IBL directors ‘complicit 100 per cent’

Investigations begin to reveal former directors knew of fraud, actively sought to cover it up and even sought CBK’s help to maintain “positive image” — Agency

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TNLM Writer

“Truth will out”, the saying goes.

But the veracity of this old dictum can at times confound, or cease to make sense, particularly in instances where a lie is manufactured, watered and tended to, to blossom into an alternative truth, one that then becomes the benchmark for what is to be said and/or believed. It is this “alternative truth” that the Central Bank of Kenya believes has been peddled and fed to the Kenyan public regarding the Imperial Bank saga.

The admitted fraud at Imperial Bank Limited (IBL) was allegedly done under the patronage of a former group managing director, the late Abdulmalik Janmohamed, in complicity with senior managers. That admission was made in a proposal requesting CBK to place the bank under statutory management for a brief period, and facilitate the opening afterwards.

When CBK analysed the proposal and admissions, it immediately placed the bank under receivership; the level of fraud was staggering. This appears to have caught the directors, who had expected a favourable response, off-guard. The CBK, together with the Kenya Depository Investment Corporation (KDIC), embarked not only on investigating the activities of the late GMD and management, but also those of the board of directors and shareholders, to determine their role and the benefit if any.

What followed was a sustained onslaught against CBK and KDIC by a PR firm commissioned by certain interested parties in the matter. This, however, did not deter the CBK and KDIC from carrying on with forensic investigations into affairs at the bank which, it would emerge later, go back 13 years.

And whilst the story of the directors and shareholders has been repeated extensively in social and mainstream media, the CBK position was finally revealed in an affidavit filed on February 28, 2016, “to provide a factual representation of the matter” and, separately, “to correct misleading positions taken on the role and involvement of the CBK”.

Auditors who don’t audit

In the affidavit, Mohamud Ahmed, KDIC’s appointed Receiver Manager for Imperial Bank, was respond to conservatory orders sought by the former directors of the bank, which he terms as “a blatant attempt to stop the forensic investigation into the admitted grand theft of Sh38 billion”, to ensure its extent and perpetrators are not revealed.

He avers, for starters, that  the auditors of Imperial Bank, PKF Kenya, who have been retained since the bank began operations in 1992, had been compromised through a massive loan at concessionary interest approved by the directors to the partners of PKF Kenya ‒ trading as East Africa Property Holdings (K) Limited ‒ which prevented them from rendering accurate audits and concealing the underlying monumental fraud.

At the point of receivership, the affidavit goes on, East Africa Property Holdings (K) Ltd had been listed  as number 16 in the list of “Top 50 borrowers” at the bank, with an exposure to IBL of Sh371 million at an interest rate of 19pc, which had been agreed with PKF in relation to a three-month deposit being placed by East Africa Property Holdings (K) Ltd.

Following the death of Janmohamed, the new appointed directors became the principal officers used to effect the fraud. These are Naeem Shah and James Kaburu who were appointed as acting managing director and deputy managing director respectively, in acting capacities. The bank’s board appointed them in full knowledge that the two were responsible for fraudulent activities in IBL. In fact, according to an affidavit sworn by Naeem in December last year, they had instructions “to keep covering up the fraud”.

The admitted fraud was first brought to CBK’s attention through a letter to the CBK governor by former board chair Alnasir Popat. In it, he alleged that through an interim report by FTI Consulting, the board had discovered that the bank was, among other things, running two sets of accounts within Flex cube system: one was regularly reported but did not reflect the true financial position of the Bank as it excluded some of the transactions, while the other was not disclosed in the financial statements presented to the former board of directors. It comprised fraudulent disbursements of some Sh20 billion.

The fraudulent transactions resulted in a total loss of 38 billion which included approximately Sh20 billion of fraudulent disbursements and accrued interest of about 18 billion. This had rendered the bank insolvent to the tune of Kshs 28 billion and would expose IBL into liquidation unless the amounts in question were immediately recovered from the alleged fraudsters, or an equivalent amount injected by the applicants.

Sh10 billion unsecured loan

The former directors, however, far from living up to the ethical and moral standards they now allege, requested that the CBK assist in protecting the “integrity of the bank”. The cover up by the directors included hurriedly presenting a preliminary forensic report by FTI Consulting which proposed that CBK place IBL under statutory management, that the board enters into an agreement with CBK to permit recapitalisation, that they collaborate with CBK to execute a full recovery plan, that they secure support from CBK to approach potential investors.

The proposals put forward by former directors were designed to direct attention away from the non executive directors associated with the applicants, and draw CBK into an elaborate cover scheme, in which all attention would be focused on the late GMD and associated entities while surviving directors would not be subjected to any or thorough investigations.

Ahmed has also roped in W.E. Tilley (Muthaiga), the firm said to be at the centre of the fraud, which he says was advanced an unsecured loan of Sh10 billion with the full knowledge of the board of directors. He cites a letter dated October 10, 2015, attached to an affidavit sworn my Anwar Hajee, which “purports to be an acknowledgement by W.E. Tilley of Sh10 billion in credit facilities and an acceptance to collateralize the amount by way of second charges.
W.E Tilley (Muthaiga) Ltd, in its defence, pleaded that the letter was only written as a “letter of comfort” to pacify CBK which was conducting investigation into the Imperial Bank operations, and was not intended to have any binding effect whatsoever. Further, the former directors knew that W.E. Tilley was not indebted to the bank to the tune of Sh10 billion.

The affidavit further claims that the directors, by filing the suit in their own names, were attempting to circumvent the provisions of Section 45(3) (a) of the Kenya Deposit Insurance Act which specifically excludes the involvement of directors in the affairs IBL while under receivership.

The affidavit further avers that the shareholders, through their families were part of the fraud, and gave the example of Habib Hajee, wife to Anwar Hajee, who  received about Sh7.5 million in loans in 2007 against a Sh8 million security by Hajee deposited in 2010, three years later.

“A sh8 million deposit was made on the same day at the same cash teller to one of the questionable accounts linked to W.E. Tilley accounts which had been receiving false credits emanating from accrued interest on W.E Tilley loans. This proves that the shareholders were fully aware and benefitted from the fraudulent activities.”

Another account in the name of Holistic Word Ltd owned by Hajee and his wife  was overdrawn by Sh12 million with no security provided for the overdraft, and with no loan repayment made since November 2007. What is more, the insider loans by the shareholders and former directors were not disclosed to CBK despite the fact that the shareholders were aware that the law required them to disclose any amount they took from the bank.

Ahmed’s affidavit reiterates that the shareholders breached their fiduciary duties in collusion with other senior officials whom they allege were coerced but in reality had the intention to defraud depositors of their funds.

“The shareholders are only out to create a smoke screen to distract us from finalising investigations to determine the extent of their culpability. The bank is currently insolvent to the tune of Sh28 billion and in need of massive capitalisation, which makes it untenable to allow the shareholders to reopen it.”

According to the affidavit, the fraudulent manipulation of IBL accounts started as far back as 2003. Preliminary investigations by FTI in respect of specific alleged fraudulent activities, identify areas of focus as being: significant round sum amounts withdrawn apparently in cash, cash withdrawals made that cannot be linked to specific customer accounts, credit accounts which cannot be linked to deposits, systematic manipulation of accounts to suppress and conceal loans and significant overdrawn balances, favourable loans being created at 0% interest, and overdrawn balances significantly in excess of agreed facilities.

An example here is an account in the name of Holistic Word Ltd, owned by Anwar Hajee and his wife Habib Hajee, which is overdrawn to the tune of Sh12 million, and for which no security was provided for the overdraft. As well, no loan repayments were been made.

These matters, among others, were not disclosed to CBK in Popat’s letter to the CBK governors, despite that he sat on the bank’s board, and was aware of the requirement to disclose them to the regulator. This, Ahmed says, is proof that the former directors not only condoned fraudulent activities and conduct but also perpetrated it.

Summarily, the affidavit, goes on, ongoing court processes intiatiated by the former directors are nothing but a red herring meant to shift blame for the fraud at IBL on the late Janmohamed and divert attention from the Applicants’ involvement in the fraud. A secondary motive is to distract the KDIC from finalising investigations.

‘Determined to unearth truth’

As the court battle rages on, Central Bank has appointed to its legal team renowned lawyer Philip Murgor, who was instrumental in unravelling the Goldenberg scandal, having represented CBK throughout the period, and who as DPP at the time, commenced the Anglo Leasing Prosecutions (2004)
The regulator does not appear to be pulling any stops on this one, that is the message. KDIC’s position on the matter is that CBK will only consider proposals to reopen the bank after the conclusion of the forensic investigation to determine the extent of the fraud. The investigations are expected to determine who between the board, and this included the GMD, and staffers at Central Bank were involved, and initiate appropriate regulatory/disciplinary action.

Sh38 billion is a larger figure than Goldenberg and the original Anglo Leasing. In fact, it is the single largest fraud instance by an individual bank in Kenya. Governor Patrick Njoroge and his deputy Sheila M’mbijiwe have been roundly hammered by media, for their seeming inability to contain burgeoning improprieties in Kenya’s banking sector.

Upon his appointment, Governor Njoroge was seen as the perfect prefect to the indiscretions that characterise the country’s banking industry. It is the subsequent stinging criticism that has, perhaps, become his motivation, and he is said to be champing at the bit to make an example out of the Imperial Bank mess to prove his determination to execute to the letter the mandate of the Central Bank.

1 COMMENT

  1. According to Shakespeare: “Truth will come to light; murder cannot be hid”. It is unfair to speculate and point fingers to people without scientific proof. This is easy to obtain by exhuming the body to carry out a postmortem analysis for poison, such as arsenic. According to history Napoleon Bonaparte’s hair contained traces of arsenic 100 years after his death. But then how can it be proven that the drink he took at the bar was laced with poison? Certainly an interesting investigation. Probably the shareholders should hire an independent analyst now and the postmortem witnessed by several experienced, independent chemists from overseas who cannot be bribed. After all it is in their interest that the serious press, such as your excellent professional magazine, which people take seriously, does not make vague comments, which can only be interpreted only one way. If they refuse you have another small proof that something is “fishy”. Theft is one thing, murder is another.

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