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Viewing cable 08NAIROBI1373, KENYA CORRUPTION UPDATE - LOOKING BACK, LOOKING FORWARD
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| Reference ID | Created | Released | Classification | Origin |
|---|---|---|---|---|
| 08NAIROBI1373 | 2008-06-04 12:39 | 2011-03-02 22:00 | CONFIDENTIAL | Embassy Nairobi |
VZCZCXRO6355
RR RUEHRN
DE RUEHNR #1373/01 1561239
ZNY CCCCC ZZH
R 041239Z JUN 08 ZDK - ALL POSTS DUE TO NUMEROUS SVCS
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC 5968
INFO RUEHLMC/MILLENNIUM CHALLENGE CORP
RUEATRS/DEPT OF TREASURY WASHDC
RUEHXR/RWANDA COLLECTIVE
RUEHLO/AMEMBASSY LONDON 2833
RUEHFR/AMEMBASSY PARIS 2758
C O N F I D E N T I A L SECTION 01 OF 04 NAIROBI 001373
SIPDIS
DEPT FOR AF/E, AF/EPS, EB/IFD/OMA
USAID FOR AFR/DP WADE WARREN, AFR/EA CARRIE THOMPSON AND
JULIA ESCALONA
MCC FOR MALIK CHAKA
LONDON AND PARIS FOR AFRICA WATCHERS
E.O. 12958: DECL: 05/29/2028
TAGS: KCOR PREL ECON EFIN KE
SUBJECT: KENYA CORRUPTION UPDATE - LOOKING BACK, LOOKING FORWARD
NAIROBI 00001373 001.4 OF 004
Classified By: Ambassador Michael E. Ranneberger for reasons 1.4 (B)
and (D).
¶1. (C) Summary: The bad news on the corruption front in Kenya is
that the new coalition government has given some of the country's
most egregious thieves a new lease on life and strengthened their
already strong sense of impunity. Meanwhile, Kenya's legal system
continues to stymie vs. deliver justice in cases of corruption. The
good news is that while historical cases of grand-scale corruption
still fester unresolved, greater political and institutional
accountability in Kenya are making it far more difficult to steal
large sums of public resources now vs. five years ago. Two recent
cases, one involving the recovery of a downtown hotel by the Central
Bank, indicate the new coalition government may be trying to recover
stolen assets in exchange for offering amnesty to well-financed
perpetrators of corruption. This could be yet another form of
corruption, but if done transparently, a program of "restitution and
closure" offers a practical way to resolve those historical cases of
grand corruption that will likely forever elude successful
prosecution. End summary.
-----------------------------------
The New Cabinet - A Rogue's Gallery
-----------------------------------
¶2. (C) Somewhat lost in the dramatic political developments of the
past several months is the fact that Kenya remains plagued by
corruption, with government often driven more by callow self-interest
and the need to dole out patronage than by the desperate need on the
part of Kenyan taxpayers for improved public service delivery -- or
any service delivery at all. This fact was driven home when the new,
bloated Grand Coalition cabinet was named by President Mwai Kibaki in
April. Cabinet low-lights include:
-- George Saitoti (Internal Security): A central figure in the
infamous Goldenberg scandal of the early 1990s when he was Minister
of Finance.
-- Kiraitu Murungi (Energy): Participated in or at least tried to
cover up the Anglo-Leasing procurement scandals in the first Kibaki
administration.
-- Musalia Mudavadi (Deputy PM and Local Government): Implicated in
the Goldenberg scandal after succeeding Saitoti as Minister of
Finance in the mid-1990s.
-- Fred Gumo (Regional Development Authorities): Enjoys a reputation
as a thug; also alleged to have illegally acquired and sold GOK
property worth $10 million.
-- William Ruto (Agriculture): Has two pending court cases alleging
the illegal acquisition and sale of land owned by government
parastatals.
-- Sally Kosgei (Education): Also has cases pending in court
concerning the sale of land owned by the Kenya Railways Corporation
when she was the head of civil service under the Moi regime.
-- Henry Kosgey (Industrialization): Believed to have defrauded and
stolen large sums of money from a number of parastatals, including
the Kenya National Assurance Company, during the Moi years.
-- Kipkalya Kones (Roads): Widely believed to have demanded huge
kickbacks from road contractors, contributing to the dilapidation of
Kenya's road system under the Moi Administration.
-- John Haroun Mwau (Transport): A mere assistant minister, but the
list wouldn't be complete without him. Is widely believed to have
amassed a huge fortune from trafficking drugs and other contraband
through his Mombasa-based freight forwarding company, Pepe Ltd, which
he used to help win his seat in Parliament. He is also believed to
stand behind Charterhouse Bank, which was put under statutory
management last year when credible evidence emerged that it was
little more than a massive money laundering and tax evasion
operation.
---------------------------------------------
The Grand Regency: Double Scandal or Victory?
---------------------------------------------
¶3. (SBU) The first big potential scandal to hit the press after the
electoral crisis concerned the disposition of downtown Nairobi's
Grand Regency Hotel. The case is classic smoke, mirrors, and murk,
NAIROBI 00001373 002.5 OF 004
but the essential facts are that Kamlesh Pattni, the central figure
in the Goldenberg scandal, borrowed KSh 2.5 billion (around $40
million at the time) to build the hotel in 1993. Pattni never repaid
the loan, and when the lending bank later went belly up, the Central
Bank of Kenya (CBK) put the hotel under receivership in an attempt to
recover the loan. But the CBK never achieved operational control
over the hotel during the following 15 years of protracted legal
battles waged by Pattni to maintain control over the hotel and its
revenues.
¶4. (SBU) It thus came as a surprise to Kenyans when on April 9, KACC
and Pattni jointly announced that the latter would cede all interests
and control over the hotel and transfer title to the CBK as security
against the original unpaid loan. The KACC hailed the deal as "a
landmark in its assets recovery efforts." The hotel had been valued
at KSh 2.1 billion in 1997 and is believed to be worth over KSh 7
billion today. The KACC said that Pattni did not receive commitments
from the government to drop outstanding criminal investigations in
exchange for ceding the hotel. Pattni, a recently born-again
Christian now nicknamed "Brother Paul," commented to the press: "For
what does it benefit a man to gain the world and then lose his
soul... I can build ten more hotels like this with the wisdom from
God."
¶5. (SBU) It all looked too good to be true, and sure enough,
allegations of scandal hit the press before the KACC could open the
champagne to celebrate its victory. Two allegations emerged: First,
that Pattni himself was paid off by someone in the government to give
up control of the hotel. The second more damning allegation came
from a group of private sector watch-dog lawyers, who claimed to have
evidence that the hotel had already been secretly sold to a Libyan
concern for a throw-away price of KSh 1.6 billion. Given the warming
state of relations between Libya and the Kibaki administration in
recent years (including persistent rumors that Libya contributed
large sums to Kibaki's re-election campaign), the charge had a
certain narrative logic.
¶6. (SBU) True or not, the allegations of a second scandal involving
the hotel had beneficial results. Both the KACC and the CBK quickly
issued statements providing the facts of the case. The CBK pledged
it would dispose of the hotel at the earliest opportunity and that
the sale would be conducted in accordance with the law. Finance
Minister Amos Kimunya followed up by publicly denying the Libyan
connection and stating that the hotel would shortly be sold in a
transparent legal manner to the highest bidder to maximize taxpayer
payback. That said, we have also heard from hotel sources that
Pattni cronies continue to control day-to-day management of the hotel
and are draining it for cash and using it for favors. Parliament has
announced its intention to more fully investigate the case
¶7. (C) Mission comment: As is so often the case, it's hard to know
what really happened here. Pattni's about-face seems too good to be
true, so we suspect there was an attempt at some point during the
process on the part of someone to illegally profit from the deal.
The Libyan connection is speculative, but can't be discounted either.
But in any event, thanks to alert watchdogs and the press, whatever
conspiracy might have been unfolding appears to have been exposed and
nipped in the bud.
-------------------------
Kingpin Kamani Comes Home
-------------------------
¶8. (C) Suspicions that Pattni had made a deal to escape future
prosecution for his crimes were further fueled in mid-May, when the
press extensively reported on the return to Kenya of Deepak Kamani.
Second only to Pattni in terms of infamy for having fleeced Kenyans
over the years (together with GOK officials), Kamani was the private
sector mastermind behind several of the 18 security-related
procurement scams that spanned both the Moi and Kibaki
administrations and collectively became known as the Anglo-Leasing
cases. The term "Anglo-Leasing," in fact, comes from the name of a
company that received substantial payments from the Kenyan government
without delivering any goods or services in 2003-04. Much of the
money was returned after the scandals were exposed in mid-2004. Upon
investigation, Anglo-Leasing turned out to be a paper company without
a physical presence registered in the UK in the name of Kamani's
relatives.
¶9. (SBU) Kamani left the country under a cloud of suspicion in 2006
and was made ineligible for a U.S. visa in May 2006 under Section
212(f) of the Immigration and Nationality Act (INA). At that time,
the KACC was offering a KSh 100,000 reward for anyone who assisted in
NAIROBI 00001373 003.4 OF 004
Kamani's arrest. Eyebrows were thus raised when Kamani appeared in
Nairobi in mid-May and volunteered himself for two days of
questioning at KACC. He had earlier been removed from Kenya's
most-wanted list and he now appears to enjoy freedom of movement
within the country.
¶10. (SBU) Without much evidence, the local press reported almost as
fact what everyone else suspected: That Kamani was working an amnesty
deal under an amendment to Kenya's Anti-Corruption and Economic
Crimes Act passed late last year. The idea, as some believe was the
case in Pattni's surrender of the Regency, would be to return some
ill-gotten gains in exchange for amnesty from all future
investigation and prosecution. In response to the predictable
outcries that this represented yet another example of cash-fueled
impunity, KACC remained tight-lipped, denying in a public statement
that Kamani had been offered amnesty and saying only that he and one
of his brothers are still under investigation for their role in the
Anglo-Leasing scams.
¶11. (C) Mission comment: It's too early to say if the Pattni and
Kamani cases represent a new departure under which the new coalition
government is willing to move beyond historical graft cases like
Goldenberg and Anglo-Leasing by providing some form of amnesty in
exchange for a return of at least some of the money stolen by
perpetrators of corruption. In principle -- although it rankles the
ordinary Kenyan -- plea bargaining, or some system of "restitution
and closure," is probably not a bad way to proceed go given that
prosecution of such cases is virtually impossible in the Kenyan
context (more on this below). Kenya's Attorney General has spoken
publicly about the need for plea bargaining in the Kenyan legal
system as a tool for more efficiently resolving cases and reducing
the huge backlog in the justice system. (Note: The U.S. Mission has
supported the GOK's development of plea bargaining and witness
protection programs as part of anti-corruption efforts. End note).
KACC Director Ringera told Econ/C in late April that as a practical
matter, it's better to get at least some money back from wrongdoers
and to move on than it is to spend years and considerable resources
trying to pursue pure justice through almost always futile
prosecutions.
¶12. (C) Mission comment, continued: This situation bears watching.
If the Pattni and Kamani cases are indeed evidence that the GOK is
moving to plea bargaining or restitution and closure as a way to
close past cases of grand scale corruption, then it is going about it
the wrong way. For the process to be credible and sustainable, it
would need to be far more transparent, organized along the lines of a
truth commission. But KACC's discussions with both Pattni and Kamani
remain well-kept secrets. The public thus remains justifiably
suspicious that what is happening now is just more corruption, as
money changes hands in exchange for immunity.
¶13. (C) Mission comment, continued: John Githongo, Kenya's famous
first (and only) Permanent Secretary for Ethics and Governance in the
first Kibaki administration, proposed a transparent restitution and
closure program to Kibaki's Cabinet before he left the country in
2005 in self-imposed exile, fearing for his life after exposing the
Anglo-Leasing scams. The proposal was shot down and the Kibaki
administration later nearly broke into pieces on the shoals of that
scandal. Githongo's brother told Econ/C in mid-May that John
Githongo had offered to join a Raila Odinga government had Odinga
become president after the elections in late December. His sole
condition was to be given free rein to implement just such a
transparent program of restitution and closure. Odinga is back in
government as Prime Minister, but his commitment to such a program is
not known. Moreover, there are credible indications that Odinga has
close ties and receives support from some of the very corruption
kingpins that would oppose an open system of restitution.
----------------------------
Speaking of John Githongo...
----------------------------
¶14. (SBU) Githongo is planning to return to Kenya shortly, perhaps
as early as June, according to his brother. Githongo was named in
March as the Director of Policy and Advocacy at World Vision, and
will be visiting Kenya in this guise. His brother says Githongo is
moving on, and does not plan to speak about or release any new
revelations about corruption in Kenya. He believes he's done as much
as he can on that front, and wants to "repackage" himself and speak
to the more global issues he now follows closely at World Vision,
such as the plight of poor children and other vulnerable groups in
developing countries.
NAIROBI 00001373 004.4 OF 004
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Ringera: Prosecutions? Impossible!
-----------------------------------
¶15. (C) Econ/C got an earful from KACC Director Ringera in late
April. Kenya's court system stymies justice vs. delivering it,
according to a relaxed but weary Ringera. He said that KACC during
his tenure had forwarded eight cases against then-current Cabinet
ministers to the Attorney General for prosecution. None were pursued
by the AG, who cited different, often feeble, excuses each time for
refusing to take action. Ringera is also being blocked from
obtaining evidence overseas in the Anglo-Leasing cases by the lawyers
of Anura Perera, the other private sector mastermind, along with
Kamani, of the Anglo-Leasing deals. (Note: Perera is also ineligible
for a U.S. visa under Section 212(f) of the INA. End note).
Realizing that they can't block mutual legal assistance actions in
European courts, Perera's phalanx of lawyers have taken KACC to
Kenyan courts twice and won injunctions barring KACC from cooperating
with foreign counterparts such as the UK's Serious Fraud Office.
Ringera said the latter is believed to have damning evidence against
Perera, but he is barred from receiving it by the court order.
Ringera has appealed against this apparent travesty of justice, but
sighed and said he'll be out of office by the time the appeal is ever
heard.
¶16. (C) On a roll, Ringera said he is also hobbled by the outright
hostility towards pursuing corruption cases on the part of the
Department of Public Prosecutions (DPP), led by Keriako Tobiko. This
may be as much about turf and institutional rivalries as anything
else (KACC officers are far better paid and resourced than DPP
prosecutors for starters), but the net result for Ringera is an
utterly dysfunctional justice system. He has essentially given up on
the idea of prosecutions and favors "restitution and closure" as a
way to resolve outstanding cases of grand-scale corruption. Ringera
says he will not seek to renew his contract when his five-year term
ends later this year.
-----------------------
Yes, There is Good News
-----------------------
¶17. (C) The good news in Ringera's view is that although the current
coalition arrangement will strengthen impunity in historical cases of
grand scale corruption cases (many of the perpetrators are in
Cabinet), there are likely to be far fewer new such cases going
forward. Ringera cited the investigative prowess of KACC itself as
one factor in discouraging corruption, along with improved
procurement processes in government. (Note: USAID and the Millenium
Challenge Corporation Threshold Program are providing ongoing support
to procurement reform in Kenya. End note). Another factor,
reflected in conventional wisdom, is that the current structure of
the coalition government will discourage any attempts to pilfer large
sums of public resources. The logic: That both camps within the
coalition will quickly blow the whistle on the other if corruption
occurs, creating an informal form of prevention and accountability
that might be absent in a more unified government.
¶18. (C) Mission comment: We agree with Ringera that the
opportunities and incentives to engage in grand-scale corruption are
much diminished in 2008 vs. five years ago, and that this is a
significant improvement on the broader governance front. Indeed,
since the Anglo-Leasing revelations of 2004-06, we've neither seen
nor heard of any major cases of grand-scale corruption other than the
recent allegations surrounding the Regency sale. In the context of a
coalition government and a pretty vigilant civil society and press,
it's simply too hard to keep a secret these days. Unfortunately, by
utterly failing to prosecute or otherwise satisfactorily resolve past
cases of mega-corruption like Goldenberg and Anglo-Leasing, and by
tolerating the petty corruption that Kenyans and businesses still
face daily in most encounters with GOK officials, Kenya still manages
to retain its reputation for corruption.
Ranneberger