Greedy elites have become more and more adept at crafting loopholes and avenues for siphoning off public resources to offshore bank accounts and shell companies.
And, it seems that the new loophole for laundering money out of State coffers is the budgetary vote known as capital subscriptions to international organisations.
Today, you can siphon off from the public purse by disguising the funds you have stolen as going into capital subscriptions to regional and international entities.
This is the most revealing finding and conclusion of a recently concluded special audit by the Auditor-General on accounts of the National Treasury.
Auditors combing through invoices and payment vouchers at the Treasury stumbled on suspicious payments totalling a whopping Sh6 billion.
The vouchers revealed that on December 28, 2022, hardly three months after President William Ruto came to power, the Treasury released Sh5 billion to the Pan-African and Cairo-based trade finance lender, Afreximbank, under unclear circumstances.
According to these payment vouchers, the money was for capital subscriptions and were being paid to purchase a total of 2,161 Class A shares in the Pan-African Bank.
Intriguingly, and hardly two days later, on December 30, 2022, also under President Ruto’s administration, the National Treasury released yet another massive amount of Sh752,621,101 to purchase shares in the Burundi-headquartered regional bank, the Trade and Development Bank (TDB).
What was the rush to release such massive payments to these two regional bodies’ institutions within a matter of days?
Does the government want us to believe, and is it conceivable, that these two bodies needed urgent fresh capital injections requiring huge payments to be released within two days?
What was the urgency for the capital call and why was the government behaving as if the two regional financial institutions were about to collapse?
Why were routine and normal capital subscriptions to these two regional institutions suddenly being treated as an emergency?
An earlier payment – Sh544 million to TDB shares – was effected on June 12, 2022.
It emerges that on perusing through these vouchers and payment records, the OAG realised that the transactions were fishy, which is why she arrived at damning conclusions.
This is what the report signed by Nancy Gathungu says: “It was not possible to confirm ownership of the shares acquired or to determine the benefits that may have accrued to the government of Kenya for the purchase of the shares.”
She added: “The National Treasury did not provide proper justification for the purchase of the shares under Article 223 of the Constitution.”
As is practice, the OAG does not make such damning findings of culpability before seeking a response from parties likely to suffer reputation risk or even criminal culpability.
Yet, she reports that when auditors sought reactions and responses from both Afreximbank and TDB, the two entities both resorted to the same tactic, namely, stonewalling. Indeed, the behaviour of the two bodies only ended up raising the spectre of a cover-up.
Here is the quote on the conclusion the OAG arrived at after making contact and seeking reactions from the two regional bodies: “The requests by the auditors to visit the two banks’ headquarters in Burundi and Egypt, were either declined or not responded to.”
In the literature on corruption in Africa, several scholars and analysts have attempted to catalogue the suite of tactics which greedy elites deploy to strategically expand opportunities for public resource theft.
Capital subscriptions to international bodies happen in a quiet and obscure corner and hardly attract the attention of anti-corruption investigators.
With the revelations and findings of the special audit report in Kenya and the recent controversy between the AfDB and Ethiopia’s Ministry of Finance, it now seems that transactions relating to capital subscriptions to
international bodies will increasingly become the focus of attention of auditors and anti-corruption bodies.
Indeed, the reason why the shenanigans around the opaque and highly questionable transactions in the special audit report by the OAG have raised eyebrows is because the happenings in Nairobi have come in the context of the eerily similar shenanigans between Ethiopia and the African Development Bank.
In brief, this is how the game around capital subscriptions to regional and international bodies played out in Ethiopia. Audits revealed that $6 million of Ethiopia’s yearly share capital contributions to the bank were not reaching the institution and were instead being channelled to a bank in Panama.
When AfDB officials reported that the bank had not received the funds, they were arrested and assaulted. The two AfDB officials had been sending regular reminders to the Ethiopian Ministry of Finance to pay capital share contributions that Addis Ababa had pledged in 2019.
But it emerged that while the Ministry of Finance had been diligently making the payments, the disbursements were not going to AfDB and were instead being channelled to an account listed in an email purported to be from the AfDB but which – in reality – belonged to shell companies registered in offshore financial centres.
In Kenya’s case, the greedy elites built the building blocks for playing the games around capital subscriptions to regional and international institutions as far back as 2017 under the reign of President Uhuru Kenyatta.
Until that year, capital subscriptions to regional and international institutions were treated as a first charge under the Consolidated Fund Services Vote.
The money would flow from this vote and be disbursed by the relevant ministries. In 2017, the government abolished this transparent arrangement by publishing gazette notice No. 10 of 2017, that created a specific fund under the National Treasury dubbed the ‘AU and other international organisations subscription fund’ under the National Treasury.
The old legal framework remained intact, the upshot of which has been an anomalous and opaque legal regime whereby capital subscriptions to international bodies are governed by other multiple laws and regulations.
Indeed, successive reports of the OAG have been calling for a new legal framework and flagging the risk of multiple payments to international institutions.
Last month, The Weekly Review made several attempts to contact Afreximbank for reactions without success. Written questions were sent to [email protected] and [email protected] .
The questions were also sent to the institution’s regional director, K. Marete, and to Eke Ozo, the senior adviser and personal assistant to chairman and president of the bank, Prof Benedict Orama, on WhatsApp.
The questions included the following: (a) Confirm whether the transaction indeed took place and that the payment was executed; (b) Confirm whether your books of account reflect this latest subscription by Kenya and that the country’s shareholding indeed increased as a result; (c) Why did Afreximbank refuse to co-operate with Auditor General in her effort to verify the truth behind this transaction?
In the case of TDB, The Weekly Review received responses and had discussions with the bank. The irrefutable evidence at this stage is that the OAG is right in asserting that the two banks both stonewalled on her inquiries and only started responding to her questions long after the report had been published and submitted to Parliament.
