HOW MINISTERS SHIELDED TAX EVADERS FROM PROSECUTION - THE CHARTERHOUSE BANK SCANDAL

Billow Kerrow

In February of 2001, a Nairobi based businessman Humphrey Kariuki sought the protection of the courts claiming he feared the police might try to frame him by planting narcotic drugs in his premises. And so began the saga of Charterhouse Bank. Mr Kariuki was a signatory to an account held by Crucial Properties Ltd at Charterhouse bank (CHB) that had received a Sh2bn ($25mn) transfer from Lichtenstein, attracting the interest of both local law enforcement and the FBI.

The FBI got involved because when Crucial Properties initially indicated that the $25mn had come from Jersey, the CBK's fraud investigation unit assumed that it was New Jersey, USA, and alerted the FBI. Since money laundering was not an offence then, the case was dismissed. CHB, with its HQs on the 7th floor of Longonot Place was started in 1996 by Sanjay Shah, taking over the operations of Middle East Kenya Finance and opening branches in Nairobi, Mombasa and Kisumu, businessman John Harun Mwau was said to own an interest.

CHB's parent company, Ram Trust, registered offshore in the tax haven of Liechtenstein, owned Kingsway Tyres, Kingsway Motors, CHB, Village Market, Kingsway Investments, Strobe Systems, Creative Innovations, Growth Management and Michelin Tyre Expert Centre.

At CHB, some customers would routinely borrow as much as 20 times the cash they held and transact tens of millions of shillings into nameless accounts. Customers included future stars: Nakumatt, Triton Petroleum, WE Tilley, Harun Mwau's Pepe Enterprises and Tusker Mattresses.

In 2003, CHB hired an auditor from Barclays, Peter Odhiambo, who noticed several irregularities including suspicious transactions in some accounts that lacked customer identification information. He promptly alerted KRA and the Kenya Anti-Corruption Commission.

Businessman Humphrey Kariuki

According to a US embassy cable sent in 2004, Mr Odhiambo collected information on 85 accounts held at the bank through which, he claimed, a tax evasion scam worth US$ 573 million was being perpetrated. But Mr Odhiambo's whistleblowing, like that of Daniel Munyakei at CBK before him, wouldn't be taken lying down. The then Finance Minister Njeru Githae labelled him a fraud, he received death threats and the Kenya police served him with a bogus warrant. With his life in danger, Peter Odhiambo briefed the US Embassy and was later offered asylum in the US in 2006.

He subsequently lost a case filed against the Kenya government in the States for a KRA reward/compensation as a whistle-blower.
Read
BANK OF AFRICA GETS GREEN LIGHT TO SELL ATUL SHAH’S PERSONAL ASSET

In September 2004, a fire at the bank's offices supposedly burnt to ashes documents related to transactions executed prior to April 2004. Future audit bodies would cite the fire as the reason why the bank’s transfer details were not available. Between 2004-06 audits by PwC, CBK and a govt Joint Legal Taskforce all found strong indications that the bank’s clients were involved in both tax evasion and money laundering. The bank was also found to be violating the Banking Act.

Internal auditor Peter Odhiambo: “My experience at CHB and as their internal auditor convinced me that the Bank was not established to carry out legitimate banking business. In view of this, I became suspicious of over 70% of the total number of accounts."

An MP from the official opposition to the Kenya government the then shadow Finance Minister Billow Kerrow tabled a leaked report in Parliament on 21st June 2006 claiming that CHB had assisted Nakumatt to evade taxes estimated at Sh18bn over a six-year period.

Accounts held by WE Tilley, Tusker Mattresses, Creative Innovations, Italians Paolo Sattanino and Francesco Tramontano indicated suspicious balances and transactions, with directors at Tusker Mattresses holding 75 different accounts at the bank. In June 2006, CBK placed CHB under statutory management.

Despite all this, in 2010, a Parliamentary committee cleared CHB of any wrongdoing and suggested it be reopened. CBK Governor Andrew Mullei's zeal in dealing with CHB became his Achilles Heel. In October 2010, Finance Minister, Uhuru Kenyatta said the ministry had no report or evidence from any government agency on the bank’s alleged misdeeds and that he had only seen what was published in newspapers, he recommended re-opening CHB.

In a dossier to the Kenya Anti-Corruption Commission (KACC) director Patrick Lumumba, US Ambassador Michael Ranneberger claimed Sh60bn had been lost through financial malpractices with Sh20bn lost in tax revenues. Ranneberger was castigated by MPs.

Charterhouse Bank never re-opened and as recently as 2016, various groups were lobbying for its reopening. The bank remains closed with over Sh3bn in customer deposits seemingly lost in the confusion.

Fast forward to the present day and key CHB customers have crafted their own illustrious, headline-grabbing stories. In 2011, the US sanctioned Harun Mwau under the Kingpin Act (for drug lords) and froze all his assets in the United States. WE Tilley, a company that claimed to be in the fish(y) processing business was heavily involved in the collapse of Imperial Bank.

Imperial Bank’s receiver-manager filed a lawsuit against Tilley and 12 other companies. Triton Petroleum's Yagnesh Devani went on to pull off the country's biggest oil heist, taking off with Sh7.6bn worth of oil from KPC. After 10 years on the run, Devani recently lost an extradition case and should be shipped back to Kenya post-Corona.

Even with the murder of its internal auditor Nakumatt collapsed. "Nakumatt was no ordinary company. It more or less operated as one of the main cogs of a complex money-laundering syndicate that had operated in the country for more than 30 years."

Humphrey Kariuki, he of the Sh2bn transfer back in 2001, is now on a first-name basis with almost everyone at KRA's Times Tower HQs, and even the courts seem to be paying him regular courtesy visits every now and then.

Omogambi Nyanchae