The noose continues to tighten round former cabinet minister Nicholas Biwott and retired president Moi’s personal assistant Mr Joshua Kulei on the Goldenberg billions.
A Nairobi law firm has disclosed that close to Sh90 million it received between June 1992 and June 1993 was on behalf of Mr Kulei and a company associated with Kerio MP.
The letter by Esmail and Esmail Advocates to the Goldenberg Commission of Inquiry discloses that they received Sh78 million on behalf of HZ and Company which is associated with Mr Biwott in three cheques from tycoon Kamlesh Pattni.
The money, the lawyers said was allegedly in respect of sale of the Forex-C bearer certificates.
As for Mr Kulei, the lawyers say, they received on his behalf Sh10 million on December 24, 1992.
The massive funds were looted out from the CBK at a time when Mr Eric Kotut was the governor.
The evidence came yesterday during the Goldenberg Inquiry’s 164th day of sitting.
Mr Kotut was the witness and during cross-examination by the Deposit Protect Fund lawyer Cecil Miller, he said the money should be recovered.
The evidence also came shortly after revelations that Mr Biwott’s company was involved in the intrigues which robbed the CBK and the DPF, which is one of its arms, of Sh1.3 billion.
This, according to evidence, came about through borrowing to put up Yaya Centre in Hurlingham, Nairobi, and attempts to salvage the collapsed Pan African Bank.
The link between Mr Biwott’s company and Goldenberg International and its sister company – Exchange Bank Limited – has been provided by one N.S.Srinkath who turned out to be a signatory to the accounts of HZ and Company, as well as five key Goldenberg associated companies.
Below are excerpts of yesterday’s proceedings.
Kuria: May it please your lords commissioners, appearances as before, Mr Kotut is here ready for further cross-examination.
Kitonga: Mr Kotut, we remind you of your oath to tell the truth. How long do you think you will take Mr Miller?
Miller: Not long my lords only that I was given some homework yesterday and my lords I am glad to report that I have done it and perhaps if my lords permit me, I would like to address this issue first.
Kitonga: Very well, proceed then.
Miller: My lords, I would like to introduce an Exhibit which will carry home the point. My lords, my assignment was to look into whether the Yaya Centre was linked to Goldenberg affair which was raised by my learned commissioner Mr Le Pelley. I would like to address that issue by referring to the expanded terms of reference of July 29, 2003 and more particularly clause (f) and (r).
The first clause reads: “To inquire into allegations that under the Central Bank of Kenya’s re-discounting facility for pre-export bills of exchange, various amounts were fraudulently paid out of the CBK through the Exchange Bank Limited, Kenya Commercial Bank Limited, National Bank of Kenya Limited, Delphis Bank Limited, Trust Bank Limited, Trade Bank Limited and any other commercial bank to Goldenberg Limited and any other party, occasioning the loss to the Central Bank of Kenya.” Now my lords, as far as that one is concerned, I do represent Trust Bank and Trade Bank. Now grounds are set to inquire into and investigate any other matter that is incidental to or connected to the laid down terms of reference.
Now my lords I did look at the English dictionary into the definition of the word incidental and it is basically casual, random, by the way, meaning anything that can be casually related to or connected to the above terms of reference. So far my lords, as you may be aware, pre-shipment is an issue which affected Trade Bank Limited and so was cheque kiting which affected Pan African Bank.
Now, it is our submissions that as a result of these two schemes a liquidity crisis did arise caused by these schemes and others which will become apparent as we move on. It is also our submission that what the former governor, Mr Kotut, did in relation to the liquidity problem at the Trade Bank was that he instituted investigations into the abused facility and also decided to lend the sum of Sh600 million to Trade Bank which was supposed to sort out the liquidity problem at both itself and Pan African Bank.
My lords, the result of the release of the Sh600 million was as follows; part of the money went to Pan African Bank which was to secure a charge on the Yaya Centre. What happened my lords is that instead, the money was paid to certain individuals and companies. As we know, the security was supposed to be charged by Trade Bank and even then the security was lost.
My lords, the net effect of this is that the Sh500 million of the non performing loan at Trade Bank was not paid. Further to that, the Sh600m went and another sum of Sh200 million and the security vanished. No my lords, what is even more astounding is that the negotiations which were going on with Mr Kotut related to the release of the Yaya Centre by HZ Limited. My lords, if you will recall, the evidence of Mr Melville Smith, HZ was listed as a Goldenberg associated company.
Now what is also astounding is that HZ Company has one Mr N.S. Srikanth who is a a signatory of the following accounts; Goldenberg International, Durley House, International Trading Consortium, Ziba Management Limited, Panther Investment, China Trade Limited and he is also the foreign exchange manager at the Exchange Bank Limited. So, this gentleman is involved in six major Goldenberg related companies.
Now my lords, if we look at Exhibit 79a there is account number KSKP 100038 which we were informed by Mr Smith stands for Ketan Somaia Kamlesh Pattni. You will then see the payments from Goldenberg accounts to Esmail and Esmail Advocates from June 1992 to June 1993.
(Mr Miller then referred the commission and the witness to individual payments received by the law firm on various dates between the period from the Goldenberg accounts. He then sought to introduce the new Exhibit to tie up the issue. He was taken through the payments although he said he was not aware of them. The new document was then allowed as an Exhibit although there were attempts by Mr Biwott and Mr Joshua Kulei’s lawyers to block it.) Miller: Mr Kotut, can you confirm to whom this letter is addressed?
Kotut: My lords it is addressed to the assisting counsel, Goldenberg Commission of Inquiry and it is dated September 16, 2003.
Miller: And can you confirm who has written the letter?
Kotut: The letter my lords has been written by Esmail and Esmail advocates.
Miller: Could you now kindly read the letter?
Kotut: The letter reads: “We refer to the writer’s meeting with Dr John Khaminwa and Ms Dorcas Oduor regarding the payments received by us in years 1992 and 1993 from Exchange Bank Limited/Mr Kamlesh Pattni. As advised, we confirm as follows: *On December 24, 1992, we received on behalf of Mr J C Kulei a cheque for Sh10 million drawn on Exchange Bank Limited; this amount was paid out by us on 14th January 1993 in accordance with his instructions.
On 20th January 1993 we received on behalf of Mr Kamlesh Pattni a cheque for Sh16 million drawn on Exchange Bank Limited; this amount was refunded to Mr Kamlesh Pattni on 20th April 1993 as the purchase in respect of which it was paid did not materialise in the manner anticipated.
We received four cheques totalling Sh78,461,588 all drawn on Exchange Bank Limited which were paid on February 8, 15 and 22 February and March 1, 1993; the amount was received by us pursuant to a transaction between our client HZ &Company Limited and Exchange Bank Limited for acquisition and sale of Forex C certificates. Sh78 million represented premium on Forex C certificates and Sh461,588 was for interest. The total amount was duly paid out by us in accordance with the instructions of the said client. Do not hesitate to contact the writer in the event you require any further information.”
Miller: In the other exhibit which I referred you to, can you see the total of the cheques given out to the lawyers?
Kotut: Yes my lords, it is Sh78,461,588.96.
Miller: Can you now confirm that that is the amount which is in the new Exhibit?
Kotut: Yes, except for the cents.
Miller: In the cheques for these payments, do you recognise who was signing them?
Kotut: It is that of Mr Kamlesh Pattni.
Miller: According to the letter from Esmail and Esmail advocates, who was the client?
Kotut: HZ and Company Limited my lords.
Miller: In this letter where the redemption has already been done, who would be the agent of the Central Bank of Kenya?
Kotut: In this case it was Exchange Bank my lords.
Miller: Precisely, so who would be the recipient of the money from the agent of the CBK?
Kotut: It would be HZ and Company my lords.
Miller: So would I be right to say that the Sh78 million ended up with HZ and Company Limited?
Kotut: That is the scenario my lords.
Miller: When you were sitting in the board meetings you were holding, were you aware that HZ and Company had any links with Kamlesh Pattni?
Kotut: No my lords.
Miller: You remember that a man called Srinkath and that he was to be found in Goldenberg companies as well as HZ?
Kotut: Yes my lords.
Miller: As we come to wind up this, it is clear that HZ and Company owed Trade Bank Sh500 million?
Kotut: Yes my lords.
Miller: It is also clear that Sh600m was released by the deposit Protection Fund to Trade Bank?
Kotut: Yes my lords.
Miller: It is is also clear that Sh300m was paid to Pan African Bank by Trade Bank Limited?
Kotut: Correct my lords.
Miller: It is also clear that on the release of this money, the security of Yaya centre was supposed to be handed over to Trade Bank?
Kotut: Correct my lords.
Miller: It is also clear that that happened for a short while?
Kotut: Correct my lords.
Miller: And after a while the security got lost?
Kotut: Correct my lords.
Miller: And it is clear that the money by that time had gone?
Kotut: Correct my lords.
Miller: Now finally sir, is it your position that the the loss incurred by Trade Bank and the Deposit Protection Fund should be recovered?
Kotut: Correct my lords.
Miller: That is all for this witness my lords.
Kitonga: We would now like to move to the assisting counsel unless we have someone we have left out.
(Assisting counsel Kamau Kuria then took over the cross-examination of the witness.)
Kuria: Would you tell the commission what the effect of the change was?
Kotut: The effect of the change was that exporters would be dealt with through their commercial banks.
Kuria: You are saying that until that change occurred, Central Bank had to authenticate that foreign exchange had been received before it could allow any person to obtain export compensation?
Kotut: That is correct.
Le Pelley: You were going from a position in which commercial banks had no authority because Central Bank controlled it completely, to a situation where you turned everything over to the banks and you expected them to change their culture and deal with all of this in a totally different way immediately?
Kotut: The issue of integrity and honesty is an international thing. It does not have to do with a situation. It is a general understanding.
Le Pelley: That general understanding did not work here before and that is why you had controlled them completely with the exchange control. How did you suddenly expect them to handle all that?
Kotut: They are bankers, my lords.
Kuria: Before 1987, CBK required that it be convinced that foreign exchange had been received.
Bosire: My understanding is very simple, there was no change expect that CBK delegated its duties to commercial banks.
Kotut: That is true my lords.
Kuria: I’m following the idea of delegation. The position Mr Kotut is that before 1987, CBK did not believe that it could delegate its responsibility to commercial banks?
Kotut: I do not know whether they believed or not.
Kuria: Why was it necessary to have a change in 1987?
Kotut: Because it was felt that it was much easier for the large number of exporters to deal with the Central Bank through the commercial banks.
Kuria: The essence of delegation was that CBK would not rely on its judgment on whether foreign currency had been received but would rely on the judgment of the commercial banks?
Kotut: That is correct my lords.
Kuria: As I understand it, in 1987, the bank would have to look at the evidence furnished by commercial banks and decide whether or not foreign currency had been received?
Kotut: That is correct. The evidence was coming directly to CBK.
Kuria: After the 1987 change, the bank would have to rely on the decision of the commercial banks?
Kotut: Yes, coupled with the information.
Kuria: I would like you to turn to Exhibit 111 A and Exhibit 91 B. Turn to page 85 of Exhibit 111A. What document is that?
Kotut: It is the memorandum from Mr Riungu to the governor, who was myself.
Kuria: There is a handwriting on the top right corner.
Kotut: That is my handwriting.
Kuria: Read the memorandum.
Kotut: The memorandum is titled Goldenberg International export of gold and diamonds. IT reads: “About one week ago, I saw the chairman of Goldenberg International Mr Kamlesh Pattni by appointment.” Kuria: Mr instructions are that Mr Pattni saw you personally and you requested Mr Riungu to give him an appointment after that.
Kotut: That is not true and if it had been, the memorandum would have said so.
Kuria: Read on.
Kotut: “His company has been given certain concessions for five years and another five year option to facilitate the exportation of gold and diamond jewellery. This is on the understanding that the company would guarantee us foreign exchange earnings in excess of $50 million annually. Mr Pattni had drawn up a draft agreement to be entered into with the bank. The agreement seems to me unnecessary and the indemnity he would wish to give his company, unacceptable. For our purposes, it is sufficient to draw the company’s attention to export procedures and to monitor its activities through the CD3 forms. If you agree, attached is a draft letter, which could be sent to Exchange Control.” Kuria: That was Mr Riungu’s reasoning that you approved. Just turn to page 73 of the same exhibit which contains the draft statement referred to. It is a letter dated November 27 and it is addressed to the chairman of Goldenberg International. Please read it.
Kotut: The heading is; Export of gold in semi-manufactured form and diamond jewellery. It reads; “We refer to your letter dated November 8, 1990 to the Vice-President and minister for Finance on the above subject. You have since received from the ministry their letter of November 1, 1990 amongst other things granting you the sole rights to export the above commodity and granting you export compensation at 35 per cent. You will observe that in consideration of the above rights, you are expected to guarantee a minimum earning of $50 million per annum paid in convertible currency. Accordingly, CBK would like to draw your attention to the following procedures which you will adhere to in this business.
You will complete CD3 forms for each consignment. The forms are obtainable from the bank which will be receiving the proceeds on your behalf. The commodities you are exporting will be assessed by the commissioner of Mines and Geology who will confirm the value declared on the CD3 forms. The CD3 forms will be returned to your bank which will give the appropriate pre-shipment endorsement when it is satisfied that the proceeds of sale have been received through an authorised dealer in Kenya within the period stipulated under law. You will obtain from Customs the export entry and subsequently surrender copy ‘B’ of the CD3 to them who will then surrender it to the Central Bank. Your bank will surrender copy ‘C’ of the CD3 form when the proceeds are received. In this regard, it will be important for your bank to receive a specific acknowledgement of copy ‘C’ from the Central Bank. Considering that the export compensation being granted is on a special basis, your bank shall ensure that the claim is accompanied by the acknowledgement obtained from the Central Bank.” Kuria: You can see that condition five is based on the distrust of the commercial banks?
Kotut: It is based on a need to reinforce regulations.
Kuria: My reading is that no one would obtain export compensation from Customs unless CBK was convinced that foreign exchange had been received in the country.
Kotut: That is what we intended at the Central Bank.
Kuria: Turn to Exhibit 91B page 136. What is that document?
Kotut: It is another internal memo at CBK relating to Goldenberg for waiver of condition number five which we discussed. It is written by the Exchange Controller.
Kuria: Do you see any comments on the documents made in long hand?
Kotut: I see it. That is my handwriting.
Kuria: And you see the words, ‘no waiver justified’?
Kotut: Yes my lords.
Kuria: Please read the memorandum.
Kotut: “Last November, we were approached by the chairman of the above company for an agreement regarding his company’s exportation of the specified items above. It was concluded that an agreement between the bank and the company was unnecessary and that export procedures were sufficient. In this regard, the bank gave the company the guidelines under which export business should be conducted.” Kuria: Stop there and turn to page 138. It is a letter from Goldenberg International which is dated April 9 requesting for waiver of condition number five?
Kotut: That is correct.
Kuria: Go on reading the memorandum.
Kotut: “I have now received a requests as per the attached letter from the company requesting that request number five which requires that his bankers surrender copy ‘C’ to us for acknowledgement before he presents it in his claim for compensation is causing some delays and should be waived.
The company has, since our guidelines, failed to follow these procedures in the first place and also it has lodged nine CD3 C copies, they have been wanting in that the payments which are claimed to have been received by the bank are not tallying with the invoices which are supposed to have been raised against purchases abroad.
In some cases, some of the proceeds are accounted for by cash sales in the country. In the light of these irregularities, Exchange Control wrote to the bankers demanding compliance last March but there has been no response since then. It is nevertheless understood that export compensation has been paid. It is therefore recommended that we reject the company’s request for a waiver and demand that our guidelines be complied with fully.” Kuria: You agreed with that?
Kotut: Yes my lords.
Kuria: So, on two occasions, you are convinced through clause five that you cannot trust a commercial bank and an acknowledgement has to be obtained from a commercial bank?
Kotut: Yes my lords.
Kuria: Let’s look at page 9160 of your statement of philosophy. Please read it
Kotut: “This is because the philosophy we had adopted was based on the belief that commercial banks would do the right thing, would not flout regulations, would certainly not cheat the Central Bank and would act with integrity and prudence.” Kuria: For the purposes of export compensation, you believed that that philosophy was not applicable?
Kotut: No my lords.
Kuria: Central Bank wanted to be convinced because it had been promised $50 million?
Kotut: No. But obviously, we at Central Bank would be the ones to inform Treasury that the money had been received.
Bosire: Counsel is trying to say that without the procedures, the bank would still have approved the transaction and Customs would have paid out export compensation. And because it was your baby, you had to make sure that the baby was well looked after because you were expecting a return in terms of foreign exchange.
Kotut: We had to arrive at the target by accumulating the data in relation to that operation.
Bosire: How would you ensure that the money had come into the country?
Kotut: Through the CD3C form.
Bosire: You wanted the money and in turn, the exporter was to be compensated.
Kotut: That is correct.
Bosire: The acknowledgement was to be for purposes of guiding the Customs department that you had received that money.
Kotut: That was our intention.
Bosire: Were you not supposed to be satisfied that the $50 million had been received?
Kotut: That was to be the Exchange Controller.
Bosire: Did he ever report to you that the targets had been met?
Kotut: No my lords.
Bosire: There would have been regular report. Was there any review at all?
Kotut: No my lords. It was to be done by Treasury because it was their arrangement. But if Treasury had asked for the details, Exchange Control would have given it.
Bosire: You had been informed to liaise with the exporter by a copy of the letter.
Kotut: That is correct.
Bosire: If the emphasis was on the target, arrangements would have been made for someone at the bank to keep monitoring.
Kotut: That was done my lords.
Bosire: Were you receiving the reports?
Kotut: The Exchange Controller did not report to me but I know that they maintained the record.
Bosire: But there was a contract in place.
Kotut: It was not a contract.
Bosire: There was an undertaking to bring in $50 million. Who was supposed to supervise that?
Kotut: The Exchange Controller at the Central Bank.
Bosire: Did he ever report to you?
Kotut: My understanding is that they maintained a record.
Bosire: Anyhow.
Khaminwa: I don’t understand. The country’s top brass – the Vice-President and the PS Treasury – appear to have been interested. They involved the governor and he does not seem to know anything about it. I find it funny.
Kotut: No my lords.
Bosire: Condition number five brings in CD3 C forms where Central Bank was required to ensure that money had been received.
Kotut: Yes my lords.
Bosire: The point I have been repeating is that the ‘C’ form was meant to ensure that money had been paid and that export compensation could be paid.
Kotut: That is true my lords.
Bosire: Carry on.
Kuria: There are two points which arise from clause five. One is that there must be receipt of foreign exchange by a commercial bank.
Kotut: That is true.
Kuria: And then there be a confirmation that indeed; foreign currency had been received by the Central Bank?
Kotut: Correct.
Kuria: You would then agree that the Central Bank does not accept any claim by a commercial bank on the face value that any foreign exchange had been received.
Kotut: This condition applied only to Goldenberg.
Kuria: I’m talking about Goldenberg. And this clause is saying that the commercial banks were not to be trusted.
Kotut: We wanted to be in a position to confirm to Customs that foreign exchange had been received.
Kuria: Why did CBK have to acknowledge?
Kotut: We were dealing with a special case which had been given special concessions.
Kuria: You are aware that Goldenberg used a number of commercial banks. Can you name some of them?
Kotut: Kenya Commercial Bank, Citibank, First American Bank and Delphis.
Kuria: They were even more than that. But for the purposes of clause, you didn’t trust the banks that Goldenberg was going to use and you must cross-check.
Kotut: The question of trusting is different from cross-checking.
Kuria: Therefore that means that you do not accept as correct what is given to you until you have confirmed.
Kotut: That is correct.
Kuria: That means that you are like Thomas in the New Testament.
Kotut: That is true.
Kuria: And the reason for using that philosophy is to protect public money?
Kotut: That is correct.
Bosire: How were you supposed to satisfy yourself?
Kotut: The officers in the Exchange Control had to look at the ‘C’ form and scrutinise it. This would have to be supported by documents and then they would check with the foreign department to make sure that the cash actually came.
Bosire: The documents were to agree with the cash which was the main thing.
Kotut: That’s correct.
Kuria: Please turn to page 135 of Exhibit 91 B. IT is a letter addressed to the commissioner of Customs and Excise. Read it.
Kotut: It is referring to nine CD3 forms. “We are in receipt of the above CD3 forms received from the First American Bank fro the purpose of accounting for the export proceeds. We however require the original CD3B counterparts and their relative export entries together with other shipping documents to enable us to accept the said returns. Further, we have observed that export compensation claims relating to the above CD3 forms were processed outside our requirement number five in our letter of authority. It is necessary that all the requirements are adhered to satisfactorily.” Kuria: First, according to this letter, Central Bank is aware that the export compensation in respect of nine CD3 forms has been made in breach of clause five.
Kotut: Yes my lords.
Kuria: The second point is that Central Bank is instructing the Commissioner of Mines and Geology not to make any further payments on CD3s that do not comply with condition number five?
Kotut: That is correct my lords.
Kuria: If I may return to my question, as far as Central Bank was concerned, it was necessary for it to be convinced that foreign exchange had been received?
Kotut: Correct.
Kuria: If CBK had stuck to clause five, no export compensation would have been paid without confirmation that foreign exchange had been received.
Kotut: That is correct.
Kuria: I would like you to keep that in mind because that is not what happened. Let’s go to Exhibit 111A.
Bosire: The witness’ story is that the bank stuck to clause five but there were a few crooked individuals in the bank. Is that so?
Kotut: That is correct.
Kuria: Do you know them Mr Kotut?
Kotut: I think they were in the export division.
Kuria: Read page 1961 of your evidence.
Kotut: I do not believe that I failed to exercise my oversight role. I believe that I exercised policy oversight completely. I would like to attribute the success that we had to the policy initiatives that we took. As far as I’m aware, I would have been the most central person in those policy issues and their implementation. It was not the policies that created the problems. It was at the operational level where those problems occurred. I was not involved in the operational level and I should not have been.
Kuria: Is that a lie?
Kotut: It is the truth my lords.
Kuria: Carry on.
Kotut: It is not right for a governor to get involved in operational matters. If he does so, there is always a danger that internal controls could break down.
Kuria: I have read to you Mr Riungu’s letter of November 1990 which lays down the procedure that Goldenberg was to follow. Is it correct then that you were not involved and should not have been involved at the operational level?
Kotut: That is correct.
Kuria: I also read to you the memo from Mr Kuruna which showed that First American Bank was having a problem with CD3 forms. You advised them to stick to condition five.
Kotut: That is correct.
Kuria: And you still do not realise that you have been lying to the commission that you were not involved in operations?
Kotut: I was not lying my lords.
Kuria: What was Mr Kuruna’s memo dealing with?
Kotut: It was dealing with policy.
Kuria: No. Please look Exhibit 91 B page 136. Did procedures deal with operations?
Kotut: Yes my lords.
Kuria: And the delays that Goldenberg was complaining about were at an operational level?
Kotut: Correct my lords. But this memo is also dealing with the issue of policy as to whether condition five should be waived.
Kuria: Tell my lords where policy ends and operations begin as far as condition five is concerned?
Kotut: Policy ends where the system is set up. Operations follow when the system is being applied.
The inquiry was adjourned at 1.02 pm and will resume this morning at 9 am.
from Central Bank be recovered
