Archive for September 5th, 2007

Kroll Report Exposes Extra Debt Burden for (unborn) Kenyan Tax Payer

Posted on 5 September 2007. Filed under: Corruption |

Kroll Report Analysis Part IV

Even unborn Kenyans will bear the heavy burden of repaying the debt burden made costlier by an estimated US$ 2Billion stolen from state coffers if the Kroll Report is to be believed. Kenya’s huge debt burden– with over 29% of all the export revenue going towards debt servicing – is certainly a huge stumbling block to achieving MDGs and we are worse off with this kind of corruption being allowed to proceed unabated.

Between 1950 and 1995, Western countries gave away aid amounting to $1 trillion as aid to poorer countries, among them Kenya.

The Kroll Report clearly tells us how these positive efforts have yielded pitiful results, and created overnight billionaires, because the Kenya lacks the political, legal and financial institutions necessary for the money to be utilised productively.

Indeed, much of the money that has poured into poor countries since the 1950s has simply leaked out – often to bank accounts in Switzerland and elsewhere. One recent study of 30 sub-Saharan countries calculated that total capital export for 1970-1996 was – not some – but a staggering $187 billion, which, when accrued interest is added, implies that Africa’s ruling elites had private overseas assets equivalent to 145 per cent of the public debts their countries owed. It is Kenyan tax payers who continue to wallow in poverty while paying this debt.

With this fact recorded, the Government of Kenya has termed the Kroll Report ‘hearsay’ and seemingly closed its file on the issue. Meanwhile one of the individuals adversely mentioned in the report, Gideon Moi, has promised to seek legal redress terming “the allegations untrue and highly libellious.” He is quoted telling the Nairobi Star newspaper that “to accuse someone of corruption, which the report purports to do, at this time of year, is very damaging. I intend to take action.” He is obviously making reference to Kenya’s general election due by the end of this year.

It seems obvious that the fundamental problem in Kenyan politics is corruption, emanating from one’s proximity to the executive. The Kroll Report has illustrated just what is wrong with the way Kenya has come to be governed since independence. The report has exposed a web of shell companies, hidden trusts and frontmen used by Moi’s family and associates used to funnel vast sums abroad. Law enforcement agencies seem to be aware of their existence but appear helpless to do anything!

The Kroll Report indicates that private banking services and offshore financial centres are the major conduits and repositories for bribes and corrupt gains. Private banking is increasingly used the world over for confidential services to international elites – and is believed to be worth a staggering US$17 trillion worldwide. The so called ‘Targets 1 to 7 in the Kroll Report seem have made full use of private banking services in Kenya and overseas to convert and secure their ill gotten monies and it now dawns the Kenyan tax payer has little hope, if at all, of ever recovering this money, going by Government handling and reaction to the leak of the report.

What makes this report a grim reading for any Kenyan is the fact that the culprits are well known. The report gives credible possibilities which the Government can follow-up on using its own feared intelligence services to make some recovery for tax payers. Instead, the government seems to be a conspirator when it appears in a hurry to close the Kroll chapter even before citizens have digested the scope of the rip-off and the very individuals mentioned are flying in and out of Kenya with impunity using private jets and first class while on Kenyan Diplomatic passports. The same individuals are allowed to freely transact their businesses even as we refuse to accept that the theft could actually be much much more than the estimated US$2 billion dollars. It looks like banks have been incorporated locally so as to purposely cover the tracks of mega thieves rather than trade as commercial banks. The stolen funds have since been “invested” to sustain royal lifestyle and multi-million dollar properties in Europe, North America, Middle East and Southern Africa while “hundreds of millions” that were siphoned are “sitting pretty” in off-shore bank accounts.

Although the off-shore private banking boom is a global phenomenon the biggest beneficiaries have been foreign banks where these funds are deposited. For instance, a 1999 US Senate inquiry revealed that 350 of Citibank’s 40,000 clients were senior foreign government officials or their relatives, including: President Omar Bongo of Gabon, Asif Ali Zardari, the husband of former Pakistan prime minister, Benazir Bhutto, the three sons of Nigeria’s General Sani Abacha, Raul Salinas, the brother of former Mexican President Carlos Salinas, Mali’s Moussa Traore, Zaire’s Mobutu Sese Seko. The private-banking department at UBS, meanwhile, are said to handle private accounts for the family of Kenyan President Daniel Arap Moi.

Word reaching this blog indicates the individuals mentioned in this report, as faithful servants of the so called Moi Empire, are anxiously waiting for the patriarch to handle this in the usual manner he has handled many other crisis’s in the past. As the extent of the implication of the report is assessed by them, they expect the patriarch to produce corresponding damage control. Most of these individuals hold substantial interests in the Kenyan economy and the government is expected to listen and act according to their whims. In any case, when the worst comes to the worst, they will not be heading to jail but use their dual citizenship to move to other world capitals and enjoy their already hidden wealth.

Kroll Report Shows Kenya’s Corporate Sector Lacks Credibility

Posted on 5 September 2007. Filed under: Corruption |

Kroll Report Analysis Part III

In our Part III of the Kroll Report analysis, we look at possible reasons why the NARC government opted to archive the explosive report even as it contained solid leads towards the arrest and prosecution of corrupt power brokers of the previous regime. It is also apparent that Kroll investigators used intelligence tactics in gathering data and their informers were mostly individuals who fell out of favour with power brokers. It is also a possibility that Kroll used bribery – a common means of getting information – on what it calls “targets”.

A lot of water has passed under the bridge since the delivery of the report to Government of Kenya in 2004 and many of the things taking place in Kenya’s corporate world in the last four years may just tell us why the Kroll Report made the Government of Kenya develop cold feet.

One individual who is very influential in Kenya’s business circles is Naushad Meralli – Chairman of Sameer Investments in Kenya. He is listed in the Kroll report as a business associate of former cabinet minister Nicholas Biwott. The Kroll Report describes Biwott as “someone who has accumulated much power and has established an enviable business empire, touching on almost every sector of the Kenyan economy, whilst he has remained in active politics”.

The Kroll Report also names Naushad Merali “as one of the richest Asian businessmen in Kenya who owns substantial holdings in numerous businesses. As a significant player, he is linked to such people as the Biwotts, Mois and the Kenyattas.” Merali is further listed as a front man of “Target 3” Nicholas Biwott with shareholding in several companies in and various others abroad.

Naushad Merali provides telling linkages of the Kroll Report to the Kibaki Government. It now becomes clearer why the then Justice and Constitutional Affairs Minister Kiraitu Murungi, who personally contracted Kroll and later received its report on behalf of the Government of Kenya, failed to release it or even act on it as recommended by the authors. It also becomes apparent why Government Spokesman has come out fast and dismissed the report as ‘inaccurate and incomplete’.

According to a report that appeared in the East African Standard in January 2005, Naushad Merali is the latter day cord that runs through the first families of Kenya in Kenyatta, Moi and presently the Kibaki business connections. Merali is shareholders with the Kenyatta family at the Commercial Bank of Africa where the later has majority shareholding, and at the First-American Bank where Moi’s have shareholding through Gideon Moi. Merali is also the founder and main shareholder in the Equatorial Commercial Bank and Gideon Moi is similarly a shareholder at this bank. Confidential sources at the Nairobi Stock Exchange confirmed to The Standard that two senior Cabinet ministers in the Kibaki government bought substantive share-holding in Equatorial Bank sometime midway into Kibaki’s rule and after receiving and reading the explosive Kroll Report. These two are widely suspected to be Chris Murungaru and Kiraitu Murungi who incidentally worked very closely with Kroll and Associates at the time of compiling their investigative report. This bank is has been named in the Kroll Report as one of those used by Gideon Moi to “quietly convert and transfer proceeds overseas”.

The Standard also reported that Merali sold to the Kibaki family a 500-hectare piece of land on the Nanyuki-Timau road. The land is next to Lewa ranch. A group associated with former cabinet minister Christopher Murungaru and current Energy Minister Kiraitu Murungi was also reported to have acquired significant interest in the 45,000 Lewa Conservancy from Mr Ian Craig. The later has for long fought behind curtains to have influence over the Kenya Wildlife Services.

A clear signal that Merali, a formidable business feature of the Moi era, was not in the bad books of the big guns in NARC came in September 2004 when he was pictured at State House, Nairobi, personally handing over a cheque worth half a million shillings to President Kibaki for the National Famine Relief Fund.

It did not escape notice that whereas all other donors to the famine fund – including those with bigger cheques than Merali’s – had been trooping to the Harambee House office of the then Special Programmes Minister Njenga Karume to hand in their donations, Merali went directly to State House. It was even more remarkable, given the fact that Kibaki, unlike his predecessor, had initially shown that he had no time for cheque receiving, and that Merali be the very first to be so honoured.

Merali’s door to the corridors of power opened in 1983. At the time he was working as an accountant with Ryce Motors, when he registered a company by the name Sameer Investments, with himself as the Managing Director. The new company hit town with a storm when it immediately acquired majority shareholding in the then Firestone East Africa (1969) Ltd and re-named it Firestone Kenya Ltd. Besides Merali, the other two directors of Firestone were listed as James Kanyotu, then Director of Security Intelligence and Mr F.J. Addley, then working for the law firm, Stratton and Kaplan. Lawyer Addley was retired President Moi’s nominee in many companies.

The acquisition was not without controversy. It began with an April 1983 visit to Kenya by then vice-president of the US-based Firestone Tyre and Rubber company, Mr A.G. Kraemer. At the time the US based firm owned 51 per cent equity in Firestone East Africa. The rest of the shares (49 per cent) were owned by the Industrial Commercial Development Corporation (ICDC). While in Kenya, Kraemer made an announcement that his firm intended to sell its entire stake in Firestone East Africa to indigenous tyre dealers. Subsequently, then Firestone East Africa managing director Steve Fabian arranged for a consortium of five leading indigenous tyre dealers to purchase the shares from the US company. The consortium included Mutaratara tyres, Buckley Tyres, Kirinyaga African Rubber, Kenya Tyre Enterprises and New Tyre Enterprises. Upon negotiating the sale agreement with the American industrialist, the local consortium applied for foreign exchange from the Central Bank of Kenya in those days of controlled money regime. CBK rejected the forex application without giving any reasons as was required by law. Recalling the incident, the MD of one of the bidding companies, Buckley tyres, Mr Samuel Magua says: “There was a strong reason to believe the CBK was ordered not to allocate us forex to buy Firestone. Our worst fears were confirmed when we learnt that the visiting American CEO had been to State House with Mr James Kanyotu, who ended up as a Director in the new Firestone company.”

The consortium of five was just about to head for the courts when the American firm announced it was selling its shares to Sameer, who already had the forex and a higher offer. Sameer’s acquisition of the additional 49 per cent shareholding by ICDC was to come in 1995 and in similar controversial circumstances. According to the 1995 report of the Auditor-General, Corporations, the now defunct Parastatal Reform Committee had demanded that ICDC offload its shares at the Nairobi Stock Exchange at Sh100 million, a fifth of their true value. Prior to the sale, Sameer Investments had placed pre-emptive rights on the ICDC shares to lock out competition. It acquired them and three years down the line, Sameer re-floated the same shares at the Nairobi Stock Exchange for Sh1.5 billion, effectively making a 1,500 per cent profit.

Merali, through Sameer Investments, purchased Vivendi Telecom International shares in KenCell at $230 million and sold them to Celtel the very same day for $250 million, making a cool profit of $20 million. It was followed by an announcement that Celtel would extend its reach in a roll-out project to be financed by a local consortium of financers, with the CFC Bank at the forefront. Absolutely nothing fishy in all that. However, it was not lost on pundits in business circles that the lists of shareholders and directors of Alico, Heritage AII, Celtel, and CFC Bank read almost the same. Some of these companies are listed in the Kroll Report and have individuals connected to the Kibaki regime directly or indirectly.

Two directors of Alico, P.K. Jani and H. Da Gama Rose (Business Associate and Frontman in Kroll Report), are also directors of Heritage AII and CFC Bank. Others in CFC Bank and Heritage AII, but not in Alico, are Mr Charles Njonjo and Mr J.C. Kulei (Target No. 1 in Kroll Report)

In Celtel Kenya Ltd, the principal shareholder is Sameer Investments where Naushad Merali and H. Da Gama Rose are directors. Jani, Kulei and Da Gama Rose are widely believed to represent business interests of retired President Moi. Sources contend that at the end of the day, money was quite probably changing hands from the left to the right.

That is the genius of Naushad Merali, who is described in the company website as the “Seer behind Sameer”.

It is obvious that such deals could have whetted the appetites of some individuals in the NARC government who see an opportunity to enrich and entrench themselves as the movers and shakers of big money in Kenya’s business circles. To release the Kroll report would have jeopardised their chances of pulling any mega deals, without risking a backlash from the public and donor community.

Acknowledgement: The East African Standard