About half a dozen officials at the Central Bank of Kenya colluded with senior executives at the collapsed Imperial Bank to hide Sh35 billion in unauthorised loans and overdrafts, the Financial Times has said.
According to the paper, documents filed on Friday by Imperial’s shareholders outlined apparently detailed evidence of how the staff helped Imperial executives hide the funds between 2012 and 2014.
It says court documents filed by the shareholders in their defence to a negligence lawsuit filed by CBK indicate that the unauthorised loans and overdrafts were awarded to a slew of companies and individuals in 2012, 2013 and 2014.
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The paper however says it is not clear when the officials first became involved in the alleged fraud although it
quotes several emails in the court files as evidence of improper relationship between certain staff at CBK and Imperial Bank executives.
One was an email allegedly sent from a CBK staffer to a senior Imperial Bank executive in June 2012 which read: “We agreed with Mzee (Imperial’s then chief executive Abdulmalek Janmohamed) in 2004 that my children would never lack school fees as long as his bank was in operation.”
Another email is from a CBK email address in January 2015 to a senior Imperial Bank executive saying: “Blessed is the one that gives and forgets and the one who receives and never forgets. Thank you for the beautiful package. It will come in handy in the midst of the January blues.”
Another was an alleged email from a senior Imperial executive to a senior CBK staffer in November 2012 which read: “It is time to pay up and no excuse this time. The attached is a CV from a daughter of a friend of mine who works at KRA [Kenya Revenue Authority]. This time you must assist.”
The court filing, according to the Financial Times, further refers to documents that appear to show that in August 2011, Janmohamed authorised for his credit card to be used to cover “all charges” for Nancy Ndungu, the wife of the then CBK governor Njuguna Ndung’u, and unnamed person, to stay for five nights at the Civa-Som International Health Resort in Thailand.
The shareholders claim in the documents that the regulator failed to investigate whistle-blower reports of the alleged fraud in 2012.
It is alleged that in return for their help, Imperial Bank paid off certain CBK staff through unauthorised loans that were not always repaid, children’s school fees, and other gifts.
“Njuguna Ndung’u, the former CBK governor, and his wife, Nancy, are among those who benefited, according to the counterclaim,” reported the Financial Times.
The couple could however not immediately be reached for comment, it added.
It said the Central Bank “through its officers, including the authorised officers, deliberately, alternatively recklessly, failed to exercise its powers and to discharge its duties honestly and in accordance with the statutory regime.”
According to the report, the shareholders and directors could not have been aware of the fraud because Central Bank staff were working with the alleged perpetrators.
Imperial Bank was placed under receivership by CBK in October 2016 after the then directors told the regulator about the alleged fraud.
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The directors said the ringleader was Abdulmalek Janmohamed, who had been the bank’s chief executive and a shareholder from its formation in 1993 until his death in September 2015.
The shareholders, the Financial Times reports, also allege that current supervisors at the Central Bank have failed in the duties in relation to the bank’s receivership during the past 14 months.
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They say the CBK and the Kenya Deposit Insurance Corporation, Imperial’s receiver, breached their duties in eight ways since the bank was put into receivership.
These include appointing a receiver manager who had links with Imperial, not suspending staff who had been linked to the alleged fraud, and failing to generate a feasible restructuring plan.
According to the Financial Times, none of the shareholders filing the counterclaim have been charged with involvement in the alleged fraud although CBK and KDIC in September sued them and the directors for Sh45bn ($445m) alleging negligence and fiduciary irresponsibility.
The CBK and KDIC accused Imperial’s shareholders and former directors of awarding themselves dividends worth millions of dollars despite allegedly knowing the bank’s true financial standing.
The Financial Times reports that the two entities, CBK and KDIC, are trying to freeze the former directors’ and shareholders’ shares in 42 companies linked to them.
The shareholders have however denied the allegations, with documents filed on Friday forming part of their defence.
The Financial Times quotes the Central Bank as saying “It would not be appropriate for us to comment on a case that is currently before the courts” when reached for comment.
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Patrick Njoroge, the current CBK governor who has won international awards for his stewardship of the institution since assuming office in June 2015, is not accused of participating in the fraud or benefiting personally, reported the Financial Times.
It said Njoroge told parliament last week that he had no grounds to dismiss any of his staff or investigate former employees in relation to the three banks — one of which is Imperial — that have been put into receivership or administration since he assumed office.
“If these allegations are true, it would jeopardise the entire financial services system and the confidence investors have in the central bank,” Francis Mwangi, a banking analyst at Standard Investment Bank is quoted by the Financial Times as having said of the allegations.