Paul Ogemba As the controversy surrounding the bankruptcy and closure of Imperial Bank continues to play out in court, several questions are emerging, many of them without answers. Was former Imperial Bank managing director the late Abdulmalik Janmohammed eliminated to conceal evidence of Sh38 billion stealing of depositors’ funds? Did Central Bank of Kenya know of the underhand dealings, illegal deposits and withdrawals in the bank? Was CBK part of the syndicate, and did it choose join the conspiracy with senior managers at Imperial Bank for over ten years without the knowledge of the bank’s shareholders? Evidence filed in court show that CBK was made aware of the fraud in April 2012, but no action was taken against its inspectors who had, in cahoots with senior managers, aided and abetted the fraudulent acts after receiving financial rewards from the late MD and his accomplices. “What is hard to understand is how CBK, which prides itself in fostering the liquidity, solvency and proper functioning of a market-based financial system through bank supervision, could let the matter rest by conducting a superficial inquiry, stopping at the exchange of a few e-mails with the very person alleged to be a perpetrator and beneficiary of the crimes,” state court papers . CBK hand Another emergent issue is whether two other financial institutions, the Kenya Commercial Bank and Diamond Trust Bank, have intentions of taking over Imperial Bank by throwing their weight behind CBK’s refusal to allow the shareholders to reopen Imperial Bank. In the midst of all this confusion, it remains to be seen who is fighting in the interests of the shareholders. What started as a simple investigation into the alleged theft of Sh38 billion has turned into a mega scheme at whose centre is a web of secret dealings between Janmohamed and businessmen who had a free hand in depositing and withdrawing billions of unsecured loans from the bank. The court case further casts doubt on the credibility of CBK as an independent arbiter and regulator of the banking industry after allegations that it colluded with senior Imperial Bank managers for nearly 13 years to alter the list of borrowers and conceal facts from the bank’s shareholders. Among revelations made in court is that the CBK had a hand in the collapse of Imperial Bank’s, with allegations from shareholders that it tried to extort Sh20 billion from the shareholders, and was colluding with two other banks to ensure Imperial Bank is not reopened. The shareholders also seem to be reading more from the fact that it is Deputy CBK Governor Sheila M’mbjiwe who ordered the closure of the bank, and not Governor Patrick Njoroge, who was said to be away on a foreign trip. They allege an absence of due process in the closure of the bank, through questioning if the deputy governor had powers to close the bank, and if she followed procedure. Separately, there are also allegations of power play between the governor and his deputy, with M’mbijiwe said to look down on Njoroge owing to his “naivety” and goody two-shoes character, which, ostensibly, keeps from doing “what is necessary as his job dictates. “We are aware of parties who want to take over Imperial Bank and have prevailed upon CBK to continue holding the bank in receivership and to demand for the Sh20 billion in a most unfair manner that goes against the laws of banking. We know of the conspiracy to kill the bank, that is why some of its managers are being called to join other banks,” reads a statement from the bank’s shareholders. The court battle pits six shareholders – Imaram Ltd, Reynolds and Company Ltd, East Africa Motor Industries Ltd, Momentum Holdings Ltd, Abdulmal Investments Ltd and Kenblest Ltd – against CBK and Kenya Deposit Insurance Corporation. The shareholders have also named Kenya Commercial Bank and Diamond Trust Bank as interested parties. These are the two banks they allege are seeking to take over Imperial Bank, and who were appointed by CBK as receivers when the bank became insolvent. As hundreds of depositors cling onto the hope that billions of shillings in savings belonging to them will ultimately be returned, the blame game continues: they lay the blame squarely on the CBK; Central Bank, on its part, blames the shareholders for failing to comply with its stipulated conditions. Whereas the shareholders claim that they are acting in the interest of depositors to have the bank reopened, CBK maintains that they want the bank to continue in receivership to protect depositors’ funds. The deposit insurance corporation, on the hand, claims that the court cases are meant to stand in the way of a forensic investigation into the “admitted” theft of Sh38 billion, while the shareholders maintain that they are the ones who reported the theft and only want the bank reopened to protect depositors and creditors. The involvement of KCB and DTB stems from allegations that the two institutions have been approaching Imperial Bank employees to cross over in preparation of the takeover. The genesis of Imperial Bank’s troubles dates back to September 2015, soon after the sudden death of Janmohammed due to cardiac arrest. But even his death has become a question in the court battle, with Kenya Deposit Insurance Corporation alleging that the death was mysterious and therefore questionable, and that he might have been eliminated to conceal the facts behind the theft of billions of shillings. This argument is countered by Imperial Bank shareholders who have labelled it sensational and a tactic by CBK and the corporation to shift blame and attract public sympathy to hide their sins. “There is absolutely no truth in the claims, and there is not a shred of evidence to support foul play. The claims are in bad taste, and made spuriously, with a view of further casting aspersions on the shareholders’ character, with a view to causing disaffection against them in the eyes of the public,” swore Anwar Hajee, a director of Abdumal Investments Limited. It was after Janmohamed’s death that the irregular disbursements he initiated started coming to light – this was after the bank’s board of directors appointed then head of credit Naeem Shah and chief finance officer James Kaburu as the acting managing director and deputy managing director respectively. Creative accounting Shah and Kaburu, after brief investigations, confirmed to the board that the late MD had been disbursing loans amounting to billions of shillings fraudulently to his friends and business associates without going through formal credit processes in line with prudential guidelines and the bank’s internal lending procedures and policies. “According to the CFO, the late group managing director unilaterally forced, intimidated and threatened the CFO to use ‘creative accounting’ to hide what was effectively theft from the bank,” the shareholders said in court. According to a source privy to the under dealings at the bank, Janmohammed must have been colluding with scrupulous businessmen engaged in drug trafficking and money laundering to “clean” the dirty money from the illegal trades. “The businessmen made a lot of money from those illegal trades. But they feared depositing the huge amounts in any bank for fear of being noticed. To conceal their trade, they would come to the MD’s office with billions of shillings, which were then hidden in a safe. The MD would then advance them unsecured loans equivalent to their money, and which would then be repaid with the dirty money in his custody,” said the source. It was such revelations that made the bank’s chairman Alnashir Popat to call an emergency board meeting to discuss the revelations, during which the board’s audit committee chairman Omurembe Iyadi was asked to lead an investigation into the allegations of impropriety. The audit team was also asked to contact the clients mentioned to verify the allegations. But Iyadi reported that the audit team’s attempts to get information from Shah, Kaburu and the bank’s senior managers were unsuccessful, after which the board decided to contract London based forensic auditors FTI Consulting LLC to carry out a forensic audit to establish the accurate financial position of the bank. “The FTI Consulting report established that there were significant differences on loans, overdrafts, investments and deposits from what had previously been reports to the bank’s board. It confirmed, among other startling facts, that the former GMD had been running a scheme of fraudulent and illegal disbursements with certain accomplices within and outside the bank,” the shareholders revealed. It revealed that deposits made by the bank’s customers and which were supposed to yield returns and income for the bank were instead being fraudulently transferred to various accounts of W.E. Tilley (Muthaiga) Ltd on the former GMD’s instructions, assisted by other senior bank officials and then withdrawn or transferred. To conceal the fraudulent and illegal transactions, Janmohamed and some senior managers would use a software reporting programme which ensured that the fictitious, unlawful and fraudulently created accounts were not reflected in the bank’s financial statements, therefore understating the bank’s true financial position. In order to balance the books, deposits held by the bank were suppressed to match the amount defrauded through transactions made in various accounts, thus reducing the amounts in the financial statements and misrepresenting the bank’s financial status. See no evil, speak no evil Surprisingly, the accounts were duly approved by CBK as it carried out annual on-site inspections to verify the said financial statements. It emerges that a senior CBK official and senior Imperial Bank managers altered the list of top borrowers and hid the actual list from the bank’s shareholders. One cited example was an email dated October 24, 2014 where then chief finance officer James Kaburu instructed CBK’s banking supervisor Reuben Cheres to delete specific entries in the bank’s classified loans list before including them in the record. Among the list of top 50 largest borrowers from Imperial Bank Limited prior to its collapse included Adra International Ltd who owe Sh1.8 billion, Vegpro(K) with a Sh1.4 billion loan, Italbuild Imports with Sh1.2 billion and Scarce Commodities (Sh1.1 billion). Also in the list are Samani Construction with Sh1 billion debt, Rods & Steel (Sh958 million), SK Amin (Sh763 million), Megha Industries (U) (Sh723million), Coolxtreme (Sh705 million), RM Patel & Partners (Sh676 million) and Central Electricals International (Sh605 million). Following the presentation of the FTI Consulting report, Imperial Bank directors, in their quest to protect the bank’s clients, reported the findings to CBK on October 12 2015 in a letter signed by Popat. The next day, the CBK placed the bank under receivership by Kenya Deposit Insurance Corporation for 12 months and Peter Gatere was appointed its receiver manager. In a bid to safeguard’s the banks depositors and creditors, and in attempt to resuscitate the bank, the shareholders held several meetings with CBK and agreed on an elaborate way forward. This would, however, open a fresh can of worms, with the shareholders claiming that CBK made attempts to extort Sh20 billion in a bid to conceal the facts of their involvement leading to the bank’s closure. “CBK demanded that we inject Sh20 billion within 48 hours as a precondition for allowing us to participate in the restructuring of the bank, in an unfair and unreasonable manner and in total disregard of due process and applicable provisions of the law. They even warned that they will commence the process of dissolving the bank if we did not comply,” said the shareholders. According to Anwar Hajee, the shareholders actively engaged in seeking restructuring solutions and recover the stolen funds and presented their proposal to enable reopening of the bank, but CBK refused and presented a single sheet demanding that they inject between Sh10 billion and Sh20 billion to cover the unsecured and fraudulent debt by W E Tilley. Calculated take-over move Was CBK’s demand a calculated move to allow takeover of Imperial Bank by KCB and DTB? And has CBK entered into agreements with the two banks without considering the shareholders’ input for the bank’s recovery plans? “It is clear that KCB and DTB have been given access to the bank’s information based on their agreement to participate in dealing with the assets and liabilities of the bank. It leaves us wondering what their interest is, given that allowing them the access to this information to the exclusion of the shareholders is suspect and discriminatory,” said Hajee. According to the shareholders, CBK, KCB and DTB have actively been engaging with the bank’s employees in Nairobi and Mombasa indicating to them that decisions regarding the fate of the Bank are at an advanced stage. This is further aggravated by the fact that the CBK directed Imperial Bank to pay out depositors Sh1 million through KCB and DTB despite the fact that the bank has a network and its own employees who should have been used for that purpose. “The pay-out of deposits of up to Sh1 million through KCB and DTB, who required as a condition precedent that each affected customer had to go through a rigmarole of opening new bank accounts with them, was calculated to destroy Imperial Bank’s customer base by obliging them to effectively move their money into new accounts with KCB and DTB,” says the court documents. Conflict of interest It is further alleged that both KCB and DTB chief executive officers sit as board members of the Kenya Deposit Insurance Corporation, which shows prove of conflict of interest in their push to spearhead the pay-out and ultimately take over Imperial Bank. CBK however denies the allegations and has opened a new Pandora’s box of who actually discovered the loss of Sh38 billion from the bank. Whereas they claim it is them who discovered the theft, the shareholders maintain that it is them who alerted the regulator. “It is the shareholders who tried to defraud CBK by attempting to pay some money to allow them reopen the bank. There is no way we would demand Sh20 billion when our investigations had established there was a Sh38 billion fraud in the bank,” said CBK in court papers. At one point after the bank was placed under receivership, CBK and the deposit corporation instructed the Banking Fraud Investigation Unit (BFID) to investigate six directors, who were summoned on October 22 last year to record statements over the alleged fraud. They were again summoned in November soon after the CBK governor appeared before the Parliamentary Finance Committee and the matter of the Bank’s situation was raised. The committee allegedly demanded that the recovery be planned and criminal charges be preferred against the six directors. The BFID apparently confiscated the directors’ passports, but no criminal charges have been preferred almost four months after they recorded statements. While the tug of war persists, the parties continue to trade accusations with CBK maintaining that it is the shareholders who are stalling the bank’s reopening while also insinuating that the criminal charges were dropped as a pre-condition for the shareholders to inject more cash into the recovery plans. The shareholders on the other hand blame CBK for delayed reopening, adding that the question of criminal liability against the directors has never arose in the meetings they have had with CBK. It is these questions, among others, that the court is expected to decide, including questions of whether Imperial Bank went for the wrong person when it applied for the freezing of bank accounts belonging to Kaburu, the bank’s finance officer.