How far can a bank go when vetting a customer seeking a loan, and where does a legitimate background check end and a breach of confidentiality begin?
These questions have emerged in a Sh1.5 billion legal battle between transport company New Mega Africa Ltd and Absa Bank, with the firm accusing the lender of mishandling its financial restructuring and leaking confidential information to third parties. It says this resulted in the loss of business and disrupted its operations transporting clinker between Kenya and Uganda.
The case has also featured allegations of bribery, blackmail and demands for shareholding through proxy partners, with the company accusing bank officials of going beyond legitimate checks in their dealings with the firm and third parties.
The company has sued the bank over alleged data breaches and is asking the court to award it Sh1.5 billion in damages for loss of income, goodwill, fixed assets and other costs it says resulted from the alleged breach and disruption of its operations.
Absa Corporate Credit Manager supporting business banking Wycliff Makori was pressed to explain M-Pesa transactions worth more than Sh100, 000 between him and New Mega Africa Ltd director David Abai.
The transactions, according to the company, coincided with dates when its loans were approved or funds disbursed.
“I had financial dealings with Mr Abai on a personal basis. He is a personal friend, and my wife also received money from him. I did not disclose this financial relationship between us to the bank,” Mr Makori told the court.
He said the transactions were unrelated to the company’s loan facilities and arose from a longstanding personal friendship with Mr Abai, dating back to their days at Ecobank Mombasa and their shared background at Bungoma High School.
Mr Makori also defended his handling of the company’s 2021 restructuring request, saying he did not support it initially because New Mega Africa had failed to provide information previously requested by the bank to facilitate the approval process.
He said the bank’s business support team eventually approved the restructuring, subject to the company beginning to repay its arrears through monthly instalments of Sh1.6 million after the first drawdown.
“The final decision rested with the business support personnel,” Mr Makori said, maintaining that his role was limited to making a recommendation.
The banker gave separate explanations for each of the M-Pesa transactions flagged by New Mega Africa, insisting they were personal dealings with Mr Abai and unrelated to the company’s loan facilities.
On the Sh100,000 sent to his wife on April 22, 2020, Mr Makori said it was a refund for cash he had given Mr Abai in March 2019 to repair his car wash in Maasai, Nyali.
He said the two families were friends and that he had advised Mr Abai to send the refund to his wife.
He denied any link between the payment and the processing or disbursement of the company’s loans, saying the WhatsApp messages relied on by New Mega Africa did not establish such a connection.
For the Sh40, 000 received on November 27, 2020, Mr Makori said it was part of the repayment of a Sh150, 000 personal loan he had given Mr Abai to repair an earthmover operating in Kwale.
He said he had received a Sh2 million personal loan in September 2020, leaving him with about Sh750, 000, and that Mr Abai subsequently asked to borrow Sh300, 000. He could only raise Sh150, 000, which he gave Mr Abai in cash. The money was later repaid in instalments through cash and M-Pesa.
“There is no indication that the money was sent to me in connection with the Tororo payment as alleged or at all and/or that the said sum was a bribe or inducement to processing of loan amounts to the Plaintiff or for any other irregular purpose,” he said.
Mr Makori said the Sh30, 000 received on September 15, 2020, which the company described as a “Buzz Afrique refund”, was also part of the repayment of the Sh150, 000 personal loan.
He said the company’s claim that he had induced Mr Abai to lend Sh820, 000 to Buzz Afrique was contradictory, since he could not have encouraged the lending and at the same time received a refund for it.
On the Sh40, 000 received on December 23, 2020, Mr Makori said Mr Abai had called him while he was on leave, saying he was experiencing financial difficulties. He said he sent him Sh20, 000 from his bank account, which was repaid together with the Sh20, 000 outstanding from the earlier loan.
He denied that the Sh40, 000 was connected to invoice discounting.
The final transaction, involving Sh27, 000 received on April 8, 2021, was, according to Mr Makori, a contribution towards a church harambee at which Mr Abai had agreed to be a guest of honour.
Mr Makori denied that any of the payments were linked to loan approvals, disbursements or inducements.
“There is no indication that my colleagues and I requested kickbacks before processing of loan facilities to the Plaintiff,” he said.
He also denied that he and his colleagues deliberately delayed New Mega Africa’s loan applications, blaming the delays on the company’s failure to provide information required to process the facilities.
The court also heard about Mr Makori’s contact with Jared Makori, a Kenya National Highways Authority (KeNHA) employee, after New Mega Africa fell into arrears.
Mr Makori said he contacted Jared to establish whether delayed payments from Mombasa Cement had contributed to the company’s inability to service its loans.
“I confirm that I did not share the firm’s account or loan statements with Eng. Makori as alleged, neither did I promise to warn other creditors on financial standing of the firm. All these allegations are untrue,” he said.
He said he had known Jared since his days at Ecobank, where he would assist with background checks on customers involved in KeNHA-related projects.
“He was my referral person at KeNHA and would offer background checks on several customers that we would finance for KeNHA-related works,” Mr Makori said.
According to him, Jared promised to check with Mombasa Cement over the delayed payments but never got back to him.
Mr Makori also denied having access to systems containing customer account statements, saying his access was limited to the Corporate Credit Risk System used to assess SME and business loan applications.
“I thus had no capacity to generate any client statements from the bank's client databases and share them with third parties as alleged or at all,” he said.
He further told the court that an internal investigation into the alleged data leakage found no wrongdoing by him or other bank employees.
On the bribery allegations, Mr Makori said he was unaware of any report made to the authorities by New Mega Africa concerning the alleged payments.
“I am not aware of any report made to the authorities by the Plaintiff concerning the said bribes and kickbacks,” he said.
Mr Makori testified after New Mega Africa presented a forensic audit detailing the losses it claims to have suffered from the alleged leakage of confidential information and disruption of its operations.
The report, prepared by Mr George Munga, put the company’s total claim at about Sh1.5 billion.
The firm is seeking Sh192 million in lost income for the period between August 30, 2021, and July 30, 2022. Mr Munga said the figure was based on the company’s level of operations in June 2021, projected at an annual growth rate of 7.5 per cent, or 0.625 per cent per month.
A further Sh1.2 billion is claimed for loss of goodwill. The company said this represented the value of business it would have generated had it continued operating.
“We assumed the firm would have continued operations in perpetuity and at the same time growing at a rate of 7.5 per cent per annum in perpetuity,” Mr Munga said.
The firm is also seeking Sh92 million for trucks it says were grounded following the disruption of its operations, as well as litigation costs to be assessed under the Advocates Remuneration Order, 2014.
It has further claimed Sh185, 000 in registration and licensing costs, which it says represents the cost of registering the company and the annual licences it lost.
New Mega Africa says it had been operating normally and meeting its financial obligations, including those owed to Absa, until June 2021, when it alleges the bank withheld crucial working-capital financing and leaked sensitive information to third parties, including some of its competitors.
Absa has denied the allegations of data leakage, financial sabotage, bribery and other wrongdoing levelled against it and has asked the court to dismiss the suit.
