Court papers show CBK rejected Imperial Bank reforms

Imperial Bank Former Managing Director the late Abdulmalek Janmohammed. Photo Credit: File

Central Bank of Kenya (CBK) rejected a plan mooted by the Imperial Bank board to cut down the powers of the bank’s former managing director Abdulmalek Janmohammed, documents filed at High Court in Nairobi show.

Fresh details contained in court documents filed by Imperial Bank non executive directors and shareholders show that the bank’s board planned to hive off key functions and transfer them to an executive director.

What the directors did not know then is that Janmohammed influence in CBK was so heavy that any decision touching on Imperial Bank would have to be made according to his wishes.

Correspondence between Imperial Bank senior staff and the regulator now shows that CBK’s decision to reject the board’s plan to appoint the executive director was influenced by Janmohammed through his trusted ally James Kaburu who was at the time the bank’s Chief Finance officer.

Email exchanges show that Kaburu was kept informed on what CBK officials handling the proposed appointment were thinking.

In fact, the decision by CBK to reject the proposal was made after Kaburu sent an email to Reuben Cheres, a banking supervision official stating with finality that the plan should not be approved.

“We acknowledge receipt of your letter reference number ED2/01/13/JK/fa dated 29th January 2013 and would reiterate that it will not be prudent for Mr. (Anwar) Hajee to be appointed to the position of the Executive Director. We have closed our files on this matter,” said Kaburu in the email to Cheres.

He not only knew what the officials were thinking but he was given the extraordinary privilege of looking at CBK letters on the matter and changing them to suit Janmohammed’s interests.

In one email, Cheres shares confidential discussions between him and Matu Mugo who Assistant Director Banking Supervision at CBK.

“It has been a bit difficult communicating from here. When I arrived I was on roaming then it blackened out. I hope all is well at the bank. I called him (Mugo)and e-mailed him as well. The contents of that letter have been changed and I suppose the response will be coming in the course of the week,” says Cheres in the email.
In another email, Kaburu asks Cheres to send him the draft letter of the decision on the board’s appointment proposal.

Cheres then explains that he is out of the country and cannot access his staff email at CBK. However, he goes on to assure him that the response from CBK will fall in line with Janmohammed’s wishes.

“Please see the e-mail sent to Mr. Mugo forwarding suggestions to that letter. I hope it meets your expectation. We shall refine it if it is not sent by the time I come back,” says Cheres.

In the plan hatched shortly after first whistleblower emails on ongoing fraud in the bank was sent to CBK, the board wanted to place information technology infrastructure under the executive director effectively denying Janmohammed the tight control he had over the bank.

The man to be appointed to the new position of executive director was Anwar Hajee, a long serving non executive director at the bank.
But CBK would hear none of it.
When the board presented the request to CBK, the regulator gave two conditions to be met before the proposal to appoint Hajee’s could be processed.

First, Hajee would have to reduce his shareholding in the bank from 7 percent to not more than 5 percent.

Then, he would have to relinquish any executive role he held in any other company.

“Please submit the new shareholding structure of the bank as well as evidence of Hajee’s resignation from executive positions held in other institutions,” says Cheres in a letter to the bank dated October 24, 2012.

Two months later after Hajee had met the conditions, the story changed and CBK wrote to the bank dissuading against creation of the position.

“A preliminary review of the application reveals that the organisational structure being proposed by the bank has the potential of generating managerial conflict as the roles the proposed executive director is to perform have been hived off from the functions previously under the oversight of the managing director,” said CBK in a letter dated December 13, 2012 and signed Mugo.
A quick glance at the composition of banks boards shows that the practise of having two executive directors both report to the board is entrenched in Kenya’s banking.

Banks that have two executive directors include GTBank Kenya, ECOBANK Kenya and UBA Kenya. In GTBabk and ECOBANK, there is a managing director and an executive director while in UBA Kenya there is a managing director and wholesale banking director all reporting to the board.

In February 2013, CBK dropped the bombshell. Without giving reasons, the regulator had rejected the proposed appointment.

“We have reviewed the contents of your letter dated January 29, 2013 and previous correspondence and representation on the matter and are not able to grant the approval requested,” says a letter from Mugo.

In his witness statement in court, Hajee says his appointment was rejected because it would have exposed Janmohammed’s fraudulent activities at the bank.

“It is also now clear that this ulterior motive informed the scheme by IBL’s senior management to procure CBK staff to prevent my appointment as an Executive Director of the Bank, no doubt because my appointment would have led to the fraud Janmohammed and his co-conspirators were perpetrating within and outside the Bank being discovered,” says Hajee.

Imperial Bank was placed under receivership last year after an forensic audit commissioned by the directors found that the Janmohammed had carted away Sh38.5 billion from the bank.

The court documents are part of the evidence the directors and shareholders for defence in a case where Kenya Deposit Insurance Corporation (KDIC) is wants them to be made to pay sh44 billion for allegedly failing to prevent the fraud.

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