The violations of KYC rules was the norm rather than the exception- of 1, accounts sampled by PwC, for example, accounts, some involving billions of shillings, lacked opening forms or customer instructions. The re are strong indications of irregular activity. Some of the transactions observed are suspicious and one would expect a bank to report such transactions to the Central Bank.
The re are indications that bank officials may be involved in abetting these suspicious transactions. Webs of Related Companies and Accounts Another common practice in money laundering involves sending the money through a complex web of financial transactions to change its form and make it difficult to follow.
This is aimed at ensuring that the original illegal proceeds become difficult to trace. The PwC audit found a number of accounts that had similar patterns of transactions. From this account, the cash was then transferred to Cashline Forex Bureau. The bureau then made a transfer to Paramount Bank Limited. Kingsway also made direct transfers into the Paolo Sattanino account.
The se transactions suggested an intention to conceal the true source or beneficiary of the payment made. Tax Evasion Allegations of tax evasion by Charterhouse Bank were first raised by former employees. In a letter addressed to the Minister for Justice and Constitutional Affairs. According to the report, Nakumatt Holdings had never declared a profit over this period. The report alleged that this was deliberately done to avoid paying corporate tax.
The supermarket chain had also remitted only a small fraction of the value added tax it collected from its customers. The report further observed that a rival chain of supermarkets, Uchumi Supermarkets, with a much smaller turnover, had remitted more than 10 times more value added tax collections than Nakumatt had.
As Value Added Tax VAT is paid at the point of sale or transaction there appeared to exist no justification for the shortfall. A due diligence team set up in by the Central Bank had found that a number of account holders had multiple bank accounts which in the teams view, is a standard way of detecting potential tax evasion. Almost all of the accounts were linked to Nakumatt Holdings. A subsequent investigation by a Joint Action Team set up under the leadership of the Kenya Anti-Corruption Commission KACC fully endorsed the suspicion that there was significant tax evasion and concluded that several organizations including Nakumatt appeared to have evaded tax with the collusion of Charterhouse Bank to the tune of between KES 2 and 3 billion in any one year over a period of 5 to 6 years Given that non-payment of taxes should attract penalties, the amounts that could be demanded from the organizations could very well have been double the amounts evaded.
The table below summarizes the findings of the inter-agency task force with regard to these companies. Unexplained large transfers to persons Tanzania who had no relationship with fish trade. Account also had huge cash withdrawals.
Suspected to be a parallel account to hide undeclared sales Sailesh Account Account opening Account received KES million between May and Prajapati opening documents August in huge cash deposits and cheques Account documents allegedly destroyed from Nakumatt. Also had huge cash withdrawals. The se companies also had multiple accounts and were linked to the Nakumatt network but had not been fully examined. The PwC audit later examined some of these and highlighted instances that required further investigations.
Another account had a turnover of KES 3. PwC recommended that the turnover in these accounts needed to be compared with the declared statutory returns to ascertain whether there were instances of tax avoidance or money laundering PwC also queried the massive transfers by Nakumatt from its collection accounts in Barclays into Charterhouse Bank. Violations of the Bank ing Act and Prudential Guidelines The investigations found the bank to be in breach of the Bank ing Act and Prudential Guidelines with respect to single borrower limits, insider lending and reporting and the maintenance of documents for foreign currency transactions.
An affidavit filed by the Central Bank of Kenya opposing a suit by Charterhouse Bank contained claims of repeated malpractices by the bank and its customers. Loans to Directors Charterhouse Bank was also found to have breached the Bank ing Act by exceeding prudential guidelines for single borrower limits and insider lending. Prudential Guidelines and the Bank ing Act also prohibit the granting of unsecured advances, loans or credit facilities to chief executive officers and management and other officers.
The re were, however, instances where loans to officers and their associates were unsecured. The specific violations of provisions of the Bank ing Act and Prudential regulations are listed in the annexed table Unusual Activities in Some Accounts The investigators found further unusual activities in some accounts. Unusual activities can themselves be evidence of money laundering.
Table on violations. The following are some examples of such activities uncovered at Charterhouse Bank. The re was evidence that a sundry creditors account was being used to conceal transactions between certain customer accounts. Loan repayments for a Parmex account were also made from the sundry creditors account. The amounts involved were quite substantial- KES 5 billion passed through the sundry creditors account between and The re were 22 such transfers totalling KES In December , two large transfers totalling KES 50 million approx USD , were also made to the Prajapati account from the same Nakumatt account for which no supporting documentation was provided.
On the same day, another debit transfer of KES 12 million was made. Regular payments of KES 6. An account maintained by Creative Innovations received most of its credits from Nakumatt Holdings. In all these transactions, no supporting documentation was made available to the investigators.
The transfers were not supported by relevant documentation as required for transfers whose value is above USD 10, One account was opened in and a large deposit of KES 1. No supporting documents were availed to investigators to explain the transfers. Another account was opened in February and operated for 3 weeks after which it became dormant until its closure in April The account received a single credit of KES million from the one described in the preceding section.
Again no documentation was availed for these transactions. Another account was opened, operated and closed within one week in February The account received KES million from another Crucial Properties Limited account within the bank which was then paid out within two days. No documentation was provided in support of these transactions. Another account had a credit turnover of KES 2. Yet another had a debit turnover of KES 3.
Investigators were not provided with the account opening forms for the Sonal Devani accounts. Irregular Bank ing Operation Investigators also found numerous fixed deposit accounts with large debit balances which is unusual. Normally a fixed deposit account should have credit balances. As at January 1st , the investigators found 34 such accounts with debit balances totalling over KES million.
The Position of Charterhouse Bank Management Throughout the various investigations, the management of Charterhouse Bank made it difficult for investigators to obtain information. The PwC for example complained that they received only minimal cooperation from the bank officials. The managing director reportedly instructed the operations manager not to provide any information in his absence.
When, out of frustration, the Fraud Investigation Division obtained court orders obliging Charterhouse Bank to provide all information the CBK needed it was assured that Charterhouse would provide the information the next day. However, the next day, the team was led to a smouldering fire which had allegedly destroyed the entire banks archive The directors of Charterhouse Bank argued that the bank had no liquidity problem, was in compliance with the Bank ing Act, the Central Bank of Kenya Act and the Prudential Guidelines and that placing the bank under statutory management would , therefore, be contrary to the law.
However they were clearly in breach of prudential guidelines among them: Bank ing Act Section 13 1 and 3 on beneficial ownership exceeding the prescribed amounts and concealment of the same, Know your Customer KYC rules, with the existence of several accounts with minimal or no opening details. The latter are only a selection of the violations by Charterhouse Bank. Blaming the Victim Charterhouse placed the blame for the non-existence of crucial information and supporting documents on the whistleblowers who were former employees of the Bank.
The y alleged that the former employees stole data and confidential documents from the bank at the instigation of the Central Bank of Kenya and the Kenya Revenue Authority KRA. The y claimed to have been reporting these 18 Nairobi Law Monthly November 19 See annex 1 Table of Violations 17 matters to the police since the year In addition a investigation by KACC revealed that the bank did not keep sufficient information including bank account opening information for two accounts with a combined turnover of KES 1.
The provision of an Informer Reward Scheme by the regulatory agencies greatly assisted in the capturing of tax evaders. In February , the governor of Central Bank Andrew Mullei appointed one of the whistleblowers to a position at CBK advising the inter agency taskforce that was set up to look into the activities of Charterhouse.
The insinuation was that the whistleblower could have caused the fire. The management stated that the matter was reported to the police and arson was suspected but that there were no arrests. In a strange turn of events, official after official summoned before the committee seemed to give a green light for the re-opening of the bank. KRA, through its Commissioner, General Michael Waweru, for example, told the Committee that their investigations on tax evasion focused on Charterhouse Bank customers, not the bank itself.
KRA did not reveal whether any of the customers including Nakumatt supermarkets were investigated or whether the firms settled their taxes after the statutory closure of their accounts in Charterhouse Bank or any action taken to recover taxes owed. CBK had earlier, in , started indicating that it believed Charterhouse Bank should be restructured and reopened, possibly to avoid the risk of losing court battles against the bank for unfounded closure.
He further informed the Committee that evidence of money laundering uncovered by the task force could not be acted upon as, according to him, money laundering was not an offence in Kenya at that time. The refore, nothing can be done about money laundering allegations.
The Finance Minister would therefore seem to be contradicting his predecessor. On violations of the Bank ing Act and Prudential Regulations the Committee argued that though regular banking inspections undertaken by the CBK had pointed out that there were some violations, CBK had granted Charterhouse Bank the banking license after each and every inspection.
In addition, the same allegations were reported in 38 other banks which continue to operate. The Committee further argued that liquidation of a bank by the CBK is only available where an institution is insolvent, is unable to pay its debts and a winding up order has been made against it or a resolution of voluntary winding up by creditors is passed. Charterhouse Bank is not insolvent under the Companies Act. On the allegations of tax evasion involving customers of the Bank — the committee said the government should prosecute the offending clients in courts of law, and that there is no law which says that a bank should be closed if a customer of the bank is involved in a criminal activity.
The sittings of the Parliamentary Committee on Finance heard that American Ambassador Michael Rannenberger wrote to the two principals warning against re-opening of the institution. He had, in an earlier communication to Attorney-General Amos Wako, alleged that the bank had been used to launder Sh40 billion, proceeds he claimed were from the evasion of taxes and related crimes from to The Unanswered Questions The collective amnesia displayed by the government officials summoned before the Parliamentary Committee with regard to the Charterhouse Bank raises serious probity concerns.
The regulators who, just a couple of years previously, had instituted investigations into the Bank suddenly appeared eager to pass the buck and absolve themselves of any blame in the Charterhouse saga. The politician has denied these charges.
This does not add up. Why would government bodies and officials deny that there was wrongdoing in Charterhouse Bank , yet it was the same institutions that had earlier called for an investigation into the affairs of Charterhouse Bank The same institutions were members of the initial taskforce which had unearthed malpractices. What has changed since Disingenuous Arguments Some of the arguments made by the officials were rather disingenuous. Money laundering was an offence when this conduct took place.
Section 49 Narcotic Drugs and Psychotropic Substances Act creates the offences of concealing the proceeds of drug trafficking and presenting these as proceeds of legitimate activity Nobody knows the source of funds that were the subject of the transactions by Charterhouse Bank.
The Bank never bothered to establish the sources of funds it was asked to deal in and therefore cannot rule out these being the proceeds of drug trafficking, in which case the money laundering provisions under section 49 set in. The argument by Mutonyi that reciprocal legislation needs to be in place for Kenya to assist another jurisdiction investigating money laundering is incorrect and unfounded.
This argument is probably based on the tendentious decision by Justice Nyamu in the Spacenet case, with which the KACC was aggrieved and appealed. In , the Court of Appeal reversed Justice Nyamu where he had prohibited the KACC from seeking mutual legal assistance from other jurisdictions to prosecute corruption cases.
The KACC had sent a request for assistance to Switzerland, where they believed the crimes under investigation had happened. Eight of ten Charterhouse branches were located in Nakumatt branches. The bank was also closely linked to other clients such as the Kingsway Group. It seems very likely that the same people are behind the web of companies and the alleged tax evasion and money laundering.
It also seemed odd that the Parliamentary Committee seemed to be lobbying for the re-opening of a bank in spite of continuing investigations. Parliament does not regulate banks. Even if the CBK had acted oppressively, it was doing so within its province and the National Assembly simply lacks the tools to entertain a complaint against the CBK unless it can prove that CBK was operating beyond its mandate.
Going Through the Motions The Committee hearings held surprisingly little discussion on the weaknesses that dogged Charterhouse even though there existed evidence from a credible audit firm revealing extensive malpractice. If the Committee was minded to act independently on the petition before it, the least it could have done was to institute an inquiry that examined the primary documentation, and interviewed primary informants, with a view to making a determination on the issues.
Relying on the accounts of officials who had manifestly contradicted themselves was unsafe. The conclusion could be made that the committee was not interested in the truth but was merely going through the motions to validate a pre-meditated decision. That the petition before the Committee was raised by customers is also curious.
Ordinarily customers of a bank are disparate and unconnected individuals who do not know one another. Once a bank is closed, as happened here, they are sundered and will not easily meet again. How were the 35 customers able to organize to petition the National Assembly The y would have needed a central organizing force to bring them together.
Who did so Were they assisted by the officials of Charterhouse Bank If so, this would be further evidence of what is to be inferred by the circumstances of this case; that a grand conspiracy was in place and these customers were mere pawns in the conspiracy. It is quite possible that the re-opening of the bank would lead to cash flight and render any subsequent investigations irrelevant. This happened in the case of Crucial Properties where 25 million USD mysteriously disappeared upon the lifting of a freezing order against the account.
Is the same fate destined for the deposits currently held in Charterhouse What safeguards has the government put in place to ensure that the reopening of the bank would not risk massive capital flight of the high net worth account and that the small depositors would access their funds 22 Smouldering Evidence - The Charterhouse Bank Scandal 9. Conclusions and Recommendations The PwC report contains strong independent evidence that Charterhouse Bank violated the Bank ing Act and other legislation and that its clients were involved in highly suspicious activities.
It is very odd that government officials would seem to aim to clear such malfeasance by seeking to reopen the bank alleging that no offences occurred. The regulators tasked with investigation should have prosecuted those involved without interference or intimidation. Charterhouse Bank repeatedly flouted the Bank ing Act and prudential guidelines in complete disregard of CBK regulations as well as the law. Its actions during the investigation, such as clandestinely monitoring the work of investigators and destroying evidence do not paint a picture of a candid player who has been wronged by the regulators.
The Forty Recommendations are a comprehensive blueprint for action against money laundering and have come to be recognized as international best practice. The y encompass the financial system and regulation, the criminal justice system, law enforcement, and international cooperation. Each FATF member has made a firm political commitment to combat money laundering based on them. A number of non-FATF Member countries have also used them in developing their efforts to address money laundering.
The relevant stage agencies need to implement these recommendations. Members Only. Home Back. Add to Group of Company. Save Back. Company Overview :. RadEditor hidden textarea. Major Clients :. Revenue :. Pricing :. Primary Services :. Secondary Services :. Client Retention Rate :. PAN :. GST :. Address :. Activity :. Fill Reply Message. Type : -Select- Customer Employee Vendor. Your Name :. Message :. Reply Back. Confirmation Message. Thank you. We will verify and update your details as soon as possible.
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