08 Sep 2006: ISS Today: Tax Evasion Scam in Kenya

08 September 2006: Tax Evasion Scam in Kenya

 

Kenya does not yet have a law against money laundering. The government had promised that the Proceeds of Crime and Money Laundering (Prevention) Bill 2005 would be passed by Parliament, but this has not happened. In the meantime, Kenya has gained notoriety through the much publicised ‘Goldenberg’ and ‘Anglo Leasing’ scandals (1). A commission of inquiry into the Goldenberg scandal revealed a massive scam in which the Goldenberg group of companies claimed subsidies for fictitious gold and diamond exports. The loss to Kenya has been estimated at around $376 million. Anglo Leasing was involved the illegal awarding of government contracts amounting to some $90 million to an apparently non-existent company.

 

In recent months, the Central Bank of Kenya has closed down a commercial bank on allegations of tax evasion and money laundering, and it is believed that this may not be the only bank embroiled in such activities. Charterhouse Bank is alleged to have aided a well- known supermarket chain, Nakumatt, to evade tax and to launder money. Estimates are that the country has lost approximately US$240 million in taxes over a period of five years.

 

Nakumatt is alleged to have underdeclared sales to report trading losses for some five years. Curiously, in spite of the losses, the supermarket chain expanded, opening numerous new stores countrywide. Charterhouse Bank is alleged to have flouted know-your-customer principles by allowing the supermarket chain to open accounts under fictitious names, which were then used to launder receipts. Other companies linked to Nakumatt as well as its lawyers, are said to be some of the bank’s biggest depositors.

 

These Kenyan shenanigans are illustrative of some of the tactics used by dishonest business in a country without an enforceable anti-money laundering regime. The Nakumatt chain is alleged to have invested heavily in real estate, an Internal Container Depot and other acquisitions, apparently without raising questions. In addition, the Nakumatt chain is also alleged to possess a 10% shareholding in Charterhouse Bank as well as having directors in common. This situation raises potentially serious issues of conflict of interest and flies in the face of principles of good corporate governance.

 

The NARC government came into power on an anti-corruption ticket, with promises of political and economic reforms aimed at reversing the decline endemic during the Moi regime. Sadly, it would seem that it has been unable to stem the tide of economic crimes that continue to plague the country.

 

Mokhibo Nomzi Gwintsa, Organised Crime and Money Laundering Programme, ISS Cape Town

 

1. More on these stories in ISS Money Laundering Monitor, Issue 3, March 2006, 
https://www.issafrica.org/dynamic/administration/file_manager/file_links/NO3.HTM?link_id=3&slink_id=2098&link_type=12&slink_type=13&tmpl_id=3