24 August 2018

Malawi: Ecobank Sues Karim, Attorney General for K1 Billion in Malawi Police Ration Scandal

Ecobank (Malawi) Limited has dragged Attorney General on behalf of Malawi Police and Zameer Karim of Piooner Investment Limited over a failed loan settlement amounting to K850 million.

According to court documents of a commercial case number 269 of 2018 file don August 17 2018 seen by Nyasa Times, Ecobank is claiming K850 million as a principal account due and payable under the loan facility and K150 million being principal amount availed to the Oil and Protein Company Limited (loan beneficially) and secured through an undertaking by the Police to pay proceeds owed to Karim.

"If you do not intend to contest the proceedings you must, within 14 days after the service of this summons pon you inclusive of the day of the service, return the accompanying response stating therein that you do not intend to contest the proceedings but desire a stay of enforcement of judgement, if nay," reads part of the summons.

Further , Ecobank is claiming contractual interest as it continues to accrue on both K850 million and K150 million at the rate of the bank's base lending rate effective August 2014 and February 26 2016, respectively, until full payment.

Attorney General Charles Mhango said he could not comment because he had not seen the court documents.

Anti-Corruption Bureau (ACB) probe suggests fraudulent transactions in ration packs contract between the Police and Pioneer.

The bureau also alleges that the bill was inflated from the contract price of K2.327 billion to K2.8 billion days after it was signed in August 2015.

Police also--within days of signing the contract with Pioneer--inflated the price by K466 million from K2.327 billion agreed in the contract to the K2.793 billion through claims of exchange rate losses that the ACB report says were unjustifiable.

The move pushed the price for each ration pack from K3 995 to K4 795, much higher than any of the evaluated bid prices that Pioneer competitors submitted, although it was the lowest at the point of evaluation.

The increase followed a letter that Pioneer Investments owner Zameer Karim wrote to MPS director of finance Innocent Bottoman on August 10 2015, to request a 20 percent contract hike, citing depreciation of the kwacha as basis.

The letter came six days after the supplier had signed the contract on August 4 2015.

But during the six-day window, the kwacha had only softened by 1.6 percent, according to the report, citing Reserve Bank of Malawi exchange rates at the time.

According to the report, Bottoman wrote CDH Bank on February 10 2015, undertaking to remit around K970.3 million to CDH so that the investment bank recovers the loan it would extend to Pioneer to finance the supply of the ration packs.

"This undertaking was made six months before the ration pack contract was advertised and awarded to Pioneer Investments," says the Bureau report.

It claims that Bottoman signed the letter "while the purported signature of the Police's deputy director of finance Tadius Samveka was forged."

The report alleges that in his witness statement, Samveka disowned the signature and the undertaking to CDH.

Then on July 16 2015, claims the report, Bottoman and Karim made another undertaking to CDH that the Police would remit K2.125 billion to the bank to enable Pioneer to obtain a loan from the same bank to finance a ration pack contract.

However, there was no contract at that time between the Police and Pioneer to supply ration packs worth K2.125 billion, according to the ACB report.

"It should be noted that both undertakings to CDH were made before the contract was awarded to Pioneer Investments. The undertakings were made on 10th February and 16th July 2015 while the contract was awarded on 4th August 2015. Mr. Bottoman and Zameer Karim connived to award ration packs contract to Pioneer Investments," alleges the report.

Section 63 of the Public Finance Management Act says it is only the Minister of Finance--with prior approval from Cabinet and a report to the National Assembly--who can give a guarantee or indemnity on behalf of the Malawi Government.

Even then, that guarantee can only be made if it is in the public interest because, among other reasons, any money given under such a guarantee constitutes a debt to the State and may be recoverable in any court.

Last year, CDH sued Pioneer Investments and the Attorney General for failing to settle debts that the Police had guaranteed.

And on November 23 2017, the court entered consent judgement for Karim and the Attorney General to pay the bank over K1.5 billion--a burden to the taxpayer.

And on June 30 2017, Pioneer claimed from government roughly K568 million as interest for late payment.

When Treasury sent the interest claim to the Auditor General for verification, the supreme auditing authority initially approved that government pays, but later reversed the decision and revoked the certificate of payment.

Part of the proceeds of the food ration contract - K145 million - were deposited in a Democratic Progressive Party (DPP) account for which President Peter Mutharika is the sole signatory. The money is reported to have been paid back to Karim in cash after the scandal came on the spotlight in June this year.

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