Nigerians whose dealings last year attracted investigations over alleged money laundering could have used fake contracts between shell companies in a ploy to beat strict Kenyan and American banking laws while moving legally questionable billions offshore, a new legal challenge alleges.
Fresh court documents filed in Kenya and Hong Kong obtained by the Sunday Nation
Nehikhare Eghosasere — a RemX director — in an affidavit filed in a Hong Kong court, admitted to using falsified documents in moving billions of dollars from Kenyan banks to Citibank in a ploy to skirt strict anti-money laundering laws.
But what started as a dispute involving contract breach allegations has now shed light on the legal grey areas that the three Nigerians and their local contacts used for at least three years to trick Kenyan and American authorities into authorising the movement of at least Sh80 billion whose source may be questionable.
Under the contract, RemX was to become Lae Technologies’ exclusive distributor in Kenya and Nigeria. The deal involved the distribution of software developed by the Hong Kong company.
Through RemX Ltd, Nigerian nationals were to become exclusive distributors of the technology developed by the company.
RemX Ltd was to pay the $88 million (Sh12.2 billion) balance by January 23, 2021. But no further payments have been made to date, prompting Lae Technologies to file a breach of contract claim in the Hong Kong High Court.
“One dummy agreement alone may not suffice, and banks may raise questions regarding a documented relationship between the sender and the recipient of funds. In this case, since funds had to be transferred to Legacy Trust NS instead of LAE directly, a dummy agreement between RemX and Lae may not suffice, because that does not show the relationship between RemX and Legacy Trust NA, the recipient of funds,” Mr Eghosasere said in an affidavit explaining how the company moved funds cross border.
In some instances, the money is held by the companies in trust for other individuals looking to move large amounts of funds offshore without triggering regulatory alarm bells.
Under Kenyan law, any transfer of funds above Sh1 million done via financial institutions must be justified with a detailed description of the sources of the funds and the purpose of the transfer, a requirement that involved the provision of contracts or other written documents like invoices as evidence.
To beat the requirement, companies under the RemX network allegedly use contracts to show that they have provided services to each other, justifying the need to exchange billions. Some of the funds are then used to finance the purchase of cryptocurrency.
Such loopholes have opened the door for money laundering, reports by several finance experts including the CBK indicate.
Documents in cases filed by the Assets Recovery Agency seeking forfeiture of billions showed that some of the agreements used to move funds involved tour companies. The cases have since been withdrawn by investigators.
There is, so far, no evidence to show that the tour companies actually provided any services to any of the fintech firms that were under investigation last year. The tour companies do not have local operations as well.
While seeking to pay the Sh1.2 billion downpayment, RemX Ltd Director Eghosasere Nehikhare was engaged in WhatsApp conversations with Lae Technologies, part of which has been filed in court.
“Okay-Is there anyway (sic) we have a “dummy agreement” with the trust (through which Lae Technologies would receive funds)? Because Citibank will always ask for documented relationship between sender and beneficiary. I’m more concerned about ensuring we have the right documents in place to answer any question that Citibank will have,” Mr Nehikhare posed in a WhatsApp group chat on October 9, 2020.
The arrangement would include having multiple fake agreements to dupe banks into thinking that the two companies involved in the transaction had a long-term business relationship.
“Equity Bank is the sending bank. Citibank is the corresponding bank. And they [Citibank] always give the sending (and receiving banks) “headache”. If we have some sort of dummy agreement with the trust,” Mr Nehikhare said in the chats.
“…Just to present to Citibank (whenever they ask questions) that will be great… I’m happy with this option but just want to put measures in place to ensure it’s sustainable and doesn’t become problematic down the line when Citibank starts asking questions. They would usually come to ask questions in 1-2 years after the transaction lol. They are such an annoying bank.”
However, Lae Technologies raised concerns about the nature of the transactions, asking the fintech to comply with all regulations to avoid legal issues.
Mr Nehikhare has since admitted in an affidavit filed in a Hong Kong court that the WhatsApp chats are legitimate correspondence between officials representing RemX and Lae Technologies.
In their schemes, Citibank was the correspondent bank in the US while the payments were being processed from Equity Bank, Kenya, where the firms had accounts.
The court papers also show that Mr Nehikhare made trips to Nairobi in 2020 to meet Equity Bank and GTB officials, around the same time RemX moved outsize amounts of money into and out of Kenya.
On March 7, 2023, Lae Technologies filed a suit in the Milimani High Court, Kenya seeking orders to freeze 59 bank accounts that RemX and its affiliate companies hold in local bank accounts.
In its application, Lae Technologies says that in the alternative, RemX and its affiliates should deposit the demanded Sh12.2 billion in a joint interest-earning account pending the determination of the case.
In its application, Lae Technologies says that in the alternative, RemX and its affiliates should deposit the demanded Sh12.2 billion in a joint interest-earning account pending the determination of the case.
Other interested parties in the suit are Equity Bank, United Bank of Africa (UBA), Guarantee Trust Bank (GTB), Ecobank Kenya Ltd and Binance Kenya Ltd.
The four banks have been listed on account of money deposits they hold on behalf of companies in the case.
Last year, the High Court in Nairobi froze 62 bank accounts operated by RemX and other Nigerian Fintechs including Flutterwave following an application by the Assets Recovery Agency (ARA) which was investigating the Nigerian-owned firms for alleged money laundering. [email protected] [email protected]
