From Charterhouse to Imperial Bank: Lifting the veil off WE Tilley’s trail of destruction
By Paul Wafula | April 19th 2016
KENYA: It is October 28, 2004. A task force investigating economic crimes at Charterhouse Bank is meeting in Nairobi.
The meeting was called to inform the team about the task ahead and draw up an action plan.
On the table are four companies and three individuals. The committee’s brief is to find out how Charterhouse Bank aided these companies and the three individuals to commit economic crimes.
To do so, the investigators have to establish the link between directors of the bank and the companies. In addition, they have to figure out a possible network for committing economic crimes.
Tucked in the maze of documents is a little-known firm operating from Nairobi’s Ruaraka estate along Baba Dogo Road — WE Tilley (Muthaiga) Ltd.
After digging through piles of evidence, doing searches at the Registrar of Companies and the Kenya Revenue Authority (KRA), the task force came up with some surprising revelations.
In a highly guarded report seen by Business Beat, WE Tilley is described as a fish-processing firm, with exports forming 95 per cent of its sales; the remaining 5 per cent is from local sales.
The bulk of the company’s sales are received in US dollars.
Tilley operated at least six bank accounts. Two were at Charterhouse Bank, another two at Imperial Bank and the last two at Fidelity Bank. The company operated both a dollar and shilling account in each of these banks.
And this is where the surprises began. The total deposits in Tilley’s six accounts in the nine months before the Charterhouse investigative team met was Sh5.8 billion. But it had only registered sales of Sh1.3 billion over this period.
Further: “There are numerous transfers from dollar accounts to shilling accounts in the same bank and across the other banks. There is also evidence of heavy trading in foreign currencies between the company and several forex bureaus in the city. It was observed that the company banks a lot in Afro Forex Bureau bank account with Fidelity Commercial Bank,” the report reads.
“Huge payments are also made to persons who on the face of it do not seem to have any relationship with the nature of the company’s business activities.”
It added that the company claimed to be receiving export proceeds for its related companies and banking these in its own accounts.
At the time, Tilley had three other related companies that also handled their exports through Kenya. These firms are Prime Catch Limited, Mara Fish Packers Ltd, which are registered in Tanzania, and Victoria Fish Packers & Processors Ltd, which is registered in Uganda.
“The directorships are the same for all the four companies,” the report reads.
The investigators further found that between May 2003 and October 2004, Tilley had made sales of Sh5.2 billion. However, the total deposits in its official bank accounts amounted to Sh5.6 billion.
“Allowing for exchange rate gains (losses), it seems the deposits in their official bank accounts compensate for the sales proceeds of the three sister companies. But the company only declares the sales proceeds of the Kenyan operations to the Kenyan tax authority,” the report says.
Despite these findings and suspicions of money laundering activities, the Central Bank of Kenya (CBK) let Tilley continue operating without sanctions. It instead chose to focus on Charterhouse Bank, which it closed in June 2006 after the lender was found to have breached regulations.
Financial reports in our possession show that Tilley’s directors as at December 2012 were Nargis Aziz Jessa (Mrs), Nashir Haiderali Jessa and Zulfikar Jessa. The company secretary was Zainash Registrars.
But back in 2004, no one foresaw that the small fish company would, several years down the line, come to haunt the banking regulator by contributing to the closure of yet another lender.
Tilley and some of its directors now stand accused of being responsible for at least Sh34 billion of Sh38 billion that was fraudulently disbursed from Imperial Bank.
Despite its relatively small size and asset base, Tilley was the first company to offer to help Imperial Bank get out of the hole it had helped the lender sink into.
Immediately after the bank was placed under receivership last October, Tilley accepted in writing that it had received at least Sh10 billion from the lender and indicated its willingness to regularise these amounts through loan documents and collateral.
This offer was taken with a pinch of salt by CBK, which decided to open an account, and asked shareholders to deposit whatever money they can raise into it.
Tilley’s involvement got a lot more suspicious in 2015 because its directors were closely linked to some of the bank’s shareholders, directors and auditors. They were all friends and would often go to the mosque to pray together.
Fresh investigations revealed that the company was used in a scheme that would see billions of shillings siphoned out of Imperial Bank in a scandal described by CBK as bigger than Anglo Leasing.
According to court papers, deposits that were made by Imperial Bank customers and that were supposed to be yielding a return or income were instead being fraudulently transferred to various Tilley accounts. And this on the instructions of the late Imperial Bank group managing director, Abdulmalek Janmohamed.
This was allegedly done with the assistance of other senior officials of the bank and their associates. The money would then be withdrawn or transferred for the benefit of those concerned.
CBK is yet to unwind the long chain of accounts through which this money flowed in an intricate web to cover its tracks before it was eventually wired out of the bank.
CBK Governor Patrick Njoroge said this one of the reasons the regulator has asked for more time before making a decision on the future of Imperial Bank.
“The bank [Imperial] was not running like other banks. Intra-bank transactions, those transactions from one account to another, are between 15 to 20 per cent for other banks, but actually, for this bank, it was about 70 per cent,” Dr Njoroge said.
He described the investigations going on at the bank as a marathon.
“The scope of the work has increased after we did due diligence. There are some things that needed further interrogation. Work that was expected in December has increased. The court cases have also slowed us down,” he said.
Business Beat has also established that WE Tilley’s auditors were RSM Ashvir, the same audit firm that set up the internal audit function at Imperial Bank, presenting a conflict of interest.
This arrangement would have made it impossible for the audit firm to report on itself when it had one client stealing from another one.
Back in 2012, the auditor found nothing in the company’s financial statements that would suggest Tilley would have any problems operating over the next twelve months.
Its principal bankers then were listed as Imperial Bank, Fidelity Commercial Bank, Barclays Bank of Kenya and Diamond Trust Bank of Kenya.
The company reported Sh2.9 billion and Sh2.4 billion in revenues in 2011 and 2012, respectively. After costs, it reported losses of Sh11 million in 2011.
It doubled these losses to Sh22 million in 2012, painting the picture of a struggling company. Still, its auditor gave it a clean bill of health, and maintains that it never saw the billions Tilley is suspected of siphoning out of Imperial Bank in any of the company’s accounts.
However, RSM Ashvir’s CEO Ashif Kassam said his firm is now considering resigning from auditing Tilley after learning of the fraud at Imperial.
“The last audit that was conducted was for 2013. We are in the process of resigning as the auditors and have not undertaken any further work for the company since learning of the implications of the Imperial fraud,” Mr Kassam told Business Beat.
Tilley, he added, also struggles to raise audit fees on time, which has led to delays in auditing its books.
He said RSM took over the auditing job at Tilley from Deloitte.
“I did not know of the fraud. The Imperial fraud was a conspiracy of the management of Imperial Bank and certain clients to borrow money that was not for business purposes,” Kassam said.
He further argued that the business the company was involved in and its volumes would not have justified borrowing in the billions of shillings.
“RSM was not aware of the fraud, and also a review of the financial statements of WE Tilley can confirm that such amounts were not reflected in the books,” Kassam said.
He added that in Tilley’s books, the principal bankers were DTB, which provided loans and had security on the assets of the company.
“We not only followed the audit process fully, but also obtained an independent confirmation from Imperial Bank that WE Tilley had no borrowings from it,” Kassam said.
But this is contrary to the financial statements signed off by the audit company. They show Tilley had loans from Imperial Bank.
Kassam claims that RSM, like shareholders and depositors, was an innocent victim given that the firm also had a current account at Imperial.
“Would they have maintained an account if they knew that the bank and their client was involved in such transactions? For the sake of maintaining its reputation, RSM had to underwrite monies in the client account that was with imperial,” he said.
But the question remains: how did such a reputable auditor fail to spot the fraud committed by its client, despite having access to information on the accounts that Imperial Bank funds were being wired to?
Kassam is a decorated professional and has been recognised for several achievements in the accounting field. He has been one of the key contributors in the development of the accounting profession in Kenya.
This includes being part of an Institute of Certified Public Accountants of Kenya (ICPAK) committee that was involved in setting up quality control processes. ICPAK regulates the accounting profession in Kenya.
“RSM was the firm that developed ICPAK’s Audit Methodology and the Model Audit File, and Ashif was also nominated by ICPAK to be a member of the International Audit and Assurance Standards Board, the global body that develops auditing standards representing Africa and Middle East,” a profile on the audit firm reads.
RSM was further selected to be part of a multi-disciplinary restructuring team at Imperial Bank after the lender was placed under receivership.
The audit firm says this was due to its experience in restructuring lenders under statutory management or receivership. Kassam was a key player in the restructuring of Delphis Bank (now Oriental Bank), United (now Chase Bank) and Bullion (now Equatorial Commercial Bank).
“The five-member team comprised lawyers, restructuring experts and bankers,” Kassam said.
It is not clear why the owners of Imperial Bank chose to use RSM, despite its involvement with WE Tilley, a situation that exposed it to a potential conflict of interest.
“As far as a conflict of interest is concerned, there is no conflict. RSM’s involvement in this case is basically to assist the shareholders to restructure the bank using its expertise. It is not involved in any other aspects,” Kassam said.
The other person of interest is Imperial Bank’s external auditor: PKF.
Shareholders of the bank in court papers claim that PKF, in auditing the bank’s books, had full access to its accounting records. They say it owed a duty to them and to the board to accurately report on the financial statements, balance sheets and profit and loss accounts presented to them. It also should have disclosed all inherent conflicts in regard to their relationship with the bank.
“PKF has always issued an unqualified audit opinion and failed to report any material misstatements. The board fully relied on these audit reports from PKF,” one of the affidavits sworn by a shareholder of Imperial Bank reads.
Our attempts to reach out to PKF to hear its side of the story were futile. At least two interviews set up to meet the managers were aborted last minute, and handlers of the audit firm’s communication function had not been able to facilitate a meeting by the time of going to press.
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