An impending investigation on its role in the Sh1.9 billion National Youth Service (NYS) fraud and a Sh38 billion claim filed in court have thrown Central Bank of Kenya (CBK) into desperation as it seeks to protect its image as a credible regulator of the banking industry.
Last week, Director of Public Prosecutions (DPP) Keriako Tobiko ordered the Directorate of Criminal Investigations to probe CBK with a view to establish whether the bank or its officers were culpable or complicit in the NYS scandal that has already pulled down, among others, a Cabinet Secretary and her Principal Secretary.
“I direct that you urgently confirm (to the DPP) whether any investigations as referred above (on the CBK complicity or culpability) have been or are being undertaken, and if so, do urgently forward the relevant file to me for perusal and appropriate action. In the event that no such investigations have undertaken, I direct that you cause such investigations to be undertaken and the resultant investigations file be forwarded to me within 21 days,” says Tobiko in his directive.
Imperial Bank’s big depositors, through senior councer Ahmednasir Abdullahi, want Central Bank Governor Patrick Njoroge held personally liable for the regulator’s alleged complicity, which led to the loss of Sh34 billion and actions subsequent to receivership that has denied them access to their funds.
They want Njoroge and CBK to pay them for the closure of the bank.
“It is our instruction to demand, that you admit liability to the demand that we make for our clients and supply us with firm dates as to when you will pay our clients the loss they suffered due to your wilful actions and abuse of power,” says a demand letter from Ahmednasir to the governor dated November 9, 2016 warning him of a suit if he did not respond in seven days.
The investigations and the suit, which come shortly after the High Court ordered the apex bank in a judicial review suit by directors and shareholders to stop stripping Imperial Bank of its assets and any action that would lead to liquidation have pushed the regulator into a tight corner where it has thrown caution to the wind in its fight back.
In a move that shows how desperation has crept in, the regulator two weeks ago conveniently refused to intervene after Family Bank customers started panic withdrawals of their deposits after rumours emerged on social media to the effect that the bank would be placed in receivership in relation to the NYS scandal. Family Bank had to call in the banking fraud unit to escape from Chase Bank’s fate which was pulled down by a bank run fuelled by social media rumours.
Fearing that Chase Bank depositors may also be on their way to court, Njoroge held a hurriedly convened a meeting with big depositors where he begged for more time before they can access their savings.
Sources familiar with the goings on in CBK have told Money & Markets that the regulator has drafted a section of Imperial Bank depositors to sue the bank’s directors and shareholders. The thinking, the source claims, is informed by the hope that such a suit would distract the growing belief that CBK and its officers are culpable in the Imperial Bank saga.
Parliament through Public Accounts Committee (PAC), which is conducting an inquiry on the NYS scandal, has questioned why Central Bank of Kenya did not stop the scandal given that the irregular payments in the NYS scandal originated from accounts held by the Devolution ministry at the bank.
Tobiko’s order for investigations is the first major scrutiny on the bank’s operations since the Goldenberg scandal, which could have far reaching effects on the tenures of the regulator’s top managers if results show that it failed or was culpable in the scandal.
Incidentally, one of the Central Bank officials adversely mentioned in the Imperial Bank saga is the one who recorded a statement with the Banking Fraud Unit giving a go ahead for the prosecution of Family Bank directors and staff involved in the NYS scandal.
According to the letter from Tobiko to DCI director Ndegwa Muhoro, Reuben Cheres, who works in the banking supervision department of CBK, told detectives that prosecution of Family Bank directors and staff would not have any effect on the banking industry.
Instead, Cheres’ statement sought to assure Muhoro and Tobiko that such a prosecution would help enforce prudential guidelines on anti-money laundering.
Cheres has been named in the forensic audit report on Imperial Bank as one who would tip and advise the bank’s Chief Finance Officer James Kaburu and Head of Credit Naeem Shah whenever prudential questions on the its operations were raised by either whistle blowers or other CBK officials.