bonds were still in the form of pieces of paper?

  • Secondly, does the manual register go as far back as 1990?

  • The immobilisation or dematerialisation of the bills and bonds started as far back as 2005.

The rules of sub judice do not allow me to comment exhaustively on the court case involving Nandi MP Alfred Keter, and two others.

But I invoke the right of fair comment because at stake are major public interest questions, whose implications that go way beyond the specific issues for which Mr Keter and company have been hauled to court to face criminal charges.

Indeed, this case raises fundamental questions about the integrity of the national debt register.

I want to follow it closely because I want to understand how it is possible for somebody to create fake Treasury bonds and bills.

I am hoping that when the criminal case is over, the proceedings will have provided me with insights and answers to the following questions:

First, does the Central Bank of Kenya still keep a register of transactions that happened when Treasury bills and bonds were still in the form of pieces of paper?

IMMOBILISATION

The immobilisation or dematerialisation of the bills and bonds started as far back as 2005.

Secondly, does the manual register go as far back as 1990?

Thirdly, if the register is accurate, shouldn’t Mr Keter and company have gone to the Unclaimed Assets Authority to find out whether the Central Bank had remitted the money as it would have been obligated to do under the Unclaimed Assets Authority Act.

Fourthly, is it conceivable that the Central Bank would have been sitting on value from the 27-year-old pieces of paper when – according to the Unclaimed Assets Act- it was obligated to have remitted the money decades ago.

Upon passage of the Act in 2012, all the institutions holding unclaimed public assets such as the Central Bank were under obligation to identify, segregate, and remit value to the Unclaimed Assets Authority within a prescribed period.

 In the case of Treasury bills, the time prescribed in the law is two years. It follows, therefore, that if the Teasury bills Mr Keter and company were chasing were genuine, that value should have been sitting with the Unclaimed Assets Authority for collection by the owners.

SENSATIONAL

What has made the Keter case sensational is the fact that the owners of the Treasury bills claim to have held onto the pieces of paper for 27 years.

Is it conceivable that they would have, even through the time they were being dematerialised and replaced by electronic account entries at the Central Bank’s  Central Depository.

Is it possible that there are still many people out there who did not hand over their Treasury bills for dematerialisation and own hundreds of millions of shillings they have yet to claim?

In a sense the issue of compliance with the unclaimed assets law also comes to the fore.

I say so that in the unlikely event that the courts find that the bills owned by Keter and company are genuine and payable, the logical inference will be that our unclaimed assets framework is not functioning properly.

How effectively is this enforced?

FAKE SECURITIES

Still, most scary in the whole saga is whether it is a sign that we still have many fake securities in the market place.

Whether we still have paper Treasury bills, share certificates, corporate bonds certificates that were not immobilised, and for which records and ledgers are poorly kept.

The way I see it, it is possible that we have unscrupulous individuals just waiting to crawl out of the woodwork to lodge huge claims against both the Central and Settlement Depository Corporation Ltd and the Central Depository of the Central Bank.

I think we are a point where we should now be debating whether or not to transfer public debt management from the Central Bank and put this function into the hands of an independent Treasury management agency tasked with the issuance and redemption of government debt.

This the best practice in the World today in Ireland, US, and France. Our Central Bank is overloaded with too many functions.

And, a Central Bank with too wide a remit often finds itself chasing conflicting objectives.

This is not the first time we are hearing about the theft of Treasury securities. In January 2013, there was a case where stock brokers colluded with some Central Bank staffers to steal Treasury bills worth Sh105 million.

In that case, fake Treasury bonds were electronically created and issued through abuse of computer access rights by insiders.

They took advantage of the fact that the Central Bank was at that time in the middle of migrating to a new computer system.