By Paul Wafula |
September 29th 2018 at 12:00:00 GMT +0300
A fight between a bank and its regulator over adherence to financial regulations has lifted the lid on operations of the Ngirita family, accused of defrauding the National Youth Service (NYS) of millions of shilings.
In bid to stave off huge fines lined up against it by the Central Bank of Kenya (CBK), the Kenya Commercial Bank (KCB) has fired in all cylinders, revealing all about the Ngirita transactions and in the process roping CBK in the alleged impropriety.
The KCB prepared report paints a disturbing picture of a regulator -- CBK and Financial Reporting Centre -- who turned a blind eye to early flagging of suspicious transactions, but later turned around to blame those who tipped them.
This despite the agencies having all the tools, controls, backing in law and the switch that would have closed the taps before Kenyans lost money as alleged in the charge sheets of the Ngiritas.
In their tell-it-all defence to the regulator, KCB says the Ngiritas were well known to them having been their customers for a long time. For the duration they operated the accounts, there was no concern until mid-2016 when the bank started to notice a change in the patterns of operating their accounts.
The changes were first detected by the Gilgil branch and subsequently the Naivasha branch. There were 11 accounts and individuals that formed the Ngirita network, which had been supplying NYS and Prisons Department for years.
“The family had a long-standing relationship as suppliers to NYS and the Prisons going back several years before any of the two NYS scandals arose,” the response to the regulator’s action of slapping them with a fine over alleged impropriety relating to NYS states.
Since their payments were done periodically based on the Government’s budgeting and disbursement cycles and since NYS always approved payments while the Ngiritas provided every document required, all was well until mid 2016.
In June 2016, the bank detected a suspicious case of Sh7 million in the account of Lucy Ngirita, a director of Ngiwaco Enterprises, investigated it and closed the matter. She had advised that she was the sole supplier of firewood, grains, fruits and powder milk to NYS.
“The branch was satisfied that she had provided adequate documentation to support the source of funds but they had concerns about her new appetite for large cash withdrawals,” says the report.
Three months later, however, the bank was back to its suspicions after it noted simultaneous large incoming payments into the accounts of JerryCathy Enterprises, in quick succession.
First it was a Sh7.5 million, then Sh13.8 million, followed by Sh7.4 million, and another Sh5.5 million and finally a Sh4.6 million. At the same time and in a related account of Ngiwaco, seven similar payments were trooping in quick succession.
The account received Sh6.4 million, then Sh8.5 million, then Sh6.1 million and then Sh8.1 million. There was also another Sh8.5 million that came in, which was followed by Sh9.4 million and another Sh8.1 million on the same day.
A third account of Waluco Investment had a transfer of Sh41 million from Annwaw Enterprises which also had its own series of seven incoming deposits of between Sh1 million to Sh8.7million, according to the report to the regulator by KCB.
All these transactions happened on October 18, 2016, and it caused a shock at the branch. The anti-money laundering analyst called the Naivasha branch immediately.
The bank tells the regulator that the following day, Sh3 million was withdrawn to be used ‘to purchase ndengu (green grams) in an open market.’
“The reason for suspicion was attributed to the amount of cash being withdrawn not corresponding with the price of the items that were to be purchased.”
In the process of reviewing the documentation received, it was noted that the proprietor of JerryCathy was one Jeremiah Gichini Ngirita who shared a surname with Lucy Wambui Ngirita whose accounts had been earlier placed on continued monitoring, says the KCB report.
“A further review was undertaken at the Central Compliance Office. This led to the realisation that there was a much more complex chain of transactions involving more entities,” the document says.
But it is the purchase of Sh20 million land in Kitale that linked the entire network. KCB says it was alarmed after Sh46.7 million was ‘hurriedly transferred to other accounts some of which were owned by Lucy and her relatives.’
“From the above, the AML team determined that the transactions in questions revealed a much more complex chain of payments between the registered entities whose proprietors shared surnames and postal addresses.”
KCB tells the regulator it filed with the Financial Reporting Centre (FRC) eight suspicious transaction reports on patterns of activity noted in relation to the NYS saga. It says it reported the transactions long before the NYS scandal became public news.
The first report was done on December 15, 2015 covering six accounts belonging to Maanti Logistics, Pejows Agencies, Carrotexx Enterprises, Sallijow Enterprises, Lantex Enterprises Africa and Jupecar Garments. In total, there were 30 accounts flagged by the lender.
The second batch of suspicious reports were filed on December 6, 2016 and they belonged to Lucy Wambui Ngirita and Others, Jerrycathy Enterprises, Waluco Investment, Ngiwaco Enterprises, Kunjiwa Enterprises and Ngirisipa Enterprises.
Other accounts flagged belonged to Catherine Wanjiku Mwai, a director of Kinjiwa Enterprises and Jeremiah Gichini Ngiritah, a director at Jerrycathy Enterprises. Others were accounts belonging to Ann Wambere Wanjiku Ngirita, a director at Annwaw Investment Enterprises.
Other reports were made between June and October last year on accounts owned by Njewanga Enterprises, Namib Supplies, Phyllis Njeri Ngirita, Ngiwaco Enterprices, Soloh Worldwide, Winnie Ahere, Polkea Ventures and Kabiru Ventures.
KCB says the suspicious activity reports caused it to undertake enhanced due diligence on the accounts associated with the Ngirita Network.
“The said due diligence exercise covered all the accounts associated with the Ngirita Network that had received large sums of money from NYS, followed by an unusual pattern of large cash withdrawals,” the lender says. It says it filed a comprehensive report on the suspicious transactions to the FRC that revealed the existence of an interconnected web of companies and accounts operated by the Ngirita Network.
KCB says in its defence that it identified the companies, the accounts, the individuals behind them, their relationships and most importantly that they were all receiving large payments from NYS and making large rapid cash withdrawals and other suspicious transactions, including a questionable land transaction. It filed this report on December 6, 2016.
It says it continued to monitor the accounts associated with the Ngirita network to establish if there was need for any further filings in accordance with the regulations and prudential guidelines. On August 23, 2017, the bank filed another report relating to Phyllis Njeri Ngirita.
Mapped out by the bank
“This STR was necessitated by the fact that there was now a new Ngirita who had not been covered by STR-2016-125 and whose account had suspicious transactions,” the report adds.
The bank says it also filed additional six suspicious transaction reports in addition to the ones covering the Ngirita network. KCB adds that FRC has gone ahead to use the reports the bank mapped out in 2016 for prosecuting the suspects but on the other hand, the regulator is laying a trap to penalise them.
“From the press reports on the ongoing prosecutions on the NYS saga, it is clear that the Ngirita Network as portrayed in the reported prosecution case is the network that was mapped out by the bank to the FRC as far back as December 6, 2016,” the report adds.
In its 99 page document responding to the show cause letter sent to five banks in the country early this month, the lender says the duty of ensuring the genuineness of the NYS transactions lied with the CBK, being the remitter bank.