48-hour ultimatum to raise Sh20b sets the stage for CBK, Imperial Bank court battle

Imperial Bank head office at westlands.PHOTO:BEVERLYNE MUSILI

It was a simple plan. They would walk into the offices of the Central Bank of Kenya (CBK) and tell the truth.

After several sleepless nights, directors of Imperial Bank had finally come up with a strategy on how best to manage the crisis they had just discovered.

The chances of anyone believing their account of things was near impossible, though — that for 13 years, a majority of the board was unaware of a scheme that had siphoned Sh38 billion from their bank. Worse still, the scam was masterminded by one of them.

But it was too late to take him to task. He was dead. His seat at the board meeting was empty. It would certainly have been easier if he had been alive to provide some answers.

At that point, there did not appear to be any other option open to them but to report themselves to CBK before someone else did.

Further, it was doubly important they take themselves to the regulator as there was a new sheriff at the helm. Dr Patrick Njoroge had already shown the banking industry he meant business. He had just approved the liquidation of Dubai Bank.

The directors did not want Imperial Bank to become the second lender to go down the same path.

Confiscated passports

They resolved to drive to Haile Selassie Avenue and meet with the regulator. But they had underestimated the hardball the new sheriff would play — they quickly found out once detectives from the Banking Fraud Investigations Department (BFID)confiscated their passports.

Business Beat has learnt that the passports of six directors were collected in November last year and have not been returned to date.

The revelations are contained in an application for a judicial review filed last week by shareholders of the bank seeking to stop CBK from liquidating the bank.

The passports were taken a month after the bank was put under receivership, but none of the directors has been charged for any crime yet.

The directors are now accusing CBK of using BFID to scare and intimidate them, even as the regulator considers them a flight risk.

The board of the bank had seven directors, including the late group managing director, Abdulmalek Janmohamed — who has been identified as the architect of the 13-year-long scam.

This leaves six directors, led by Alnashir Popat, the chairman of the bank, and five non-executive directors: Anwar Hajee, Jinit Shah, Mukesh Patel, Vishnu Dhutia and Hanif Somji.

The big shareholders have also set the stage for a bruising court battle with CBK, accusing Dr Njoroge and the receiver manager, Kenya Deposit Insurance Corporation (KDIC), of treating them as suspects when they volunteered to report the scam.

In the third part of our serialisation of the Imperial Bank heist, we reveal the latest dirt unearthed at the bank through submissions filed by the shareholders.

And for the first time, a CBK employee has been linked to the cover up at the lender.

Mr Hajee, who is representing other shareholders of the bank, provided, as part of exhibits filed in court last week, email correspondence between James Kaburu, the then chief finance officer of the bank, and a Reuben Cheres (a manager at CBK) that suggests how the bank’s books were cooked.

Various demands

In the email, Mr Kaburu asks Mr Cheres to delete some names from the list of the top 50 borrowers of the bank.

“The highlighted in purple are the ones to be deleted. Classification of automotive solutions should change from doubtful to watch. Please send me the amended copy,” the email reads. It was drafted on October 24, 2014.

It is not clear why the names were to be deleted, but managers of the bank are accused of having three different lists of top borrowers: one for the bank’s board, one for the CBK, and the correct list, which had loans that were given unprocedurally and was kept by a select club of managers.

The lists were amended at will to suit various demands.

Business Beat contacted CBK to find out if Mr Cheres is still its employee and to ask for an explanation of the circumstances within which the email was written.

CBK, through its communications department, promised to respond, but had not come back to us with answers after a week of waiting, and had not done so by the time of going to press.

The revelation will send shockwaves within CBK ranks given that the regulator is yet to make public any action it has taken against its employees that may have committed acts of omission or commission or been compromised to look away, allowing the scam to be carried out.

CBK monitors banks by the hour and receives daily reports. It also conducts impromptu onsite and offsite audits, and it would be impossible for such large sums of money to leave a bank undetected.

The shareholders are now accusing the banking sector regulator of treating them as guilty parties in the bank scam and as criminally culpable in the fraud unravelled.

“The touting of criminal proceedings against the 6 Bank Directors was meant to exert pressure on the Applicants to accede to the Respondents’ unreasonable demand for the Applicants to inject Sh20 billion into the Bank,” the affidavit sworn by Hajee reads.

“I also believe that the same was meant to cause disaffection amongst the depositors and other stakeholders against the Applicants herein.”

Hajee is also a director at Abdumal Investments, which owns a 14 per cent stake in Imperial Bank. The other shareholders, who are co-applicants in the suit, are Imaran Limited, Reynolds & Company Limited, East Africa Motor Industries (Sales & Services) Limited, Momentum Holdings and Kenblest Limited.

The big shareholders want the court to review the administrative undertakings by CBK, KDIC, Kenya Commercial Bank (KCB) and Diamond Trust Bank (DTB) since the bank was placed under receivership in October last year.