Former Cabinet minister Nicholas Biwott and his companies owe tax payers more than Sh25 billion, the Goldenberg inquiry was told yesterday.The staggering amount, which lumps together the principal amounts and the interest, was arrived at by the liquidation agent for collapsed Trade Bank Daniel Ng’atuny, based on records from the archives of the collapsed bank.
Mr Biwott, the Kanu MP for Keiyo South, together with HZ Group of companies received the money on diverse dates in the 1990s.Part of the amount was used in the construction of Yaya Centre in Hurlingham, Nairobi, the witness, under cross-examination by lawyer Cecil Miller said.Documents before the commission show that Sh600 million had been lent to an ailing Trade Bank in early 1992 to save it from collapse.
The money had been sourced from the Deposit Protection Fund. Although Yaya Centre had been charged as the security for the loan, it later turned out that the loan was never repaid and DPF lost the security.Once the Sh600 million had been lent to Trade Bank, half of it was paid off to the HZ Group while the other half was paid off to Pan African Bank.Evidence with the commission shows that Trade Bank was lent the money at the time because it was sagging under the weight of non-performing overdrafts to the HZ Group of companies.It is not clear why the bank never improved its liquidity position but went on to hand over a lifeline extended by the Deposit Protection Fund to customers who owed it.It later emerged that obscure companies were used to source Sh532 million soft loans from the Central Bank under the pre-export finance scheme, under which exporters were to receive funds to enable them speed up their manufacturing process in order to attract more foreign currency into the country.
As it turned out, the money applied for by the companies was placed in the Yaya Centre Development account at Trade Bank, and used for the construction of the Yaya Towers apartments.The signatories to the account were Trade Bank officials Michael Mwangi, Gideon Ndambuki, Ian Rayner and Alnoor Kassam. Mr Ng’atuny yesterday told the commission that the money was still owed to Trade Bank and effectively Central Bank.
Meanwhile, it emerged yesterday that documents relating to Goldenberg transactions at collapsed Trust Bank cannot be traced.Goldenberg received more than Sh82 million in export compensation through Trust Bank.In his evidence, the Trust Bank liquidator Clement Kinuthia told the commission; “I was unable to trace any documents relating to the above transactions from the Trust Bank archives.” Trust Bank was placed in liquidation by the Central Bank on August 15, 2001.
The following is the verbatim report of yesterday’s proceedings.
Khaminwa: The witness is here ready for further cross-examination.
Kitonga: We remind you of your oath Mr Ng’atuny.
Khaminwa: But before we proceed, I remember your lordships raised two issues last Friday. One was the issue of the Sh200 million shillings and I am glad that we are now in a position to comment, which we shall be doing through the witness. My lords we also have documents to produce in regard to the Sh200 million and I would like to continue at this stage if you permit me. Then my lords you also remember my lord chairman also wanted to know whether we had an original document on pre-export finance fraud. We have it now. Perhaps my lords if you could ask the witness Mr Ng’atuny in what circumstances he found the document.
Bosire: Can you explain about these documents before we proceed with cross-examination?
Ng’atuny: My lords the document was found in the archives of Trade Bank. It has a close resemblance if you can recall my lords to the report done by Bellhouse Mwangi on the same. It is in the Exhibit 145a an interim report which was signed by Mr J.K. Kamau and which made reference to a final document which I belief is the one before you.
Bosire: Did you find any letter forwarding this report?
Ng’atuny: No my lords, I only found a letter forwarding an interim report by Mr J.K. Kamau and which made reference to the final report to follow later on.
Bosire: So this was reported by who?
Ng’atuny: My lords from the way it is, it appears to be a joint investigation report between the Banking Fraud and the bank supervision Department of the Central Bank. We were however unable to see the terms of reference and the names of the members of the committee.
Bosire: Can you comment on this other document?
Ng’atuny: My lords, if you recall I have mentioned in my statement that there was some advance to Trade Bank by the Deposit Protection Fund of some Sh200 million of which no sufficient documentation was available at the time. We have since gone to the archives of the bank and before you my lords are the documents which give you the detailed story about the money. If I’m allowed to read from the memorandum of the Deposit Protection Fund on Loans to Trade Bank. It says: “Members will recall at their 10th meeting held in October 1991, they approved a loan of Sh150 million which was granted to Trade Bank. The loan was advanced in pursuance of section 41 of the Banking Act which provides inter alias that, the Fund in its commitment to promote stability in the banking sector, may grant a loan, place deposit or purchase the assets of an institution. At the time the facility was granted, the Trade bank was besieged by a serious liquidity problem.
(The witness then took the commission through the balance sheet of Deposit Protection Fund as at June 30, 1993 which reflected Sh151,109,589 loan to Trade Bank with accrued interest.) Bosire: There is a balance of Sh50 million which was not disbursed to make it Sh200 million, what happened?
Ng’atuny: My lords there is no record why the balance was never issued.
The loan is also reflected in the receipts contained in the DPF journal between October 1992 and January 1993. Trade Bank my lords is shown as having repaid the loan on November 13, 1992 together with accrued interest of Sh2 million. But you recall that the money had been obtained using the security of Trade Bank as evidenced in the DPF memorandum on page 10 of the Exhibit.
Khaminwa: Could you read it please?
Ng’atuny: Soon after the bank was placed under liquidation, considerable time was spent in disposing off fixed assets at the head office and then motor vehicles and Yaya property, whose ownership has been disputed in a pending civil suit, most of the fixed assets have been sold off.
The bank had substantial fixed assets made up mainly of real property that is Yaya Complex and Trade Bank Centre. The Trade Bank Centre has since been sold off for Sh271 million which forms a major portion of the funds proposed for distribution.
Khaminwa: Now before you proceed further to the evidence of payments, what are those documents on pages 15-17?
Ng’atuny: After reading what is on page 18 the rest will become clear. On that page is a letter from Oraro and Rachier Advocates to the Principal, Deposit Protection Fund Board regarding LR. Number 209/1069–Nairobi and it reads: ” We refer to the previous correspondence herein and enclose herewith three cheques amounting to Sh242,900,000 being the balance of the purchase price. The particulars of the cheques enclosed are as follows; *Cheque for Sh152,500,000 drawn by Trust Finance Limited in favour of the Board.
*Cheque for Sh65,000,000 similarly drawn.
*Cheque for Sh26,400,000 drawn in favour of Esmail and Esmail Advocates.
Please acknowledge receipt of these cheques. We shall, tomorrow, let you have details of disbursements incurred by us as well as our fees.
We thank you for your co-operation in bringing this matter to a special conclusion.
So the fund my lords received a total of Sh 243,900,000 as the sum total of the above cheques.
Amolo (for businessman Suleiman Murunga): There are words which are attributed to you from your testimony and I will read them to you. Oriental Exim is on page 39. The account was opened on Valley Road on December 2, 1992. The business is owned by Mr Barrack Ochieng Odanga and deals with exports and imports. The signatory to the account was John Pandy Sande. We believe that this account is related to Suleiman Murunga the Foreign Exchange manager as a number of entries were passed on his instructions and copies of those instructions are else where in this report.” Do you remember saying that?
Ng’atuny: Correct my lords.
Amollo: For the sake of clarity Mr Ng’atuny, which reports do you go on to quote?
Ng’atuny: It is Bellhouse Mwangi report which was prepared by Mr Waweru who was then the statutory manager.
Amollo: Go to note number three.
Ng’atuny: It appears that the account was initially funded by cheque deposits from Postbank Credit Ltd. Then the account was later funded by proceeds from discounting pre-export bills. An analysis of the account shows that the pre-export Bills proceeds relating to Coastal Aquaculture proceed for Sh31,164,225 and Lockheed Importers amounting to Sh21,420,000. It is believed that these Bills were debited to fund the account and later divert the funds. The instructions to credit the accounts of Oriental Exim with the above Bills was given by the Foreign Exchange manager hence the assumption that the account is related to him.
Amollo: In this note, the word assume is used twice. First of all it is on the Bills and then thereafter on the account. Would you know whether this assumption is an assumption by the person who was preparing the report?
Ng’atuny: My lords the report was prepared when the bank was still in existence and it was highly believable that the manager was able to get proper explanation because all members of staff were there and each one of them was able to account for what each had done and therefore for the officers to say that the instructions were received from the foreign exchange manager, we have no reasons to doubt.
Amollo: Well that might be so but can you say you can talk authoritatively for Mr Waweru?
Ng’atuny: No my lords.
Amollo: Do you know what these interbank transfers are Mr Ng’atuny?
Ng’atuny: Yes these are instructions from one bank to another and this case they are instructions to Valley Road branch from headquarters to credit the amount of Sh31 million.
Amollo: Is it not correct that your evidence as far as Mr Suleiman Murunga is concerned arose from the matters as raised by Mr Waweru of Bell House Mwangi in Exhibit 138 X?
Ng’atuny: That’s true my lords.
Amollo: The report also had some very harsh words to say about the foreign exchange department as appears at page 10 of Exhibit 138 X? Could you pleas read to the commission the matters in notes a, b, and c.
Ng’atuny: The department was ran in total disregard of banking principles. Each member of staff operated independently of others and internal checks were non-existent. Errors were made and not discovered on time due to poor controls, lack of reconciliation and inadequate follow-up.
Amollo: This is an indictment of the entire department?
Ng’atuny: That’s correct my lords.
Amollo: Is there a bank supervision department at the Central Bank?
Ng’atuny: Yes my lords.
Amollo: Is its function among others, to ferret out things of this nature?
Ng’atuny: Yes my lords.
Amollo: Have you seen any report by the bank supervision department of the CBK mentioning these concerns?
Ng’atuny: The reports are there and they have brought out weaknesses in the bank besides what is pointed out.
Amollo: Once the supervision department inspects a commercial bank it prepares a report. Do you know what happens to those reports?
Ng’atuny: The reports are given to the management of the Central Bank and immediate corrective measures are expected to be initiated to address the weaknesses.
Amollo: That’s all my lords.
Kitonga: Let’s have Mr Miller then.
Cecil Miller for Trade Bank in liquidation: Could we go to Exhibit 145 H. Could you look at page five. Could you confirm that this is a letter from the firm of Kaplan and Stratton Advocates dated February 5, 1998 addressed to LZ Engineering Construction Limited and that it is signed by Mr W. S. Deverell?
Ng’atuny: That is correct.
Miller: Confirm that the reference is for the repayment of the Sh600 million.
Ng’atuny: Yes it is.
Miller: Let me read it for you. “We have been instructed by Trade Bank in liquidation to demand payment of Sh600 million plus interest being money received by you from our clients in February 1992 in the circumstances found by Mr Justice Pall which inter alia renders you liable to repay the same.” Miller: That amounts to a demand letter for the Sh600 million?
Ng’atuny:Yes my lords.
Miller: Look at the same document on page 14. What is the starting date of that document?
Ng’atuny: July 7, 1992.
Miller: And this is the Yaya Development account number 569960?
Ng’atuny: Correct my lords.
Miller: Move on to page 27 at the bottom. You will see the final page of that statement and look at January 31, 1998. What is the amount claimed?
Ng’atuny: The amount as at that date was Sh193,206,939. 85. On February 26, the closing amount was Sh195,684,223.20. In this case it is balance outstanding.
Miller: Go back to page five. The demand from Kaplan and Stratton is dated February 5, 1998. Would I be right in saying that the amount referred to in the letter of Kaplan Stratton of Sh600 million refers to a totally different account?
Ng’atuny: Correct.
Miller: Could you tell their lordships into which account the Sh600 million went into?
Ng’atuny: If you refer to Exhibit 145 page 15. If you look at the distribution of the money, you will realise that the accounts of HZ, Trucks and Equipment, Ziba, Pan African Engineering, Mascon and Greenwood and the rest, we to Pan African Bank. The amounts reflected on the first column of page 15 are the overdrafts that the various companies had after the Sh600 million was disbursed. When you see the analysis of the Yaya Towers account which was given in Exhibit 145 B. This account shows entirely different transactions that have no relation with the Sh600 million.
Miller: On the same exhibit 145 H let’s go to page 59. Confirm that that’s a letter from Okwach and Company Advocates, dated March 30, 1998 referring to the Sh195,684,223.20.
Ng’atuny: That is true my lords.
Miller: Please read paragraph one and two.
Ng’atuny: We are instructed by the Trade Bank liquidators as follows; In or about July 1992, you opened the above account for the development of Yaya Centre. Our client bank thus extended to you and overdraft facility for this purpose.
Miller: What is this account referred to as?
Ng’atuny: It is emerging that money had been lent through this account for the development of Yaya Centre and therefore this overdraft was outstanding at the time these instructions were given.
Miller: So this account 569960 is actually an overdraft account?
Ng’atuny: That is true.
Miller: Let’s move to 138 X page 33. You recall reading this. From the Bell House Mwangi report, it is clear that pre-shipment money was used for the construction of the Yaya Centre.
Ng’atuny: Correct my lords.
Miller: How much money went into the construction of the Yaya Centre disguised as pre-shipment funds?
Ng’atuny: From what I see here, there is an amount of Sh523 million.
Miller: Has it ever been repaid from what you know?
Ng’atuny: Not to my knowledge.
Miller: Let’s go to page 15 of your statement. How much was owed as at liquidation arising from the Sh600 million?
Ng’atuny: Between the DPF and Trade Bank, we had brought a figure of Sh1,328,731,542.80. This amount is the Sh600 million given by DPF to Trade Bank and the initial overdraft which was in Trade Bank which was in excess of Sh550 million. The two amount to Sh1.1 billion and the rest will be accrued interest.
Miller: Does this figure take into account include the Sh523 million mentioned by the Bell House Mwangi of the pre-shipment money?
Ng’atuny: It does not.
Miller: Should it be included.
Ng’atuny: This account of the Yaya Centre Development was operated by officers of Trade Bank. But because the funds went into the centre, it is part of the whole thing. This means that the money is owing. These were pre-shipment bills and that means that they are owing to Trade Bank and on to Central Bank.
Bosire: What is due to Central Bank and what is due to DPF?
Ng’atuny: We have worked out at the DPF. From the time the loan was given in 1992 at the rate of interest it was given, we have come up with a figure in excess of Sh9 billion.
Bosire: What about the pre-shipment finance?
Ng’atuny: It was Sh523 million and we can calculate the figure.
Miller: Would you do the same now?
Ng’atuny: The actual accrued interest can be calculated but that requires time. As I have mentioned earlier, we had done a simulation of the Sh600 million from the time it was lent to date an we were getting a figure of Sh600 million. I have used the same simulation because these are amounts which were grated around the same time and on a straight calculation, everything else being the same, I have come up with a figure of Sh7.8 billion in respect of the principal Sh523 million pre-shipment finance money. That would be payable to Central Bank.
Miller: For clarity, let us go through the figures again. What is the amount owing to Central Bank?
Ng’atuny: It is Sh7.8 billion.
Miller: And for purposes of the Sh500 million non-performing loan by the HZ Group?
Ng’atuny: If Sh600 million is Sh9 billion today, then the Sh500 million would be around the same figure and we will be talking of about the same figure. What is owed to Trade Bank and DPF would be between Sh18 billion and Sh20 billion.
After Mr Ng’atuny’s testimony, Mr Clement Kinuthia Nduru, the liquidation agent for Trust Bank was sworn in.
Mr Nduru told the commission that Goldenberg’s account at Trust Bank was operated by Mr Kamlesh Pattni, Mr Rohit Pattni and Ms Daksha Pattni.
Transactions in and out of the account during the above period, the commission heard, amounted to Sh1.6 billion.
Exchange Bank paid out more than Sh4.8 billion for the credit of 67 accounts held at the bank between June 1992 and September 1993.
Mr Nduru told the commission that some of the recipients lacked proper identification and their accounts only went by names such as A.L.F.A.R, GLOCK, Merc, Ping, Rugger and Titliest.
The witness is expected to wind up his testimony this morning.
Meanwhile, former Central Bank officials Michael Wanjihia and Job Kilach are expected to start testifying today.
The two were involved in a Sh13.5 billion transaction that has been questioned and is a term of reference for the commission.
The inquiry resumes at 9 am this morning.
