How Imperial Bank fraud was discovered

IN RECEIVERSHIP: Imperial Bank’s Riverside branch. Photo/Enos Teche
IN RECEIVERSHIP: Imperial Bank’s Riverside branch. Photo/Enos Teche

THE extent of the irregular disbursements initiated by the late Imperial Bank Group managing director Abdulmalek Janmohamed was revealed to the bank's board five days after his death, the Star can report.

Documents seen by the Star reveal that immediately after Janmohamed's death due to cardiac arrest was announced on September 15, 2015, the board of directors informed senior staff at a meeting and a day later, appointed the then head of credit Naeem Shah and chief finance officer James Kaburu as the acting managing director and deputy managing director respectively.

Five days later on September 21, Shah and Kaburu revealed to the board that the late Janmohamed had been disbursing loans amounting to billions of shillings fraudulently, to his friends and business associates.

All this disbursements had been concealed from the board of directors.

The two senior bank managers alleged that the late MD had over a number of years instructed and/or forced the head of credit Naeem Shah to advance funds to certain clients 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 documents seen by the Star state.

On September 25, 2015, Imperial Bank chairman Alnashir Popat called 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.

It was then agreed that the directors would seek a meeting with the Central Bank of Kenya governor to upraise him on the discovery once the investigations had been finalised.

The audit team was also asked to contact the clients mentioned to verify the allegations.

However, because of the board's concern on the slow progress of the investigations, they started shopping for an independent external forensic advisor on October 2, 2015 after the board's audit chair complained about the piecemeal and inconsistent progress of the investigations.

Iyadi told the directors that numerous attempts to get relevant information from Shah, Kaburu and the senior management of the bank on the allegations of the fraudulent and illegal disbursements ordered by Janmohamed were unsuccessful.

It was then that London based forensic auditors FTI Consulting LLC were called on October 5 and arrived in Nairobi the next day.

Another emergency board meeting was called on October 7, during which meeting the board resolved to take all measures to protect the bank's records, financial position and appoint FTI Consulting LLP of London to carry out a forensic audit to ascertain the accurate financial position of the bank.

The team began its preliminary investigations and secured the bank's transaction database and retrieved emails of all staff.

They also analysed customers' accounts and ledgers and reviewed instructions relating to suspect customer accounts.

It was then established that there were significant differences on loans, overdrafts, investments and deposits from what had previously been reports to the bank's board.

“The FTI Consulting reports 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.”

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 falsely representing the bank's financial status.

All throughout this period the bank's board received annual audited accounts authored by Imperial Bank's management. The accounts were duly audited by a certified public accounts firm PKF, a CBK approved auditor.

The accounts were also approved by CBK who would carry out annual on-site inspections to verify the said financial statements.

Following the presentation of the FTI Consulting report, Imperial Bank's 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.

“Following the death of our late founding group managing director, Mr Abdulmalek Janmohamed (“Late GMD”), on 15 September 2015, it came to the attention of the chairman and one of our directors, that there were problems with financial statements of the bank. This was disclosed by the immediate acting managing director and his deputy. Further inquiries disclosed that the magnitude of the problem was larger than suggested,” the letter dated October 12, 2015 reads in part.

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.