By PRAVIN BOWRY

A news item tucked in the inside pages of our local dailies in mid-December announced that three international banks – JP Morgan, Barclays Capital and Standard Bank – would guide Kenya in the process of borrowing Sh173 billion for the purposes of infrastructural development.

Treasury Secretary Henry Rotich announced that JP Morgan had been retained as the lead financial arranger, while Barclays Capital and Standard Bank would act as co-arrangers. It was reported that in coming weeks, Kenya is expected to launch a prospectus for its premier Eurobond and undertake a marketing road show in the United States and Europe.

As the Government was engaged in the negotiations with the bank, headlines all over the financial world were announcing, “JP Morgan facing US$2 billion fine for Madoff Ponzi scheme” and that the bank had tentatively agreed to pay the fine to settle the allegations that it failed to inform the authorities of Madoff’s suspicious activities. All this under what was being called “a deferred prosecution agreement”.

The agreement was the second of its kind in a month in which JP Morgan was forced to acknowledge its wrongdoings. On November 19, 2013, the bank paid a record $13 billion (over Sh1 trillion) to settle charges that it had routinely bundled poor quality home loans into securities that were billed as high quality to investors. JP Morgan has in the recent past paid other fines thus:

* $4.5 billion last November to settle allegations that it had mis-sold mortgage bonds to pension funds

* $920 million in September 2013 to settle US investigations into the ‘London Whale’ trading scandal

* $410 million in July last year in penalties and replacements  relating to manipulation of Californian and Mid-West  electricity markets.

Earlier, JP Morgan had paid $390 million in settlements for billing credit card customers for identity theft protection they did not receive. 

Barclays Bank too, has had its fair share of scandals and fines, notably the £290 million over the admitted libor fixing scandal, and only last December, its name surfaced in yet another scandal with Deutsche Bank, the Royal Bank of Scotland, Switzerland’s UBS and Dutch RaboBank in which over $4 billion in fines was agreed to be paid by the banks.

Africa’s largest bank, Standard Bank, was a while back ordered by the courts to pay a fine of 520 million rands for improperly dealing with the shares of a union pension fund. The bank was, however, absolved of any fault after a legal panel overturned the ruling late last year.

One must acknowledge the seriousness with which financial regulatory bodies and financial services authorities in the US and UK are undertaking their supervisory and regulatory roles in the financial sector.

Since 2009, there has been a trend in which big banks are getting caught up in scandal after scandal –  foreclosure processing abuses, money laundering, lack of oversight, materially misleading customers, manipulation of interbank lending rates, electricity market manipulation, discrimination against blacks and Hispanic borrowers... the list is endless.

How can top level bank officials escape criminal sanctions time and again and why are these banks not being shut down? Should the Government do business with banks with scandalous track records?  What happened to the due diligence in the procurement process? Can the Government prosecute errant bankers and have various international banks using Kenya’s banking system as a conduit for all their wrong doings?

No bank has ever been fined in Kenya for wrongdoing. In fact, they have largely escaped civil and penal liability. Institutions such as the Financial Reporting Centre and the Anti-Money Laundering Board, both established under the Proceeds of Crime and Anti-Money Laundering Act of 2009, have yet to start executing their mandate effectively.

The oversight role of the Central Bank of Kenya is carried out through surveillance by Central Bank inspectors, raising the question of whether Kenyan banks are simply 100 per cent law abiding or no proper investigations into the banks’ conduct ever take place.

Under the Central Bank Act (Cap 491) and for the protection of the Kenyan banking community, and with the money laundering legislation under the Proceeds of Crime and Anti- Money Laundering Act of 2009, it is time for Kenyan authorities to scrutinise the Kenyan banking scenario and put the international banks under minute scrutiny with the hope of finding massive financial skeletons.

A question then for Treasury Secretary Henry Rotich: will you save us from dealing with banks that have  scandalous records?

 

The writer is a lawyer.

bowryp@hotmail.com