The hatching of Goldenberg grand scheme

When Goldenberg scandal architect Kamlesh Pattni decided to take advantage of the government’s export compensation scheme, he was only 25, yet he pulled off one of Kenya’s biggest thefts of the public coffers.

In just three years, the fiddle had cost taxpayers more than $600 million.

Then holder of a British passport and son of a Mombasa gold jewellery dealer, Pattni was hardly known as he and his brother ran a small jewellery outlet known as Manorama Limited on Nairobi’s Dubois Road.

He later shifted to Moi Avenue’s Mageso Chambers and it was from there that Goldenberg International Limited and Exchange Bank Limited, the two companies that were to become the face of the scandal, were hatched.

How Pattni came to enlist spy chief James Kanyottu as a director, nay promoter, of the two companies is not clear.

He would later tell a judicial commission appointed by President Mwai Kibaki to investigate the scandal that the two had met at a Nairobi shop, where they had been introduced by a mutual friend, a Mr Veljibhai Gami.

The objective of the Goldenberg company was to “carry on the business of import and export in any or all types of minerals, gold, silver, diamonds, precious and semi-precious stones… in Kenya, to all PTA countries, Europe, India, and other parts of the world.”

HIDDEN IDEA

The hidden idea was how to take advantage of the various economic schemes crafted by the Central Bank of Kenya (CBK) and the Ministry of Finance by carrying out fraudulent business deals, illegal and irregular.

These schemes involved export compensation, pre-shipment finance, retention accounts, forex certificates, spot and forward contracts, and cheque kiting.

While some of these economic schemes had been put into place to lure businessmen into earning Kenya hard currency after donors, the International Monetary Fund, and the World Bank imposed stringent rules on aid, the Goldenberg company was paid more than their foreign currency earnings and with little export of gold, if any.

Even today, there is no evidence that the company engaged in any mining of gold and diamonds, the two minerals it purported to be exporting.

Initially, Pattni started small, but when he presented his first nine export compensation forms to his bankers, First American Bank (Kanyotu was one of the directors), the Central Bank and the bank observed some anomaly.

The amount of money purported to have come from overseas was through numerous cash deposits and in various hard currencies, and not through the usual inter-bank transfer.

What they did not know, or perhaps suspected, was that Goldenberg was purchasing hard currencies at the local market, depositing them at the First American Bank account, and using that to demand export compensation.

With the myriad questions by the Central Bank and the First American Bank, Pattni decided to register his own bank in August 1991, with a proposed capital of Sh40 million, which was deposited with Transnational Bank Ltd.

At first he wanted the bank to be known as Republic National Bank.

The bank’s shareholding almost mimicked that of Goldenberg International.

Pattni and Kanyotu each held 25 per cent stake, while a Mrs Daksha Rana took a 25 per cent shareholding. Bhailal Patel and Rohit Damji held the balance.

But when the company was finally formed, the names of Rana, Patel and Damji disappeared and only Kanyotu and Pattni remained with one share each of Sh1,000.

CBK MISTAKE

One of the early mistakes was that CBK did not check if the bank had any capital.

The bank started operating on June 4, 1992, and was authorised as a depository institution under the Exchange Control Act on July 30, 1992.

With the bank and the company set, it was easy to transact business.

The two — the company and the bank — entered the market at a time when President Daniel arap Moi’s government was facing an economic downturn in the country and was desperate for foreign exchange.

With few economic managers at the Ministry of Finance and facing irregular foreign debt repayment, anyone with a semblance of an idea (however crooked) on how to earn Kenya foreign currency would have received a good audience, both at State House and at the Treasury.

Both the IMF and the World Bank helped the government to come up with various schemes and economic policies that included the liberalisation of the economy and removal of currency controls, which ended up depleting the foreign exchange reserves.

MULTI-PARTY CLAMOUR

On the political side, the clamour for multi-party politics was reaching a crescendo and Kanu was desperate for another term.

Pattni came on the scene during this time and into the hands of desperate politicians and reckless economists and administrators.

Pattni had studied then Finance minister George Saitoti’s June 1990 budget speech and the various proposals that would see Kenya promote the “production of industrial and other non-traditional exports.”

Prof Saitoti had put in place the Export Compensation Scheme, which was to encourage the re-export of minerals from other countries via Kenya.

The companies would be compensated for that effort after lodging the paperwork.

To get the compensation ­— and this was paid in cash — an exporter had to have the export forms stamped by the necessary authorities and confirmation that all the foreign exchange relating to the exports had been received and sold to the CBK.

If in the paper you said you exported gold worth $1,000, the government would pay you $200 or 20 per cent of the remitted currency.

The government had no way of verifying the volume of what was exported. It relied on paper trail.

MONOPOLY

Pattni sought and was given a monopoly to export gold and diamonds on the promise that he would earn the country $50 million. And instead of the legal 20 per cent compensation, his company was granted 35 per cent, which was concealed in the budget as “customs refund”.

While Goldenberg breached all the exchange control regulations and the agreement it had signed with CBK to abide by the rules, Pattni used his connections to get his compensation paid after the claim was processed by the Customs and Excise Department.

While CBK governor Eric Kotut was alerted to this by his exchange controller, T.K. Birech-Kuruna, nothing was done.

Pattni tried his luck with Citibank and they smoked him out before he finally settled for government-owned banks, which were easier to corrupt.

Although CBK was informed about the dubious transaction, it continued paying export compensation without verifying whether any exports took place.

And by registering his own bank, Pattni was able to escape scrutiny.

WILSON AIRPORT

A day in the multi-billion Goldenberg scandal would often be dramatic. On October 22, 1991, for example, senior customs officer, Samuel Njiraini was in his office at Wilson Airport when an aeroplane from Bunia, Zaire, landed at 8 pm.

As an examining officer grade 2, Njiraini would work late into the evening just in case somebody tried to smuggle anything through the airport.

At 7.30pm, preventive officer Elizabeth Opondo got information that an aeroplane, registration 5Y-ZYS, would land from Bunia, Zaire.

As procedure, she got the travel manifest that indicated the number of travellers — a Mr Rasul, the pilot, and passengers Bwambale I, Omar Soba, Athew, Khambale, Ghelani, Pattni K, and Dhakan L. They all carried bags.

As Ms Opondo started the task of clearing the passengers, two of them — Kamlesh Pattni and a Mr Dhakan — refused to open their bags.

She asked them to go to Mr Njiraini’s office and they carried along with them a briefcase and a canvas bag.

REFUSED TO OPEN BAGS

“These two have refused to open their bags, sir,” Ms Opondo told Njiraini.

“What do you have with you gentlemen,” Njiraini asked the two.

“Two-and-a-half kilos of gold,” answered Pattni.

Njiraini had been briefed on what had happened outside and did not believe the two-and-half kilogramme story.

He lifted the bags and asked Pattni to open them. Inside were 31 kilos of gold dust.

“You have made a false declaration,” Njiraini told Pattni. That was not only an offence, but it could land him in jail.

The second mistake was that Pattni and his group did not have import documents.

That was an indicator that the gold was being smuggled into the country.

CALLED COMMISSIONER

Pattni requested to call his brother, but he instead called the commissioner of customs, Francis Cheruiyot, and explained his predicament at Wilson Airport.

He then handed the phone to Njiraini: “Talk to your commissioner.”

Cheruiyot listened as Njiraini explained the details. He then asked Njiraini to handle the issue very diligently, saying he was under pressure.

“Record all the particulars of the goods and the names and passport numbers of the importers and then release the goods,” he instructed.

Njiraini did not believe what he was hearing. At his level as examining officer grade 2, he was not authorised to give prior release to any goods.

He requested Cheruiyot to drive to Wilson and give the release authority in writing. But Cheruiyot was far away and could not have made it to the airport.

Njiraini made a suggestion: “Can we deposit the goods in a customs warehouse and wait for the importers to bring the required documents?”

Cheruiyot agreed, but as soon as Njiraini put the phone down, James Kanyotu, the director of intelligence, was on the line, asking why Pattni was detained.

He was told Pattni had two bags of gold and was waiting for the commissioner of mines and geology, Collins Owayo, to bring import documents.

Njiraini had just finished speaking to Kanyotu when another call came. It was Noah arap Too, the CID director.

“Why have you arrested Mr Pattni?” arap Too is alleged to have asked.

Njiraini, for the zenith time, explained that they had only seized some goods pending production of import papers.

It was going to be a long night as Owayo, drove into Wilson Airport and went straight to Njiraini’s office.

He called the Custom’s boss, Cheruiyot, hoping to have Pattni’s cargo released.

Njiraini had told Cheruiyot that without the documents, the gold had to go to the warehouse at Jomo Kenyatta International Airport.

GOLD RELEASED

With phone calls and the right connections, Pattni walked out with his gold to continue with his fiddle.

Although he had said that the 35 per cent compensation would enable Goldenberg to compete with smugglers, the Wilson Airport incident indicated otherwise.

On paper, compensation for gold and precious stones could only be paid when the goods were physically examined and certified prior to exportation and after the foreign currency was received by a bank.

It is now known that no foreign currency was received arising from the scheme because there were neither gold nor diamond exports.

There were only fake companies processing fake receipts.

The Moi government ended up paying both the normal 20 per cent compensation and the enhanced 15 per cent compensation in exchange for nothing.

Goldenberg then started engaging in currency dealings whereby money would be sent abroad and wired back to Kenya as proceeds of export.

The government would pay 35 per cent of this as compensation.

Pattni then got to know that some airlines, hotels, and travel agents were allowed to provide cash exchange facilities for visitors in urgent cases.

Goldenberg applied for a licence from the Ministry of Tourism, promising to make $50 million.

They used this licence to buy foreign currency from the public and sold it to Exchange Bank.

Some of the money was sent overseas and deposited in Exchange Bank nostro accounts and later transferred back, earning 35 per cent compensation.

Many years later, a trial, a judicial commission of inquiry, and more scrutiny has left no one in jail over the scandal.

Dr Karuga Koinange and Eliphas Riungu, two of the officials accused of paying Sh5.8 billion to Pattni, have died.

Their attempt to argue that they were ordered by President Moi to pay out the money was dismissed.

The man who authored the grand scheme walked away to start a church. He is now brother Paul.