IN THE SHADOWS OF PATTNI,FORGERS, FRAUDSTERS AND THIEVES

Published on July 6, 2008, 12:00 am
By Sarah Elderkin
Sunday Standard

So many years have now passed, during which tens of cases relating to Goldenberg have been postponed, or court files have been ‘lost’, that perhaps a whole generation wonders why some people continue to view Kamlesh Pattni as a pariah.

A look back at the Goldenberg story should remove any doubt.

Saitoti was the Finance minister then Kanyotu was one of the directors of Goldenberg International

When the story began, in the late 1980s, the Kenya government was operating an ‘export compensation’ scheme for traders, to offset the difference between the high cost of producing goods in Kenya and the competitive prices at which these goods needed to be sold on the world market. The government paid compensation at 20 per cent, set by an Act of Parliament on June 24, 1985.

The idea was that competitive pricing would mean higher sales abroad for Kenyan goods, ensuring a steady inflow of foreign exchange. Kenya at the time was suffering a Forex shortage.

In 1987, a group of gold dealers submitted a proposal to the Commissioner of Mines and Geology. They said gold was being traded illegally and suggested changes to improve foreign exchange receipts. Only about 100 kilogrammes of gold a year was being produced, all by individual prospectors working in West Pokot, Turkana and Siaya.

The commissioner liked the proposal and added his recommendation that, instead of 20 per cent export compensation, gold should get 30 per cent. Time passed and nothing happened, and it appeared the matter had been shelved.

But the proposal had caught the eye of a group of conspirators (recently revealed to be senior government officers looking to raise cash to fight the movement for multi-partyism), who realised they could use it to make a fortune.

They came up with a plan to pretend to export gold and then, having also pretended to bring in foreign exchange, they would collect the export compensation and pocket the money.

Kotut was the Central Bank governor

What is more, if they added the fake export of diamonds to the mix, these riches would be immensely increased.

Kenya had no gold mines and no diamonds at all, but the conspirators figured out that, if they bribed the relevant officials, no questions would be asked. They would be laughing all the way to the bank.

This cunning plot found its perfect partner in Kamlesh Pattni, 26 at the time and already a millionaire.

According to a report published recently, Pattni visited, a few days before the Saba Saba (July 7, 1990) demonstrations by multi-party activists, the office of the then Vice President and Minister for Finance, Prof George Saitoti, in the company of the then head of the Special Branch, James Kanyotu.

A few weeks later, on July 29, 1990, Pattni registered a new company, Goldenberg International Limited. The company had one other director, Kanyotu, who was also the owner of First American Bank of Kenya.

On October 8, 1990, Pattni wrote to Saitoti, copying his letter to then Central Bank governor Mr Eric Kotut, claiming there was "a reasonable amount" of gold in Kenya that was not being exploited and that diamonds were "in large supplies here in Kenya".

Pattni said he would export 100 kilogrammes of gold per month, increasing this after six months to 400 kilogrammes. No questions were asked about how this would be possible in a country producing just 100 kilogrammes of gold a year, or about where diamonds existed at all, never mind "in large supplies".

Treasury grants requests

Pattni requested that he be declared the sole exporter of gold, that export compensation on gold be raised to 35 per cent, and that he be allowed to open his own bank, as he would be handling "numerous cash transactions on a daily basis".

Mwatela questioned the transactions.

The then Permanent Secretary to the Treasury, Mr Charles Mbindyo, signed a letter to Pattni dated November 1, 1990, granting the first two requests. In doing this, the Treasury, under Saitoti, acted contrary to the Monopolies Act, granting sole export rights to a company less than four months old and with no record of any gold-exporting experience.

It acted contrary to the Local Manufacturers (Export Compensation) Act in granting an export compensation rate not sanctioned by the Act.

It acted contrary to the same Act in granting export compensation for goods neither produced nor finished in Kenya (export compensation required a 70 per cent Kenyan input).

On December 5, 1990, Mrs Jacinta Mwatela, an officer at the Central Bank, wrote to Pattni outlining normal regulations regarding export compensation claims, including the completion of CD3 forms (customs declaration forms in triplicate) with numerous details for each consignment. Copies had to go to the exporter’s bank and to the airport, where inspections by the Commissioner of Mines would also be necessary, in the presence of customs officers.

Pattni ignored most of this, knowing he had paid people off, and he lost no time in submitting fraudulent CD3 forms and making compensation claims. Many of his figures did not tally, and some claims were, illegally, against cash payments in Kenya shillings.

A few honest officers at the Central Bank eventually began asking questions. The main question, directed to First American Bank, was, ‘Where are the confirmations of foreign currency received by your bank, which are supposed to be attached to your client’s export compensation claims?’

The real answer was simple: there WAS no foreign currency. No goods had been exported. Fake documents had been supplied. The right stamps were being applied by pre-arrangement. Goldenberg’s export compensation claims were fraudulent from start to finish.

Demanded for waiver

Pattni was the architect of the scam.

First American alerted Pattni, who wrote to the Central Bank on April 9, 1991, asking it to waive the condition that his claims be accompanied by proof of receipt of foreign currency.

Pattni made one of his now-familiar cynical calls to patriotism, begging the bank to help him by "expiditing [sic] our new exports at faster cycle, hence earning our country more foreign exchange". The waiver was denied, but the claims continued.

Mwatela also continued to generate internal memos at the bank, asking awkward questions and generally sounding alarms about the extraordinary claims being made by Pattni.

Checks were made of airline manifestos, mines department records and so on, all proving Mrs Mwatela’s worst fears, yet corrupt officers continued to pay Pattni’s claims for goods that were never inspected, never exported, never sold and never existed.

Foreign exchange

The fraudsters presented documents with increasingly elementary errors. The whole thing was a shamble. Mwatela sent 15 CD3 forms back to First American Bank, demanding explanations for serious discrepancies. No explanations were forthcoming, but the gravy train thundered on.

Things were getting hot, however, and Pattni knew he had to get some foreign exchange somewhere. At last the reason for his earlier mention of handling "numerous cash transactions on a daily basis" became clear. He would simply buy the foreign exchange locally, and pretend it had come from exports abroad!

It defies belief, but Pattni in one instance in 1991 presented 16 bundles of cash in five different world currencies on four different days over a period of nearly three weeks, and claimed this was payment for exports detailed in just one CD3 form.

By this time, Pattni had submitted 51 fraudulent forms, seven of them for consignments allegedly made on January 30, 1991, alone, for which seven he had been paid Sh117 million in export compensation.

A million shillings then was worth many times what it is today, and all this began to have an impact on the national economy. The value of the shilling was falling. And now Pattni’s reason for submitting (false) invoices in Kenya shillings became clear. As the shilling devalued, the amount of foreign currency he had to look for locally was less. He was submitting less Forex to the Central Bank for more Kenya shillings.

In a letter to the Central Bank on April 29, 1991, Pattni pleaded that he be allowed to continue the Kenya-shilling invoicing to his (non-existent) clients "so as not to make us retard in our forward march…. for the benefit of our country". His cynicism was cruel and wicked. The more Kenyans suffered economically, the greater were Pattni’s gains.

At the Central Bank, Mrs Mwatela released another flurry of serious complaints about Goldenberg. She was finally silenced by instructions from Governor Kotut and exchange controller Mr TK Birech-Kuruna.

During all this time, Goldenberg’s alleged customers abroad were two companies, World Duty Free in Dubai and Solitaire in Switzerland. World Duty Free later denied having any dealings with Goldenberg, and this writer obtained confirmation in 1993 from the Office for Trade Promotion in Lausanne, Switzerland, that Solitaire did not exist and had never existed. Pattni had another imaginary Swiss ‘overseas principal’ in ‘Servino Securities Inc’, likewise confirmed by the Swiss authorities to be non-existent.

By this time, Goldenberg had claimed, against a fictitious Sh13 billion-worth of exports to the Dubai company alone, Sh4.5 billion in compensation.

The steep slide in the value of the shilling, meanwhile, was being exacerbated by Pattni, who was collecting the full whack (hundreds of millions of shillings) in another government scheme known as ‘pre-shipment finance’, and then trading over and above the bank rate in the Forex-C certificates being offered by the government at the time.

As inflationary pressure grew, questions began to be asked in the press, and a slew of government officials came out to protect Pattni and Goldenberg with the most extraordinary range of defences.

But the then controller and auditor-general, Mr DG Njoroge, was also raising questions. Damaging revelations were about to be heard in parliament. Pattni and the other conspirators had to do something fast.

Pattni was quickly licensed to set up his own bank, Exchange Bank, with Kanyotu and others as directors. Exchange Bank took over all Pattni’s crooked deals, and the government brought in the Export Retention Scheme, under which foreign exchange no longer had to be handed over to the Central Bank.

Pattni must have been in heaven. There was no longer any need to go rushing round buying up foreign exchange locally! He could just carry on making the false export compensation claims, while saying that the foreign exchange was in an ‘export retention account’ in his own bank.

Other scams, designed to clean up the dirty money as well as make more, quickly followed, including getting billions of shillings-worth of Treasury Bills on credit then cashing them in as if paid for, and borrowing large sums of money from complicit banks for overnight deposit elsewhere, so that Pattni and his fellows could make quick interest and use one scam to pay off another.

Eventually, as history tells, it all came apart. Various people, including Pattni and Saitoti, were charged with criminal offences, but most of these cases have dragged on for more than a decade, with no resolution. Too many vested interests are involved.

Saitoti’s case came before a bench of judges specially appointed by President Kibaki, and these judges said Saitoti was innocent and could never, ever again be charged in relation to Goldenberg.

Pattni has not only since been cleared by the ECK as a suitable person to stand for parliament, but we are now also told he has been given an ‘amnesty’ for all these crimes in return for handing over the Grand Regency Hotel, which he bought with stolen Goldenberg money.

Since the Kenya Anti-Corruption Commission claims credit for having already repossessed the Grand Regency and handed it over to the government, and the legal authorities anyway have the power to repossess stolen goods, why was an amnesty required? Could it be that this was part of a deal to prevent Pattni spilling the beans on other beneficiaries in the Goldenberg conspiracy?

In 2003, a commission of inquiry into the Goldenberg affair was appointed under Mr Justice SEO Bosire. Its report in October 2005 included the following findings:

• "From the beginning, Mr Pattni was responsible for everything which went on."

• "The manner in which the alleged exportation was set up was such as to show that the conspiracy to defraud the Treasury, the CBK and Kenya Government was in his mind from the beginning."

• Pattni’s export compensation claims were "all fraudulent, and the obtaining of money by these means was theft".

• "...Pattni had to admit that all the documents ... were not correct, and the conclusion is therefore that these were forgeries which Pattni produced or authorised."

• "Pattni is therefore shown conclusively and largely on his own admissions and documents to be a perjurer ... a forger, a fraudster and a thief."

Sarah Elderkin is a freelance journalist