Lest We Forget: The Goldenberg Story

Lest We Forget: The Goldenberg Story, Part One

TUESDAY, 19 JULY 2011 00:11 BY SARAH ELDERKIN

Mastermind: Kamlesh Pattni

Goldenberg! It means ‘a mountain of gold’. That’s what Kamlesh Pattni told the government in 1990 he would be exporting from Kenya. It was an evil lie, and the fact that this ‘mountain of gold’ didn’t amount to a hill of beans led to the devastation of the Kenyan economy for years to come, and the loss of billions of shillings of public money.

  The tentacles of the Goldenberg story reached out and ensnared a whole bunch of high-ranking officials, among them then-vice-president and minister for finance George Saitoti, then-Central Bank governor Eric Kotut, then-commissioner of mines and geology Collins Owayo, then-Central Bank exchange controller TK Birech-Kuruna, and then-Treasury permanent secretaries Charles Mbindyo and Wilfred Koinange, as well as other key players, including businessman Naushad Merali (often represented as a front man for then president Daniel arap Moi) and former head of the Special Branch James Kanyotu.

 It all came about because, at the time, the government had introduced an incentive scheme to help exporters price their goods more competitively on the world market. Traders would agree to export their goods at lower prices, and the government would then pay them Kenya shillings to help make up the difference in production costs.

 This was known as ‘export compensation’ and on June 24, 1985, under the Local Manufacturers (Export Compensation) Act, Cap 482 of the Laws of Kenya, the compensation rate was set at 20 per cent. The compensation was strictly for a limited range of Kenyan-sourced or manufactured goods, and to qualify they had to contain less than 70 per cent imported materials.

 One of the reasons the government did this was that it had an acute shortage of international currency. Traders were therefore also required to deposit with their banks all foreign exchange revenue from their exports, for onward transmission to the Central Bank. The traders then received the equivalent in Kenya shillings.

 The Goldenberg story traces its beginnings to the day a group of gold exporters proposed to mines commissioner Owayo that one trader among them be given exclusive export rights, to defeat the black-marketeering dominating the market at the time. Even so, Kenya was only producing about 100kg of gold a year, a very small amount, mostly mined by individual prospectors working in West Pokot, Turkana and Siaya.

 Because of high gold prices, the exporters proposed to Owayo that export compensation for the commodity be paid at the higher rate of 30 per cent. Owayo agreed and, in an internal brief dated March 18, 1987, he recommended this to the government.

 The gold exporters’ proposal then appears to have been shelved. They heard nothing more of it. But some time later, an ambitious and cunning young man in his 20s, one Kamlesh Pattni, heard about it, and it gave him a wonderful idea for how to make a huge amount of money.

 Put simply, it went like this. With the help of a group of co-conspirators in and outside government, Pattni would falsify all the documents necessary to ‘prove’ he was exporting massive amounts of gold, as well as diamonds – of which Kenya has no mineral deposits at all. He would actually not be exporting anything – he would simply be filling in the forms to make it look as though he was – and then he would claim the export compensation. And he and his pals would share the loot and laugh all the way to the bank.

 On July 29, 1990, Pattni, describing himself as a “farmer”, registered Goldenberg International Ltd. His partner in the company was James Kanyotu, head of the Special Branch during the years that saw the never-solved assassinations of Tom Mboya and JM Kariuki.

 Pattni then moved to get his web of co-conspirators in place. That done, he wrote, on October 8, 1990, to Saitoti. Copying the letter to Kotut, Pattni told Saitoti about Kenya’s ‘vast mineral wealth’ and the diamonds “in large supplies here in Kenya”, and he promised to export up to 400kg of gold a month – this from a country producing a monthly total of barely 8kg and having no diamonds at all.

 In a particularly nauseating twist, Pattni, hypocrite par excellence, indicated that he would be doing all this for the benefit of “our country”.

He asked to be the sole exporter of gold. He asked for 35 per cent export compensation. And he asked for permission to set up his own finance company, as he said he would be doing “numerous cash transactions on daily basis”.

 Despite the fact that Owayo, as commissioner of mines, clearly must have known that what Pattni had proposed was physically impossible – in fact, they all must have been well aware, for instance, that Kenya had no diamonds at all – Saitoti agreed to the first two requests, and his PS, Mbindyo, confirmed this to Pattni in a letter dated November 1, 1990.

 Although Pattni’s finance company request was not granted at this stage, no questions were asked about why an exporter would be doing “numerous cash transactions on daily basis”. We shall see later why, and why Pattni needed his own bank.

 Saitoti had no power to grant Pattni sole export rights, which was in contravention of the Monopolies and Price Control Act, Cap 504 of the Laws of Kenya. Nor did he have the authority, which was vested in parliament, to vary the export compensation level. Nevertheless, he did both.

 What Pattni was granted was without justification (he was unknown, and had no record or experience in any industry, let alone the mining industry), it was contrary to the law, and it was totally inconsistent with the public interest.

 The letter from Mbindyo also told Pattni to sign a formal agreement with the Central Bank that he would be exporting gold and diamond jewellery to the tune of US$50 million (then worth about Sh1.8 billion) a year.

 Of course, they all knew such quantities of the raw materials did not exist. That did not stop them. This wasn’t about facts. It was about spectacular, daring, grand larceny that would harvest them a fortune. At 35 per cent, the export compensation to be claimed on this annual amount was US$17.5 million, then worth about Sh630 million, a colossal sum of money. Free money! And all for little more than filling in a few forms.

 Forms were very much the next thing on the agenda. Pattni got a second letter from Mbindyo the same day, November 1, 1990, reiterating that Saitoti had agreed to Pattni’s extraordinary requests, and urging Pattni to go ahead and establish the necessary machinery to facilitate “smooth” exports and “smooth” remittance of the resulting revenue.

 Four days later, Pattni received a letter from the Central Bank’s Mrs Jacinta Mwatela, outlining the procedures he would have to follow. Briefly, Pattni’s export goods had to be inspected at the airport by the commissioner of mines, and then Pattni had to complete the customs declaration forms – called ‘CD3’ because there were three copies.

 One copy would be stamped at the airport and forwarded to the Central Bank, to show the goods had been inspected and exported. Two copies would go to Pattni’s bank, one for their files and one to be forwarded to the Central Bank after the foreign exchange had been received. The Central Bank thus ended up with two copies of the form, proving first that the goods had left the country, and second that payment had subsequently been received.

 Mrs Mwatela told Pattni that “considering that the export compensation being granted is on a special basis”, his bank would have to get a “specific acknowledgement” from the Central Bank that all these formal procedures had been fully completed in respect of each consignment, and this “specific acknowledgement” would have to be attached to each export compensation claim form.

 Well, as there were no actual exports, just bits of paper, and therefore no foreign exchange revenue, it didn’t take long for things to start going wrong. On March 26, 1991, alarmed, the Central Bank telephoned Pattni’s bank, First American, and the following day wrote to them, saying that the procedures detailed in Mrs Mwatela’s letter were not being followed.

 All Pattni was doing was getting the various stamps on his forms (by pre-arrangement with his co-conspirators), and then claiming the export compensation, which, despite the absence of the attached Central Bank’s “specific acknowledgement” mentioned by Mrs Mwatela, had been paid to him. An additional problem was that, instead of invoicing his ‘clients’ in foreign currency, Pattni had been invoicing them in Kenya shillings.

 The latter might appear a small thing. In fact, as we shall see later, it was almost entirely the cause of the ensuing dramatic drop in the value of the shilling, causing a huge leap in inflation and the near-collapse of the Kenyan economy.

 The Central Bank also drew First American’s attention to “a lot of discrepancies” in Pattni’s operations and said it urgently required details of all his current exports and their accompanying forms.

 First American was owned by Kanyotu and Merali. The bank quickly alerted Pattni that the Central Bank was asking awkward questions. Pattni decided to write to the Central Bank himself – and on one point only. In a breathtaking display of audacity, he asked the bank to drop the condition that he must attach to his export compensation claims the “specific acknowledgements” mentioned by Mrs Mwatela. His laughable explanation was that he was experiencing “financial constraints” due to his “huge volumes”.

 Central Bank exchange controller Birech-Kuruna now alerted governor Kotut to the fact that Pattni was not following the correct procedures – yet export compensation had already been paid against a number of CD3 forms that contained figures hopelessly at variance with each other. None of the documents or the figures tallied. What is more, some of the export compensation had been paid not against revenue from abroad, but against cash acquired in Kenya. The Central Bank wrote to Pattni and told him the correct procedures must be followed.

 Barely two weeks later, on April 26, 1991, Mrs Mwatela wrote a memo to Birech-Kuruna. More of Pattni’s CD3 forms had been received but they were incomplete, no invoices or airway bills were attached as required, and there were no inspection reports from the airport. The forms related to the alleged exportation on January 30, 1991, of seven consignments of gold and diamond goods said by Pattni to be worth shs.336 million. Sh117 million in fraudulent export compensation payments had been paid against these forms, for goods that never existed. Mrs Mwatela did not yet know of their non-existence. At this point, she was only concerned that the documentation was deficient.

 She also pointed out that, contrary to the rules, Goldenberg was claiming compensation against cash payments in Kenya. It was also invoicing its clients in Kenya shillings, over-invoicing, and submitting documentation with invoice numbers bearing no resemblance to those on the CD3 forms.

 Birech-Kurosawa instructed her to write to First American, which she did the same day, returning to them 15 Goldenberg CD3 forms with discrepancies. First American contacted Pattni, who decided to write again, this time to Birech-Kuruna.

 In his letter, Pattni tried to explain away Kenyan payments for his ‘exported’ goods by saying he had applied for a licence (necessary at the time) to receive foreign exchange in Kenya and had been receiving such currency while awaiting the licence. This was actually a criminal offence – and in any case, why did Pattni need such a licence? He was supposed to be exporting goods. Payment for these goods should have been coming from abroad.

 And it now becomes clear why Pattni had told Saitoti he was expecting “numerous cash transactions on daily basis”, and why he had requested Saitoti’s permission to open his own finance company. Pattni needed to launder the foreign exchange he was acquiring locally in cash, which he was pretending was payment for his bogus exports, and he needed to cover his tracks by having his own bank.

 So where was Pattni getting this foreign exchange? There were no exports, so no income. Easy. He was using some of the huge export compensation payments he had already received to buy up odd amounts of foreign exchange circulating locally, and then depositing these with his bank.

 It was totally farcical. As an example, against one CD3 form, which was supposed to represent one export consignment to one customer abroad, Pattni had deposited in cash on February 28 and March 5, 7 and 19, 1991, the following separate sums of money: US$11,950, US$25,300, US$160,000, US$52,350, French francs 1,450, German DM325, Swiss francs 14,950, UK£175, DM86,850, US$405,650, US$300,600, US$620,000, US$230,800, US$20,000 and US$76,000.

 Heaven alone knows where Pattni was finding all this currency but all day long he must have been running round town and popping in and out of the bank to deposit anything from the paltry £175 to the astounding $620,160. It was completely ludicrous – but hey, who cares about ludicrous when you are getting 35 per cent of this back again in free money? That’s a lot of free money. And the fact that the export compensation continued to be paid shows only too clearly how far the conspiracy had spread.

 In his letter to Birech-Kuruna, Pattni also explained that his numbers never tallied because his agent in Europe ‘preferred things done differently’. That was also why he was getting ‘paid’ in Kenya. The mind boggles. But Pattni knew he had friends in high places, and that he had nothing to fear from his pathetically unconvincing explanations.

 Interestingly, Pattni noted in his letter that his submitted CD3 forms now went up to number 51. Since the seven alleged consignments of January 30, 1991, had alone translated to compensation payment of shs.117 million, it is easy to see that Pattni’s export compensation receipts were by now completely off the scale.

 And Pattni’s real reason for invoicing his ‘clients’ in Kenya shillings also now becomes clear. Pattni knew that the illegal compensation payouts from public money in such huge amounts would eventually affect the Kenyan economy. The value of the shilling would drop sharply. But the twist was that, as it did so, Pattni would have to find less foreign currency.

 The more he invoiced in shillings, and the lower the shilling value dropped, the less equivalent foreign exchange he would have to find. He would have to spend less time running around looking for foreign currency locally, and he would have to submit less foreign currency to his bank in order to get his fraudulent compensation payments.

 Smart, eh? It actually suited Pattni to see the shilling lose as much value as possible. It was a wicked and cunning plan, well thought-out beforehand. Pattni aimed to amass as much money as he could, and he had no qualms about destroying the shilling’s value in the process.

 All this had a dramatic effect on the cost of living and on inflation, which, because of Pattni’s activities, soared to more than 40 per cent. Today, in 2011, we are suffering under an inflation rate of 14.5 per cent. Imagine the pain people were enduring under 40 per cent. The nation was in agony.

 And Pattni was doing all this to help “our country”! Unbelievably, this sickening faux-patriotic sentiment was repeated in Pattni’s letter to Birech-Kuruna, which he ended by asking the Central Bank for permission to continue invoicing his ‘clients’ in shillings “so as not to make us retard in our forward march …. for the benefit of our country”. Pattni’s actions were, and remain, beyond contempt, along with those of the officials who were complicit in this treacherous disgrace.

 Pattni’s letter eventually landed on Mrs Mwatela’s desk. She was much disturbed, and wrote to the principal collector in the customs department, describing the total chaos that surrounded all Pattni’s activities. She also sent a memo to Birech-Kuruna, pointing out that, without the proper documentation from Pattni, “we risk accepting tourist receipts as export receipts”.

 She had hit the nail on the head. That was exactly what was happening. It was tourist and other foreign exchange floating round Nairobi that Pattni was buying up and presenting as his bogus clients’ payments.

 Mrs Mwatela also pointed out that document numbers’ failure to tally was not acceptable and that Pattni had no exemption from invoicing in foreign currency, rather than in shillings. “All in all,” she said, “it seems to us that Ms Goldenberg International have generally operated outside the provisions of Exchange Control Notice No. 13.” This must get the prize for understatement of the year.

 Four days later, Mrs Mwatela’s memo was back on her desk. Birech-Kuruna’s tone seemed to have changed. Hand-written at the top were his instructions. He told Mrs Mwatela to acknowledge all Pattni’s CD3s and foreign cash deposits, to approve various CD3s for export compensation, and to “confirm the make-up of the difference in the other CD3s”. In other words, it was now Mrs Mwatela’s task to match up all Pattni’s odd cash deposits any way she could with random CD3s.

 Mrs Mwatela knew this was wrong, wrong, wrong. To cover herself, she wrote another memo to Birech-Kuruna the same day, asking him to confirm his instructions, as well as another instruction she had obviously received when she had been called into Kotut’s office early that morning – that she accept simple local bank deposit slips as evidence that Pattni had received currency from abroad. The need for Pattni to prove receipts from abroad, and for the Central Bank’s “specific acknowledgement” that Mrs Mwatela had insisted on in her first letter to Pattni, had now apparently gone out of the window.

 A clearly annoyed Mrs Mwatela concluded her memo by expressing the hope that her understanding of Birech-Kuruna’s instructions was correct. Her memo soon came back with a curt message scrawled on it by Birech-Kuruna: “I confirm your understanding of this discussion”. Mrs Mwatela had been silenced and Pattni no longer needed to bother about any awkward ‘details’.

Lest We Forget: How Goldenberg Fleeced Central Bank, Part Two

WEDNESDAY, 20 JULY 2011 00:11 BY SARAH ELDERKIN

IN THE DOCK: Former CBK deputy governor Eliphaz Ruingu, Former Treasurer PS Dr Wilfred Koinange and Kamlesh Pattni in court over the Goldenberg scandal.

(The first part of this story appeared in yesterday’s Star)

A few weeks later, in May 1991, another bank, Citibank, wrote to the exchange controller to say they had received a highly unusual request from a company called Goldenberg. They had been asked to accept local cash payments in foreign currency against CD3 forms.

Citibank knew this to be irregular. Their letter said: “Citibank … has to have evidence as to how this currency came into Kenya, namely the foreign currency declaration form with the entry stamp and the passport of whoever brought it in with the relevant entry stamp.” They said they were obliged to comply with these regulations (in force at the time) and had “received no communication from yourselves on this particular exporter and their being exempt from presenting supporting documents”. Citibank asked for a decision in writing.

Citibank received no reply for four months. When it came, it was from Mrs Jacinta Mwatela, who was perhaps making one final desperate effort to put things right. She told Citibank that there were “no special conditions” relating to Goldenberg. “You should therefore ensure that all payments received are properly documented and accounted to this control in the normal manner,” she said.

Somehow, Mrs Mwatela’s letter had no effect. Goldenberg continued to ‘export’ its ‘gold and diamonds’ and to collect its export compensation.

Goldenberg’s goods were allegedly exported to two firms – one which appeared in Kamlesh Pattni’s ‘invoices’ as ‘Solitaire’, with offices allegedly in Zurich and Geneva, Switzerland, and the other allegedly World Duty Free, in Dubai.

The latter, owned by a Mr Haji Ibrahim, was the same company that owned and ran the duty-free complex at Jomo Kenyatta International Airport in Nairobi. World Duty Free subsequently said they had never had any dealings whatsoever with Goldenberg, let alone importing from them any gold or diamond jewellery.

Meanwhile, someone interested in halting the Goldenberg gravy train had already made an inquiry about ‘Solitaire’ to the Swiss embassy in Nairobi, on March 7, 1991. The reply the following day, signed by Mr F Seydoux, then the Swiss ambassador to Kenya, said, “Unfortunately, there is no company registered under that name in our book.”

A March 7 fax to the Swiss Office for Trade Promotion in Lausanne, Switzerland, prompted the response that, “We can unfortunately not find any firm named Solataire or Solitaire which is situated in Zurich or even Switzerland.” A second fax from the same office the next day said they had further checked with the Swiss Commercial Registry whether Solitaire might be a recently registered company. Nothing. Zilch.

Solitaire, the purported Swiss company to which Pattni claimed to have exported millions of dollars-worth of gold and diamonds, did not exist.

As far as Dubai was concerned, Pattni’s bogus CD3 forms claimed to have exported the staggering total of nearly Sh13 billion-worth of gold and diamond jewellery, worth to Pattni and his pals a cool Sh4.5 billion in export compensation.

According to the 1988 edition of ‘Customs Ordinance 1966’, issued by the Dubai government, Dubai customs officials were obliged to levy an import duty of one per cent on “jewellery made from precious metals and precious or semi-precious stones”. Pattni had only to be asked for proof of payments of this tax to expose his nefarious activities. However, no one was interested in doing such a stupid thing as asking him to prove anything. Why would they? They already knew Pattni’s claims were all bogus.

Apart from the fact that Kenya has no diamonds, and therefore no diamond-cutting facilities, there is no diamond trader in the world who will buy diamonds without having seen them. Diamonds are graded according to four values – cut, carat (weight), colour and clarity. It is an extremely sophisticated business, with every single diamond subjected to microscopic inspection. Pattni, however, wanted the world to believe that he was selling diamonds like a sack of potatoes. That he was able to get away with his outrageous claims is testament to how deeply people all along the line were involved.

And his pals had in the meantime apparently thought up another lucrative angle to the whole thing. In December, 1990, another “incentive facility”, in the form of “pre-shipment finance” was introduced by the government. Under this scheme, exporters could apply through their banks to the Central Bank for what was essentially a loan, to tide them over until they got paid for their exports.

Under the scheme, Goldenberg applied for and received through Delphis Bank Sh185,816,800, said to relate to a gold-and-diamonds shipment due to be exported on March 30, 1992. Delphis Bank was the former Bank of Credit and Commerce International (BCCI), taken over by Ketan Somaia (also often represented as a front man for Moi) after massive international fraud by BCCI.

Pattni then wrote to Delphis to say that, unfortunately, the March 30 shipment had been delayed until June 30, due to “slow movements of goods in the international market and also due to the coming Easter season”. Pattni enclosed a copy of a letter to this effect from his ‘client’, a company by the name of Servino Securities, also purportedly based in Geneva. Pattni therefore requested another 90 days’ credit for the pre-shipment finance money he had borrowed.

Servino Securities did not exist. Enquiries to the Swiss authorities elicited a reply from the secretary of the of the canton (district) of Geneva saying: “I regret to have to inform you that there is no company Servino Securities Inc registered with the Registry of Commerce in Geneva.” The Swiss Office for Trade Promotion sent a similar response.

But wait – what of the Sh185 million pre-shipment finance? It transpired that Pattni had used the non-existent Servino Securities to bolster his excuse for the three months’ extension on that loan, so that he could buy a huge amount of the Forex-C (foreign exchange certificates) recently introduced by the government in another money-making scheme for those in the know. The Forex-Cs could be bought, kept for a short time, and then sold at a higher rate. March that year saw a huge leap in trade on that market, with a big jump in the “premium” paid for dollars bought over and above the bank rate.

It was the death knell for the economy. There was so much money out there that inflation began to build alarmingly. All prices rose. And with that, suspicions started to grow. The first press reports questioning Goldenberg’s activities appeared. They were dry financial reports (it is indeed a very complex banking story) and they didn’t make much impact on the public. But in the corridors of power, as they say, the alarm bells had started to ring.

It was a race to come out in public defence of Goldenberg. First off the mark was Dr Wilfred Koinange, of vice-president and minister for finance George Saitoti’s office, who issued a statement denying any irregularities in Goldenberg’s case. The 35 per cent compensation was “an incentive”. (Yes, we noticed that. Quite an incentive.)

Following hot on Koinange’s heels came the Central Bank, which claimed there was nothing wrong with giving Goldenberg pre-shipment finance, and in fact, anyone else could apply for it too. (To my knowledge, no one else ever got it, except, curiously, a suspect fishing concern.)

Panting behind in third place was mines commissioner Collins Owayo, declaring that all Goldenberg’s exports had been “examined, valued, verified and sealed by an officer from the mines and geology department in the presence of a customs officer, who also put the customs department seal”. (Yeah, right. And the destination was?)

Not to be outdone, Goldenberg itself, the following day, said its detractors were “smugglers” who wanted the market all to themselves. Goldenberg, never one to keep quiet when a blatant lie would do, declared that “Kenya has got the potential and capacity to become a major international gold and diamond trading centre. In fact, Goldenberg International is assisting in this respect.” (Allow me to say here, Mr Pattni, on behalf of all grateful Kenyans – thank you so much.)

Eventually, the matter reached parliament. Then-Saku MP Jillo Falana tabled several documents on June 2, 1992, showing that the Swiss companies were bogus and that Goldenberg had received Sh1.14 billion in export compensation for goods that never existed.

An assistant minister in Saitoti’s office, Mathias Keah (now deceased), promised to rebut these claims. On June 18, Keah made a long ministerial statement on Saitoti’s behalf, exonerating everyone. Falana responded by promising a motion to censure Saitoti for “perpetually condoning and defending corruption”.

It was clear that Falana had to be stopped. When the House resumed after the three-week recess that followed, Keah immediately tabled the 1990-91 Controller and Auditor-General’s Report, which had plenty to say about Goldenberg. The report went straight to the Public Accounts Committee. Parliamentary rules decreed that all matters it touched on were now immune from discussion until after the PAC had made its own report. Like Mrs Mwatela, Falana had been silenced, and debate on Goldenberg had been stopped in its tracks. The censure motion against Saitoti was withdrawn.

Controller and Auditor-General Mr DG Njoroge had included some interesting details in his report. It turned out that finding ways of paying Goldenberg the full 35 per cent export compensation had proved problematic, because, although Saitoti had approved the higher level of payment, the law said it had to be approved by parliament. Njoroge explained that, because of this, Treasury PS Charles Mbindyo had eventually sought Saitoti’s approval, which had been granted, for Goldenberg to be paid at the normal parliament-approved 20 per cent rate, and then get a further 15 per cent ex gratia payment direct from the Treasury. Astounding! Remember, we are talking hundreds of millions here. Where did the money come from? Did the Treasury have a slush fund?

Njoroge identified the source of some of the money. He said parliamentarians had actually approved a Sh160 million “customs refund” to Goldenberg in the supplementary estimates of 1990-1991, without knowing that the money was “intended to cover the illegal 15 per cent additional compensation to the private company”.

According to Njoroge, the illegal 15 per cent payments amounted by January 31, 1992, to more than shs. 252 million, and “the validity of the payments of the normal 20 per cent export compensation totalling K£15,852,087 [Sh337,041,740] cannot also be confirmed in terms of the Local Manufacturers (Export Compensation) Act, Cap 482”.

It was all there in Njoroge’s report. Almost Sh600 million illegally paid to Goldenberg by January 31, 1992. Still nothing was done. But the conspirators knew they needed to get this story out of the public eye. It was time to take a step back – back, in fact, to the third of Pattni’s three original requests to Saitoti, that he be permitted to set up a “finance house”.

And so it happened. Exchange Bank was incorporated that same month, June 1992. The bank’s list of directors was headed by Pattni, as chairman, and Kanyotu. The bank provided the means to hide all the irregularities in one place and behind closed doors. It took over all Goldenberg’s crooked deals and, in addition, came up with some new ideas on how to continue destroying the economy.

Meanwhile, the bogus exports continued. Later that year, new finance minister Musalia Mudavadi announced that Goldenberg had earned Sh9.4 billion in foreign exchange. CD3 forms in fact showed a much higher figure, including the shs.13 billion in bogus exports allegedly to World Duty Free in Dubai alone. But even Mudavadi’s figure meant that Goldenberg had raked in Sh3.2 billion in export compensation.

Astonishing! Public money – freely given away to a group of people lacking even the most basic of human decency. And Sh3.2 billion 20 years ago would be worth many times that today. Imagine what that money could have done in health care, education, irrigation. Instead, it went into the pockets of Pattni and his pals.

Interestingly, the Sh9.4 billion referred to by Mudavadi appeared nowhere in the annual economic report, the Economic Survey, which lists all the country’s economic activity. It was not under the Switzerland section, nor the Middle East. It appeared nowhere, for one simple reason: it did not exist.

How much money is enough? Not Sh3.2 billion, obviously, because Pattni and co were still thinking up new ways to get more.

And in late 1992, the government came up with another of its wonderful ideas. This one was called the Export Retention Scheme. Under this, instead of being obliged to remit their foreign exchange to the Central Bank, exporters were allowed to keep some of it in special accounts, saving them the bother of having to go through the hoops of applying to the Central Bank when they needed foreign exchange.

It also meant, of course, that they could hoard the foreign exchange and then sell it to the Central Bank when the dollar rate was very high. Once again, this meant that the poorer the value of the shilling, the greater the chance of a financial killing.

The interesting thing is that the industries most likely to benefit from this scheme, those that had a lot of foreign exchange to mop up – such as tourism – were not allowed to participate. Some of the other high-earning industries – such as those in coffee, tea and horticulture – were permitted to keep foreign exchange, but they were allowed to keep only 50 per cent of what they earned in foreign currency.

But guess what? Goldenberg was allowed to keep 100 per cent. And from December 1992 to February 1993, just two or three months, Goldenberg amassed some $75 million, worth at the time Sh6 billion. It all went into Exchange Bank, ready for offloading at the most favourable time.

Meanwhile, the Central Bank had given out about Sh7 billion in pre-shipment finance, most of it to Exchange Bank, to which the Central Bank had also made other large advances. Other politically connected banks had also got in on the act, including Trade Bank, Panafrican Bank, Postbank Credit, Transnational Bank and Delphis Bank – all of whose directors had close connections with high-ranking politicians.

Not only that. The Central Bank was buying foreign exchange from selected people at a rate higher than the market rate advertised. Finance minister Mudavadi said as much in his budget speech of 1993, as well as admitting that the pre-shipment facility and credit advances to ‘political’ banks had caused an increase in the money supply. When the money supply increases, you have a situation where too much money is chasing too few goods. The value of money falls and the price of everything rises. This is inflation, and it spiralled out of control in the second half of 1992.

Due to all the flagrantly iniquitous activities described above, the money supply in 1992 had grown by Sh25,000,000,000 – that is, 25 billion shillings. Inflation rose to over 40 per cent. It was a situation deliberately caused by a cynical, perfidious group of people.

By now, the sums of money involved were so enormous that even the conspirators were scratching their heads. It had all been so easy, like taking candy from a baby, as they say, but it had all got rather out of control. Now the IMF and the World Bank were beginning to ask questions.

A new and cunning plan was therefore evolved, under which the extra money circulating, the Sh25 billion, would be moved around among the ‘political’ banks overnight so that it kept appearing somewhere else and it could be made to look as if the large sums of money advanced by the Central Bank were being repaid. But this had only very short-term success, occurring for just five days in April 1993. The IMF and World Bank soon cottoned on to what was happening and pressure grew.

Somehow, all this extra money had to be mopped up and taken out of circulation. Time, perhaps, for another scam? Ah, Treasury Bills. The government sold these to interested parties, who held on to them for the prescribed period and then sold them back to the government at a higher price. It was in a way like having your money in a deposit account and earning interest on it.

The by now rather desperate financial authorities began offering the massive volume of about Sh5 billion-worth of short-term Treasury Bills every week, at interest rates of up to 70 per cent per annum.

And there’s no stopping these Goldenberg types and their pals. They can always see another scam. Now, they thought – what if they also scammed this mop-up operation, by telling the Central Bank that they were expecting a few hundred million dollars from overseas, and asking for free Treasury Bills to be issued to them, to be paid for later when the foreign exchange arrived?

In a sweet, neat twist at the end, Pattni’s Exchange Bank used the money thus acquired to pay off Pattni’s pre-shipment finance and other advances from the Central Bank. In other words, it paid back what it owed to the Central Bank with the Central Bank’s own money – using one scam to pay off another.

Kamlesh ‘Paul’ Pattni is the man who thinks he can be president of this country, or if not president, perhaps an MP – an idea that has about as much appeal to us as investing in Tripoli.

When the Goldenberg case all began unravelling and the story began to come out, Saitoti had one of the last words. He declared that no probe would touch him. “I want to tell everybody,” he said in parliament, “that none of the investigations will implicate Saitoti.” That, to his chagrin, did not quite turn out to be the case.

Goldenberg - The Aftermath

THURSDAY, 21 JULY 2011 00:06 BY SARAH ELDERKIN

CHARGED: Elijah Bii, Eliphaz Riungu, Wilfred Koinange and Kamlesh Pattni at the High Court for the hearing of their Goldenberg case.

Tying courts in knots and keeping sinners off the hook

My account of the Goldenberg scandal, an abridged version of which has appeared in these pages over the past two days, was originally published in August 1993, in the Daily Nation (as it was then). The political climate was very different in those days, and press freedom very much more limited. To criticise anyone in high office was a scary and worrying thing to do, and it was brave of the Nation to publish the story, which appeared in page-long instalments on eight consecutive days.

The first instalment ended at the point where then-vice-president and minister for finance George Saitoti had approved the granting of sole gold export rights and 35 per cent export compensation to Kamlesh Pattni. I had written that this was illegal – something that had, in fact, already been stated by then-controller and auditor-general DK Njoroge in his 1990-91 report. A furious Saitoti immediately called a press conference, which was widely covered in the newspapers and on television. He was spitting fire, and in a long harangue denied playing any part in Goldenberg’s activities. He criticised the story as “written in a manner to mislead and misinform the public”, and said that certain facts had been distorted or omitted, to build a case against his “person as vice-president”.
He said he was not a clerk in the Central Bank to sort out CD3 forms, that he was not responsible for Goldenberg documents and that the matter would be dealt with by the public accounts committee.

Thereafter producing a pile of documents, Saitoti added that he was convinced that Goldenberg International had exported the minerals unless proved otherwise. Consignments had been checked by mineral experts, ensuring that the value declared in the CD3 forms was correct, and no export compensation had been paid without confirmation from the Central Bank that it had received the foreign currency.
As we have seen, most of this was nonsense. The CD3 forms were not correct, the ‘minerals’ had not been inspected, gold and diamonds had not been exported, foreign exchange from abroad had not been received by the Central Bank (CBK), and export compensation had been paid without CBK confirmations. And Saitoti didn’t mention anything at all about where the extra 15 per cent export compensation he had approved had been coming from.

He accused me of omitting to state that “a minister acts on the basis of the technical evaluation which is brought to him and has no reason to doubt recommendations from senior government officials”.
But would it be a minister’s job just to sign bits of paper without bringing some brainpower to bear on the issue? Isn’t that what they call rubber-stamping? If someone brings a document to a minister promising to export huge amounts of gold and diamonds, which the minister knows full well do not exist in Kenya, is it not the minister’s duty to question this, regardless of what his sidekicks say?
Saitoti went on to denounce me as a “Ford-Kenya activist” working closely with that well-known anarchist, I mean economist, Robert Shaw, and said I was “a key player” in “a widespread conspiracy aimed at weakening and re-arranging the government composition”.
Well. It is true that I and Robert Shaw, whom I consulted on arcane matters of banking procedure and who helped me to understand the import of some of the documents, together with Paul Muite, who had passed on to me the original file of Goldenberg documents, were all officials in Ford-Kenya, then led by Jaramogi Oginga Odinga, who was also leader of the parliamentary opposition.

It was only about eight months after the 1992 general election, which had returned the country to multi-party democracy. Things were still very tense, and Kanu diehards, such as Saitoti, had not yet got their heads round the fact that there was now an opposition party in parliament, it was perfectly legal to be part of it, and aiming to replace the government is what an opposition party does.
But Saitoti’s accusations were in any case a red herring, designed to discredit me and therefore the story. The Goldenberg exposé was not about bringing down the government. It was about exposing and stopping a terrible fraud that was destroying the country – whoever was involved.
The tortuous twists and turns of the many court cases that have been instituted against Goldenberg players over the past nearly 20 years would fill a book, and cannot be done justice to in a newspaper article. It is indicative of the vested interests that none of the major players has been convicted.

At first, very little happened. Then the Law Society of Kenya early in 1994 filed a private suit against CBK governor Eric Kotut, finance permanent secretaries Charles Mbindyo and Wilfred Koinange, mines commissioner Collins Owayo, commissioner for customs and excise Francis Cheruiyot, and Goldenberg’s Kamlesh Pattni.

On March 9, 1995, Langata MP Raila Odinga filed another private suit, naming vice-president (but no longer finance minister) Saitoti, along with Pattni and others. Raila was represented by current immigration minister Otieno Kajwang and the suit stated that vast fraud had been committed when shs.18 billion had been paid to Pattni in export compensation for goods never exported – if they existed at all – and that Saitoti had authorised payments at 15 per cent higher than the legal rate.

Saitoti was summonsed to appear in court on March 28, 1995. But before that could happen, attorney-general Amos Wako stepped in and quashed the case with a nolle prosequi, on the somewhat flimsy grounds that Raila had not notified him properly about it.
The next suit came on May 30, 1994, involving Pattni, former CBK employee Lazarus Wairagu and former CBK deputy governor Eliphaz Riungu, who were charged with stealing shs.13.5 billion from the CBK paymaster-general’s account. That suit was withdrawn.

On October 5, 1994, Pattni and five others appeared in court facing 22 counts of theft from the CBK involving shs. 5.8 billion. That case was eventually halted in 1999 after 25 witnesses had testified.

On July 3, 1995, with Riungu and former assistant principal in the CBK foreign department Michael Wanjihia, Pattni was again charged with stealing shs.13.5 billion from the CBK paymaster-general’s account. The trio faced 93 counts, which were reduced to 15 by a constitutional court and then suspended. On November 9, 1998, Pattni appeared in court charged together with his lawyer, Bernard Kalove. The case was stopped by the High Court.

In February 1999, Pattni was charged with fraudulently obtaining 322 million in export compensation. He faced seven counts and bail was opposed. He was freed and the case never started.
On March 26 the same year, Pattni was charged with fraudulently obtaining 16 million in export compensation. There were 27 counts and Pattni was allowed out on bond after the High Court intervened. Wako later dropped the case.

All cases against Pattni were suspended when in 1999 he challenged his trial in a constitutional court. At least two cases instituted by the attorney-general were withdrawn without any reason being given.

The Bosire Commission of Inquiry later noted in its 2006 report that “the record shows reluctance on the part of both the attorney-general’s officers and counsels for the accused persons to proceed. Many needless applications for adjournment were made and granted. The parties seemed to move in circles and at a snail’s pace. There was, in short, extreme lethargy in the prosecution of these cases.”
That was a mild way of putting things. Over the years, every case, not only against Pattni but against any of the other big fish involved, has been either withdrawn or procedurally delayed, to the point of bogging down the entire affair in utter confusion.

Meanwhile, a whole host of other cases involving Pattni had cropped up, one involving ownership of the Grand Regency hotel in Nairobi, acquired by Pattni with Goldenberg funds and years later the subject of yet another furore over its questionable sale to Libyan interests.
Another was between Pattni and businessman Ketan Somaia, concerning ownership of a whole list of Kenyan companies, including Delphis Bank, Marshalls East Africa, United Touring Company and Block Hotels.

Yet another concerned ownership of the duty-free complex at Jomo Kenyatta International Airport, to the owner of which, World Duty Free, Pattni had earlier claimed he exported gold and diamonds in Dubai, something proprietor Mr Ibrahim Haji denied. Pattni now claimed to have bought the duty-free complex for shs.13.5 billion (where have we heard that figure before?). Ibrahim said he hadn’t.

Ibrahim wanted to give more evidence on Goldenberg but he was blocked from doing so, and then he was deported after he named Moi, Gideon Moi, and Moi’s personal assistant Joshua Kulei of blocking him. Ibrahim also named former MP Nicholas Biwott, current co-operatives minister Joseph Nyagah, former CID director Noah arap Too, former foreign affairs minister Moses Wetangula, then Court of Appeal judge Effie Owuor, then Co-operative Bank chairman Hosea Kiplagat, and Gideon Moi’s personal assistant Mukesh Gohil.
As expected, a number of suits arose out of that one, and then in September 2001, Mr Justice Tom Mbaluto ruled that the duty-free complex belonged to Pattni. Ibrahim went to court in The Hague to sue the government to get it back. Ibrahim was represented by Muite, who was himself suing Pattni for saying Muite had received a shs.20 million bribe over Goldenberg in 1993. And so it went on, a farcical circus that succeeded in tying the courts in knots and keeping everyone involved off the hook.

It was only after the Narc government came to power in 2002 that something concrete happened. On February 24, 2003, President Mwai Kibaki appointed Mr Justice Samuel Bosire to head a commission of inquiry into the Goldenberg affair. By then, not a single case instituted by the attorney-general from 1994 had been concluded, and now the formation of the commission of inquiry terminated all of them.
The commission’s far-reaching report was presented to Kibaki three years later, on February 3, 2006. It contained numerous findings, most of them comprehensively damning to the players concerned.
On Pattni, the commissioners concluded that:
• “From the beginning, Mr Pattni was responsible for everything which went on.”
• “The manner in which the alleged exportation was set up was such as to show that the conspiracy to defraud the Treasury, the CBK and the Kenya Government was in his mind from the beginning.”
• Pattni’s export compensation claims were “all fraudulent, and the obtaining of money by these means was theft”.
• “...Pattni had to admit that all the documents ... were not correct, and the conclusion is therefore that these were forgeries which Pattni produced or authorised.”
• “Pattni is therefore shown conclusively and largely on his own admissions and documents to be a perjurer ... a forger, a fraudster and a thief.”

The Commission exonerated Musalia Mudavadi, who had succeeded Saitoti as finance minister and under whose tenure the shs.5.8 billion had been paid to Goldenberg from the CBK paymaster-general’s account. Former finance PS Koinange testified that Mudavadi had never been informed about the payment.

The report also noted that, on becoming finance minister, Mudavadi had discontinued the export compensation scheme, the export retention scheme and the Forex-C scheme – all of which had been so lucratively misused by Pattni and his pals. The report said Mudavadi had “almost single-handedly opposed the payment to Goldenberg International Ltd of shs.2.1 billion which had been recommended by the public accounts committee”. The Commission concluded that “it is our view that whatever role he might have played in the Goldenberg affair was innocent”.

The Commission said it could not establish the specific roles played by some people but among those of whom it recommended further investigation were Moi and Kulei. Among those who had adversely mentioned Moi were Pattni, former head of the civil service and PS in the office of the president (in Moi’s time) Prof Philip Mbithi, Koinange and two other former finance PSs, Joseph Magari and Benjamin Kipkulei.
Mbithi and Koinange both testified that Moi had told them on the telephone to make the shs.5.8 million payment to Goldenberg. The report noted, however, that, “There is the possibility that what they said against Moi was an attempt to extricate themselves from blame by shifting blame elsewhere. None of them registered his objection to the payments, as their subordinate officers repeatedly did.”
Saying it had “agonised over whether or not to recommend prosecution”, the Commission listed those it considered “in one way or another, responsible for those acts and omissions, for the attention of the Hon Attorney-General for any possible criminal or civil action”.

The list comprised Pattni; former Special Branch head James Kanyotu (now deceased); Saitoti; former finance PS Charles Mbindyo; Koinange; mines commissioner Collins Owayo; former Central Bank governor Eric Kotut; Cheruiyot; Riungu; former general manager of the Kenya Commercial Bank Elijah arap Bii; assistant principal of the CBK banking division Tom Kilalya Werunga; Wanjihia; former CBK financial controller and director of banking supervision Job Kilach, and one Arthur Ndegwa.

Ten days later, in a televised address on February 13, 2006, Kibaki announced Saitoti’s resignation as education minister.
Saitoti then filed suit to have his name expunged from the Bosire report. Kibaki appointed a three-judge constitutional court to hear the case, and Justices Joseph Nyamu, Roselyn Wendoh and Matthew Emukule gave their ruling on July 31, 2006.
Briefly, the three judges exonerated Saitoti of all wrongdoing, his lawyers apparently having convinced them that the additional 15 per cent export compensation granted by Saitoti to Pattni was done procedurally. This was in direct contradiction of the Bosire report, which had found that what Saitoti had done was beyond his powers under the law and “in our view his action was deliberate and calculated”.
The court also ruled that the attorney-general could never again charge Saitoti in connection with the Goldenberg case. This was because of so-called ‘double jeopardy’, which is a legal defence that prevents any person, after a legitimate acquittal or conviction, from being tried a second time on the same charges.

Saitoti’s lawyers convinced the judges that Saitoti’s having had to answer some questions on Goldenberg in parliament constituted a ‘trial’, so he could not be tried again. A similarly thin argument was used about the nolle prosequi entered in the case Raila had tried to bring.
On August 6, 2006, lawyer Paul Mwangi, writing in the Sunday Nation, described the judgement by the constitutional court as “the most dangerous legal precedent in Kenya’s modern history”.

Two days later, attorney-general Amos Wako issued a press statement. Saying that the constitutional court’s judgement “appears to have turned the well-known and settled principles of constitutional, administrative, criminal law and legal jurisprudence topsy-turvy”, Wako noted that the National Assembly was not a criminal court, and it did not try, acquit or convict anyone. Under Section 77 of the Constitution, only an impartial and competent court could determine guilt or innocence.

Wako also noted that Section 82 of the Criminal Procedure Code states that a nolle prosequi, as entered by him in Raila’s suit, is not a bar to subsequent prosecution or charge. Double jeopardy therefore did not arise, and the order of prohibition against the A-G was “premature and speculative”.Wako further said that “contrary to the well-settled principles of judicial review”, the judges had ruled that they could review and re-evaluate the Bosire Commission’s findings “as if the Bosire Commission was a trial court and they were the appellate court”.
He said that, in doing so, the constitutional court judges had arrogated to themselves power that they did not hold.
Wako said that he would file an appeal against the ruling, concluding rather limply by saying that this was not about prosecuting Saitoti, which he anyway could not do because he had “not received an investigation file on the matter”.
And there it stayed. That was the last substantive thing we heard on the matter from Wako. On November 15, 2006, Saitoti was reinstated as education minister.

Since then, all the various Goldenberg shenanigans have dragged on inconclusively– most recently with Pattni, Koinange and Bii in court on April 7 this year, when Pattni’s lawyer Kalove said they required one month to answer a letter from Wako seeking a proposal from Pattni concerning a plea bargain in the shs.5.8 billion criminal case.

I did not know it until many years after I wrote the 1993 articles for the Nation, but the file I had of Goldenberg documents, painstakingly put together, had come directly or indirectly from David Sadera Munyakei, a Central Bank employee who had noticed the Goldenberg irregularities, raised them with his seniors and been told that, if he knew what was good for him, he had better shut up. Munyakei was not deterred and he smuggled the file out of the Bank, from whence it came into Muite’s hands and then into my own.

Whistleblower Munyakei apparently betrayed himself to his CBK colleagues when he openly expressed his joy as the Nation stories began to appear. He had thought the government would be delighted to find out what had been happening, and would punish the Goldenberg wrongdoers. He was sadly disappointed. Munyakei was arrested and charged with communicating confidential documents to unauthorised persons and remanded. The CBK dismissed him on September 29, 1993, with three months’ pay in lieu of notice.

Munyakei testified before the Bosire Commission and was subsequently given an Integrity Award by Transparency International for his selfless act of courage. The justice minister at the time, Kiraitu Murungi, publicly directed that Munyakei be reinstated in his job, but this never happened, and Munyakei’s life fell into a downward spiral. He died a broken man, of pneumonia, in July 2006, after living for some years in poverty and relative obscurity in Narok. He was 38 and left a wife and three daughters.
Munyakei was a tragic victim of Goldenberg, and of a heartless system and misguided public that has no time or place for real heroes, only for big-gun political celebrities who fashion themselves as demigods. Munyakei’s amazing role leading to exposure of the Goldenberg scandal was never recognised as it should have been.

He was an extraordinary, noble, sincere, patriotic man, a modern-day hero who acted for the good of his country, and I would like here to pay homage to him. Munyakei’s story is told in the book The True Story Of David Munyakei, by Billy Kahora.
Everyone is now deeply tired and punch-drunk with this whole Goldenberg affair. There are tens of other related issues we have no space to mention, and the whole thing has at different times consumed this nation for nearly 20 years.
If anything, that is the reason it should be brought to a proper and just conclusion, otherwise all that effort and expense will have been wasted. To say we should now abandon it, and allow those who destroyed this nation’s well-being and stole such a colossal, unimaginable, amount of money to go unpunished, is to chicken out of a solemn duty.

Those in charge should get a grip, get themselves organised, and do what is morally right. Only then can we be sure that something like Goldenberg can never, ever happen again.
The writer is a freelance journalist