Push to reopen Charterhouse Bank ignites storm

Financial Standard

By James Anyanzwa

Attempts by a parliamentary committee to demand reopening of Charterhouse Bank are raising eyebrows with a section of the civil society terming the move as "scandalous".

The group says reopening the bank is as scandalous as re-opening the defunct Exchange Bank, which played an integral part in the infamous Goldenberg scandal.

International Commission of Jurists Director George Kegoro, who prepared a case study on Charterhouse Bank before it was closed in August 2006, is pushing to block attempts to reopen the bank.

Nambale MP Chris Okemo, Chair of Parliamentary committee on finance. Photo: File/Standard

According to a copy of correspondence in our possession Kegoro has written to several civil society groups, urging them to “engage” Treasury PS Joseph Kinyua, and Prime Minister Raila Odinga, to make sure the bank is not reopened.

“I am suggesting that even though we are all busy...we should seek to engage with the Treasury PS and perhaps also the prime minister with a view to ensuring that this threat does not materialise,” read correspondence in part.

Money laundering

Charterhouse Bank was placed under Central Bank of Kenya’s statutory management in 2006 over claims of money laundering and tax evasion.

The Parliamentary Committee on Finance, Planning and Trade, however, wants the bank reopened, arguing the reasons for its closure were biased and that they no longer made sense.

The committee headed by Nambale MP Chris Okemo has been summoning and interrogating various Government officials on the matter.

These include Kenya Revenue Authority Commissioner General Michael Waweru, Central Bank of Kenya (CBK) Governor Prof Njuguna Ndungu and the Charter House Bank Director Sanjay Shah.

Waweru said the tax collector had no issues of tax evasion with the bank.

Certainly, the committee recommended the reopening of the bank last month in a meeting with Prof Ndung’u, who also denied foreign pressure had been exerted to shut down the bank in mid-2006.

Ndung’u, however, admitted the American Express Bank and the Amalgamated Bank of South Africa threatened to cease relations with the Kenyan bank when its deposits dropped to Sh2.9 billion from Sh3.5 billion.

Committee members denied reports they have been bribed to make the recommendations, claims, allegedly made by exiled whistleblowers in the US who, reportedly, unearthed money laundering, tax evasion, and siphoning crimes at the institution.

Clean and solvent

Yatta MP Charles Kilonzo accused CBK of failing to defend the bank when it was under attack despite certifying it as clean and solvent through renewal of licence.

Okemo said Ndung’u should speed up an inter-agency audit/probe of the accumulated matter, including the court cases and investigations and draw the matter to a close.

Earlier this year, 35 depositors of Charterhouse Bank whose funds are being held, filed a petition in Parliament that was tabled by Yatta MP Charles Kilonzo, requesting the House to carry out independent investigations.

The depositors accused CBK of victimising them by closing down the bank, and not allowing the statutory manager to give them access to their funds.

In August 2004, CBK conducted a regular inspection of Charterhouse Bank in accordance with the provisions of the Banking Act. The findings highlighted a numerous violations of the Banking Act.

These include among others lending to both Nakumatt Holdings and Triton Petroleum in excess of the single borrower limit of 25 per cent of core capital, insider lending without adequate security and above the prescribed limit of 20 per cent of core capital and inadequate provisions for bad and doubtful debts.

Other weaknesses included inability of the management to take reasonable measures to secure the accuracy of returns submitted to CBK and failure to obtain account opening documentation for a number of customers as required under the CBK Prudential Guidelines.

Suspicious activities

During the course of investigations, it also emerged that the management of Charterhouse Bank was involved in suspicious activities in collusion with its customers.

The action by CBK to put the institution under statutory management was aimed at forestalling a run with the institution following the negative publicity generated in the media and to safeguard the integrity of the financial sector in accordance with CBK Act.

CBK Act Section 4(2) requires that “the bank shall foster the liquidity, solvency and proper functioning of a stable market-based financial system”.

CBK’s action was therefore deemed necessary to safeguard the interest of depositors, creditors and the institution.

However, among the peculiar circumstances that have put the Central Bank in a dilemma over Charterhouse bank’s reopening include it’s appointment of a statutory manager.

Bank was solvent

Because the bank was solvent, the law does not envisage the liquidation of a solvent institution.

Most of the allegations against the bank touched on money laundering, but the country did not then have a law on money laundering, thus making it difficult for CBK to legally justify any money laundering allegations and take action.

The new Anti-Money Laundering and Proceeds of Crime Act came into force from June 28 this year.

CBK, however, offered two alternatives and entered into a “without prejudice negotiations to resolve the issue.”

These include a voluntary winding up of the bank with consent and cooperation of its shareholders or restructuring of the institution.

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