How fight for lucrative Chinese deals mask faceless firms in lenders’ books

By Otiato Guguyu | Updated Tue, April 18th 2017 at 08:32 GMT +3

John had a briefcase company which he used to do graphic design work for a non-governmental organisation.

John, whose second name is withheld to protect him from being victimized, got paid by the NGO but the organisation insisted on writing the cheque to the company name and not his person name for audit and credibility purposes. He unfortunately could not immediately cash the cheque.

When he went to the bank, he was asked to get the company pin number, minutes of a board approving the opening of the account and directors’ identification details. These requirements took him ages and a lot of coaxing before he got paid.

For a Kenyan to open a bank account for a company, they often have to fake a board meetings’ minutes and spend days getting details of ceremonial directors.

However, for a Chinese firm, they walk right past the queues of the banking halls to a desk manned by a Chinese national where the foreigner can easily open a bank account without providing details.

The Financial Standard can reveal that Kenyan banks, in the fight to keep an edge for growing Chinese businesses, are bending the rules to open bank accounts for the orient clients without proper checks being followed.

A source privy to a local bank records claimed that initially, the bank employed a Chinese because they could not converse with the clients without resorting to sign language.

“Account opening was a very difficult process because of communication breakdown, so they brought in a Chinese relationship manager,” the source explained. However, the source reckons that bridging this gap had opened an operation ambiguity as some of the accounts that were being opened had no crucial documents and the directors were unknown.

“When you open a bank account for a business, you have to know each director, even if the director is a proxy,” the source said. The source however revealed that banks, in the name of fast-tracking account opening for Chinese nationals, were deferring these requirements and no update were made to end these shadowy operational accounts. The revelations cut a picture on the web of secret Chinese companies that operate in plain sight with little information about their owners. This subnormal cover up encouraged by the country’s bankers and partly sanctioned by the regulators has helped some organisations linked to Chinese nationals operate under the veil of secrecy.

Three years ago, Kenya’s powerful law making functionary, parliament was treated to a shock when China Road and Bridge Corporation (CRBC) brazenly avoided scrutiny. The file containing records of CRBC’s ownership at the companies’ registry in 2014 went missing after Parliament started a probe to demystify the firm’s ownership after it emerged that two of the firm’s directors-Peter Gateri and Leonard Mwangi were indigenous Kenyans. Another firm China Wu Yi which has been awarded multibillion shillings tenders by the Government including construction of the Thika Superhighway, the University of Nairobi Tower, Mama Lucy Kibaki Hospital hoodwinked authorities that it was home grown company.

The firm that is apparently owned by the Chinese government with a few minority stakeholders, who are all Chinese nationals, even won a Sh10.4 billion contract to construct the 135km Garsen-Witu-Lamu Road despite its muddied ownership. National Bank of Kenya (NBK) through its Chinese business unit, was quick to point out that it follows due processes when opening accounts for its clients. “All our customers... Chinese or not.. go thorough Know Your Customer process that we undertake,” NBK spokesperson said.

The country’s biggest bank by assets, Kenya Commercial Bank steered away from commenting on its clients but admitted they have set up a special desk for Chinese nationals and their firms.

“We have set up a China desk to drive our relationships with Chinese entities setting up shop in Kenya and the region as well,” explained Moezz Mir, KCB Director of Corporate Banking.

Equity Bank Kenya set up its China Desk in 2012 and currently, it has a team of five Chinese Relationship Managers supervising corporate banking, SME banking and personal banking for the specialized market segment. The bank did not offer FS the safety net measures it has put in place to deal shadowy firms.

“We are holding a large portfolio of clients, including personal client, SME and large Chinese companies. Equity Bank has supreme branch network such as Lavington, Garden City, Upper Hill, Gigiri, Karen.... among others that are well located to tap in to this new business,” the bank said in its response.
Cooperative Bank did not respond to our queries.

A survey by the FS showed that a number of Chinese opt to stay on in Kenya after completing projects that initially brought them in to the country. Their longer stay enables them to cash from the country’s emerging construction business.

The Chinese firms are setting up local subsidiaries and plants leveraging on their skills and technology prowess to beat locals to lucrative office space construction and real estate jobs. Banks can ill afford to look the other way considering the amounts involved in these new business.

“We have a wide range of products available to our Chinese clients supported by the largest Balance Sheet in the region. Our size and financial strength mean that we can, for example, issue guarantees of up to $100 million (Sh10.3 billion) for a single Chinese Contractor all by ourselves,” explained Mr Moezz Mir.
In September 2014 NBK launched a Chinese division to tap into revenue from Chinese businesses.

“Since then, the business unit has been very robust - surpassing its expected growth by over 182 per cent,” NBK said in an email.