Kenya: CBK Sends Rogue Bank to the Graveyard

It was a tense Friday morning - June 23, 2006. The media and police had been alerted that Kenya's rogue Charterhouse Bank, now set for liquidation, was destined for a take-over.

In the corridors, shaken directors led by Sanjay Shah - who also owned Kingsway Motors - were making frantic, last-minute calls. A family business where they had put their fortunes was being taken over as they watched.

Charterhouse was linked to Nakumatt, a shopping citadel that was more than a supermarket. The shopping mall, which also housed Charterhouse Bank branches, masked the fraudulent dealings that happened under the watch of its owners and managers.

At the entrance, 15 years ago, Central Bank of Kenya (CBK) had pasted a notice, signed by acting CBK governor Jecinta Mwatela, stating that Miss Rose Ndetho, then an assistant director, had taken over the bank as the receiver manager.

"This is not a bank," Ms Mwatela would later say.

Now, despite court battles and demands from the owners, CBK has dashed all hopes of ever reviving the bank and announced that it will be liquidated.

The raid at Charterhouse Bank had followed a regular inspection that found, besides other banking vices, that the bank had lent to both Nakumatt Holdings Limited and Triton Petroleum Limited in excess of the single borrower limit of 25 per cent of its core capital.

Level of deceit within the bank

It was found, too, that some customers were routinely borrowing as much as 20 times the cash they held - and that some accounts were nameless or were opened in violation of the know-your-customer rule, a mandatory requirement in banking.

CBK also found that some of the directors were also involved in insider lending, and were found to have borrowed, and without security, above the prescribed limit of 20 per cent of the core capital.

So entrenched and powerful were the cartels within the bank that Parliament was later told that the new CBK Governor, Dr Andrew Mullei, was thrown out in 2006 for recommending the closure of the bank for allegedly helping some companies evade taxes amounting to Sh18 billion.

Interestingly, it was Dr Mullei who was charged with abuse of office and suspended from office over irregular hiring of a task force which the Minister for Finance, Mr Amos Kimunya, said was a "coincidence".

"This is a very serious matter. I sympathise with my friend the minister for Finance. If you look back to determine the time which the Governor was suspended, it is very suspicious... "

Three years before the CBK takeover, Charterhouse had hired an internal auditor, Mr Peter Odhiambo, who was shocked by the level of deceit within the bank whose head office was on the seventh floor of Longonot Place, Kijabe Street, Nairobi.

Mr Odhiambo not only noticed several irregularities in the bank but also suspicious transactions in some accounts.

Started as a family business

It was Mr Odhiambo who handed over the dossier to the Kenya Revenue Authority (KRA) and to then Kenya Anti-Corruption Commission, and also shared it with some US Embassy officials.

Started in 1996, the bank had taken over operations of Middle East Kenya Finance Limited and quickly opened bank branches in Nairobi, Kisumu and Mombasa. The bank branches were located inside Nakumatt Supermarkets, an associate of the bank through common shareholding, according to a Central Bank report.

Initially, it was started as a family business, sharing directors with Kingsway Group via holding company Ram Trust. The directors were Manish Shah, Manoj Shah, Artur Shah and Sanjah Shah.

Ram Trust was named after the father of Kingsway Tyres, the late Ramniklal P. Shah - commonly known as Ram - who in 1962 opened a small shop along the then Kings Way (now University Way) to sell tyres.

But the Charterhouse shareholding, like all companies involved in sleaze, was akin to a jigsaw puzzle.

By the time the bank was closed, Ram Trust was thought to own 43.8 per cent of Charterhouse Bank but further investigations found that Manoj Shah and his brothers owned over 54 per cent shareholding. This was in violation of the Banking Act, which restricts ownerships by a party to a maximum of 25 per cent.

Registered offshore in the billionaire tax haven of Liechtenstein, which is favoured by billionaires thanks to banking secrecy and security, Ram Trust was used by Sanjay, Manoj and Manish to hide their loot. They had also registered another shell company in British Virginia, Proudview Investments, which owned 21.7 per cent of Chaterhouse Bank. Another company, Foreman Corporation, was registered in the Caribbean nation of Belize, and owned 21.74 per cent shareholding in Charterhouse Bank.

As such, Charterhouse would normally transfer huge amounts to these perceived owners while also witnessing large inward and outward telegraphic transfers.

Money laundering suspicion

In 2001, the bank had been involved in the controversial Sh2 billion transfer that was credited to Crucial Properties Limited, associated with a Nairobi businessman, Mr Humphrey Kariuki. The transfer had grabbed the attention of the local police and the US Federal Bureau of Investigations after the money was wired from Liechtenstein.

But when Central Bank froze Crucial Properties' accounts, Mr Kariuki went to the High Court and was allowed to withdraw Sh300 million. He later fought the money laundering suspicion and on May 10, Justice Samuel Oguk lifted the freezing orders, allowing Mr Kariuki to withdraw the money.

Within hours, and before the Attorney-General could appeal the order, Mr Kariuki had withdrawn Sh1.6 billion. Later, Justice Oguk refused to order investigations into the withdrawal, blaming Attorney-General Amos Wako for the delay in presenting his application to the court.

With the closure of the bank, a few years later, the Departmental Committee on Finance, Planning, Trade and Tourism chaired by then Finance assistant minister Oburu Oginga recommended the opening of the bank and threatened to censure the CBK Governor.

There were many attempts from the floor of the House, and from interested parties, to try and force CBK to reopen the bank.

An investigation by PriceWaterhouseCoopers indicated some 839 accounts had no opening forms or customer instructions despite some of the accounts handling billions of shillings in transactions.

With the liquidation of Charterhouse Bank, a chapter on a rogue Kenyan bank has closed.

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