Imperial Bank fraud: How CBK angels turned into devils

BY NBM WRITER Just over a year ago, when Imperial Bank Limited was put under receivership, Central Bank Governor Dr Patrick Njoroge was so bullish about its revival he promised to sort the issue in a matter of months. Fourteen months later, that exuberance has been turned into a convoluted journey littered with protracted legal battles. Optimism, which was once a plentiful commodity among shareholders of the bank and depositors, has been replaced with despair. A review of events of the past year and the court cases around Imperial Bank’s collapse shows a pattern of a well-calculated move to frustrate the bank’s revival in favour of liquidation, which goes against Central Bank’s promise of getting the bank back into operation, and its mandate of protecting shareholders and depositors. In December 2015, reopening of Imperial Bank was thrown into doubt when Central Bank of Kenya unveiled a plan that would allow depositors to access up to Sh1 million, kicking off the transfer and exclusion process through Diamond Trust Bank (DTB) and KCB. This was taken to be the first steps towards liquidation and shareholders moved to court to stop it until all available recovery proposals are objectively considered. CBK blames court cases for delay in finding ‘lasting solution’. Once again, deadline for finding a ‘lasting solution’ for the bank was pushed from March to April. The doublespeak from CBK – which started with the regulator blaming shareholders for not acting fast enough to recapitalize the bank even without due diligence – has resulted in cases and counter-cases that are likely to keep IBL shut for long to the detriment of shareholders and, more so, the big depositors who can’t access their money. CBK eventually contracted FTI Consulting to conduct a forensic audit of the bank’s operations, offering hope that investigations would reveal what ails the bank and possibly chart a fresh start. FTI did its job and earned a pretty sum from it but the report is only quoted in private court claims. This raised concern among shareholders, who started working behind the scenes to carry out their own investigations into what happened in the bank’s lifetime under the late Group Managing Director Abdulmalek Janmohamed. The shareholders engaged a data intelligence firm, GPW Ltd, which did a random analysis of just three quarters of data from the banking system. They found enough evidence to show that CBK abated fraud that led to the loss of over Sh35 billion. This evidence forms the basis of the latest case by the directors against CBK, which they accuse of closing its eyes to fraud and indeed partaking of it at Imperial Bank involving fraudulent and irregular disbursements of billions of shillings. In an explosive affidavit filed in court in December by one of the bank’s former directors, Mukesh Kumar Patel, eight directors have accused CBK of being involved in the manipulation of the bank’s schedules. The directors claim that Mr Janmohamed, who died on September 15, 2015, had an inappropriate relationship with former CBK Governor Njuguna Ndung’u. “Indeed, the relationship was one of collusion and corruption and there are emails confirming without doubt that the former Governor of the CBK was compromised by the former Group Managing Director through improper gifts extended to him,” said Patel in court documents. One manifestation of the inappropriate relationship with the managing director is the occasion when Janmohamed is said to have paid for the then governor’s holiday trip to a Thailand Spa & Resort and financed his travel to Dubai. Prof Ndung’u with his wife are shown in email conversations asking Jan Mohammed through his secretary Ann Mboya to finance his return tickets from a holiday in Thailand. Prof Ndung’u who went into consultancy and lecturing last year after serving two four-year terms as CBK governor has yet to speak on these allegations or what he knew about Imperial Bank. It is a case of one governor midwifing a fraud then his successor blowing the lid off and turns around to cover it up, raising questions whether he is protecting CBK staff named in the scam or yielding to pressure from the perpetrators of the vices. Prof Ndung’u’s tenure was marked by laxity in policing banks, which is blamed for a series of collapses including Dubai Bank and Chase Bank. Yet Prof Ndung’u has not been summoned to give a public statement on the matter which would be helpful as most of the fraud took place during his reign. Dr Njoroge’s enthusiasm to revive the bank appears to have ebbed as more and more dirt was scooped by forensic auditors who showed Central Bank’s heavy hand in fraudulent deals. If Imperial Bank collapses, the blame will squarely lie on these two guys. In what is turning out to be a legal goldmine, Imperial Bank Limited, Kenya Deposit Insurance Corporation and Central Bank of Kenya moved to court early December seeking to recover Sh42 billion from the directors, who they accused of awarding themselves Sh2.7 billion in dividends despite knowing the bank’s true financial standing. Imperial Bank sought orders to freeze the shares that directors own in 42 companies linked to them, which would effectively lock up funds for the directors in case a recapitalization formula was reached. Trail of breaches Forensic investigations conducted by FTI Consulting over the financial irregularities at the bank revealed multiple breaches of financial duty on the part of the directors leading to massive losses. However, the directors have poked holes into the report claiming that the bank has not produced the FTI report in court. “It is irresponsible for the receiver to swear an affidavit alleging fraud and negligence by the Bank’s Board, in the absence of any material placed before the court in that regard, or such finding by any court of law,” Patel said. The Directors explained that following Janmohamed’s death, Naeem Shah (formerly the Bank’s Head of Credit) and James Kaburu (formerly the Bank’s Chief Finance Officer) were appointed on September 16, 2015 as acting Managing Director and Deputy Managing Director of the Bank, respectively. The two informed one of the former directors, Alnashir Popat that the deceased had on numerous occasions initiated and authorised irregular disbursements of vast amounts of money belonging to the bank, which were concealed from the Board. The two reported that they had been coerced by the managing director into effecting these illegal instructions and that their boss had, in fact, threatened to “destroy” them if they did not cooperate. The FTI Preliminary Report confirmed that the Janmohamed had been running a scheme of fraudulent and illegal disbursements with certain accomplices, within and outside the Bank, without the knowledge or consent of the Board. The directors said that the issue was forwarded to CBK and that’s when the bank was placed under receivership. When he appeared before the National Assembly Finance Committee on December 1st, CBK Dr Njoroge, when responding to the question from nominated MP, Oburu Oginga seeking to know what had been done to the staff who had been implicated in the fraud at the collapsed banks, he said he did not have any evidence to hold any of his staff accountable. Conspiracies that protected fraud Some of the additional evidence adduced in court show that James Kaburu, CBK staff Simeon Rono and Matu Mugo (Assistant Director, Bank Supervision) conspired to ensure that Janmohamed remained the sole executive director by blocking the application of Anwar Hajee after the board expressed the concerns that perhaps the late Janmohamed had too much latitude at the bank, which was risky. According to the CBK prudential guidelines, non-executive directors are not allowed access to core banking system to facilitate self-verification. To show reports were falsified, the directors have included the schematics of how the data was deleted, showing different data on CBK’s reports and heavily edited data on the board papers, sometimes surpassing between Sh8 billion to Sh5 billion per quarter by deleting between 20-25 accounts from the list of top 50 borrowers and presenting cooked loan balances for other accounts. The directors say CBK was aware of illegal loans to Samani & W.E. Tilley. When CBK officials were in the process of carrying out an inspection and emails were received, so the script goes, they would delete any reference to them in their inspection report instead of highlighting the illegal loans. There was also the issue of falsifying bank accounts to meet the recommended non-performing loans and provisioning figures. Some of the accounts flagged as having been falsified include Samani, Jade, Adra, Metro, Italbuild, Sparetech, Added Performance and Rods& Steel. CBK is said to have hired FTI Consulting despite massive conflict of interest and the attempt to secure data under false legal privilege. The shareholders have filed an application to have access to all FTI Forensic Reports. Erasing fingerprints Central Bank of Kenya (CBK) has gone to great lengths to conceal its tracks in the Imperial Bank fraud. Court documents reveal an elaborate scheme that started immediately Imperial Bank directors, armed with a forensic audit report they had commissioned, reported the fraud to CBK in October last year. It appears CBK is determined to liquidate the bank, a move that could bury the allegations against the regulator’s staff and Imperial Bank managers for good. The first act to wipe out the fingerprints of the banking sector regulator in the fraud was the appointment of Peter Gatere as the Imperial Bank’s first receiver manager. Mr Gatere, who before the appointment was a banking supervision official, is among top CBK officials adversely mentioned in the forensic audit conducted by US based FTI Consulting soon after the death of Abdulmalek Janmohamed. His name comes up in email correspondence unearthed by FTI Consulting with former Imperial Bank Chief Finance Officer James Kaburu in a conversation that suggests they warned each other whenever a whistle-blower sent an email to CBK on the fraud. The emails were shared privately between Kaburu and Gatere. “This private correspondence of such serious and damning allegations confirms beyond doubt that the fraud perpetrated at the bank was a direct result of the collusion between officers at CBK and senior managers at the bank,” says Mr Mukesh Shah in a replying affidavit in a case where Kenya Deposits Insurance Corporation (KDIC) wants the directors and shareholders’ assets frozen. Once appointed, Gatere moved quickly and appointed Kaburu as his deputy managing director. At the time he was appointed, Mr Kaburu had already confessed to the directors of the bank that he had actively helped Janmohamed to execute the theft. He had also owned up to bribing CBK officials to help in covering the fraud for10 years. Gatere and Kaburu would later be replaced quietly from the bank with the former’s position going to Mohammud Ahmed. Mr Kaburu has been charged in court for the fraud together with Naeem Shah who was head of credit. Many left scot-free screen-shot-2017-01-05-at-2-07-24-pmCuriously, no other Imperial Bank staff has been charged although the forensic report names others who were part of the game. CBK, as it were, is also yet to charge its other officers who have been mentioned by the forensic report as having colluded in the fraud. FTI Consulting named four other top officers who were part of the cover-up. Some of those mentioned did more than just cover up. For example, Reuben Cheres is seen in email conversations helping to sanitise the banks financial statements on instructions from Kaburu. screen-shot-2017-01-05-at-2-07-24-pm“The highlighted in purple are the ones to be deleted. Classification of automotive solutions should change from doubtful to watch,” says Kaburu in an email to Cheres accompanied by an attachment of banks financial statements for June 2014. In his affidavit, Mukesh also names Cheres as the one of the CBK officials that helped in fiddling the banks statements. “It is worth noting that the officer at CBK who colluded to falsify the (bank’s) schedules is the same one who approved appointment of PKF as auditors,” he says. And the plot continues, with about five cases in court.

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