Imperial Bank depositors’ war with CBK now goes to the East African court of justice

Imperial Bank depositors now want the East African Court of Justice to compel Central Bank of Kenya (CBK) to compensate them for funds lost in the bank’s Sh34 billion fraud.

In a petition filed at the East African Court of Justice after two years of a protracted battle with CBK in Kenyan courts, a depositor accuses the banking regulator and the attorney general of failing to protect the depositors’ funds contrary to the Kenyan and East Africa Community (EAC) laws.

Imperial Bank was placed under receivership in October 2015 following the discovery of a Sh34 billion fraud that went on for 13 uninterrupted years

Pontrilas Investments Ltd which is named as the applicant in the petition filed on August 28 proceeded to the regional court because it was convinced the bank was headed for liquidation.

“I am advised that it will be a remote possibility to sell Imperial Bank given the litigations ongoing and the number of depositors whose funds would need to be repaid with interest as part of any acceptable package,” says the petitioner in an affidavit filed by its director Wambui Kibicho.

The firm says in the petition where the Attorney general is also named as a respondent that it is of the belief that there is no goodwill left in the Imperial Brand and that the only remedy is to seek relief from the regional court.

But CBK last month announced that three investors had expressed interest in taking over the troubled bank.

CBK, the petitioner argues, failed to exercise good governance and the applicable rule of law in the supervision of the bank which allowed senior managers to steal from depositors.

“Mr (Abdulmalek) Janmohammed (former Imperial Bank Group Managing Director) together with other managers could not have carried out the fraud had there been proper supervision of the bank by the CBK,” says the Pontrilas in the petition filed through Ugandan lawyer Professor Frederick Ssempembwa.

Kibicho argues that the government failed in its duty to give directions to CBK so as to ensure that the banking regulator’s operations contributed to a sound financial system backed by a scheme to ensure good governance of institutions accepting deposits from the public.

The petitioner argues that CBK officials’ actions and ommissions in the Imperial Bank fraud that was orchestrated over 15 years were in breach of EAC founding treaty obligations on good governance of a banking institution to protect individual depositors’ rights in regulated bank.

“The applicant had a legitimate expectation that CBK and the attorney general would adhere to the law of Kenya in regard to property rights, consumer protection and fair administration action to intervene in the affairs of imperial Bank at an early stage of the fraud to avert the risk that resulted in the current loss suffered by the depositors,” says the petitioner.

The firm cites a tranche of email correspondence between Imperial Bank managers and CBK senior officials that show the banking regulators actively sought and received bribes to look the other way as the former bank Janmohammed looted the bank.

Four CBK officials and their relatives are named in the petition as having received bribes from Janmohammed.

Among the officials are former CBK governor Professor Njuguna Ndung’u and his wife who the petitioner alleges were bribed with long holiday trips to Dubai and Thailand.

Others are Peter Gatere, the first Imperial Bank receiver manager who is shown in the emails helping the bank to conceal the fraud. Then there is Reuben Cheres and Ronald Geoffrey Langat who are banking supervision officials.

The petition is likely to be followed closely by depositors of failed banks in the five EAC member countries and their governments. This is the first of its kind at the court where a depositor is seeking to hold a government to account over a bank failure.