Professional Documents
Culture Documents
ILLEGALLY BINDING
PROMISSORY NOTES
GAP Report #2
and abuse of power for private gain. We hope that the push for change will be enhanced by such information, and that the media and civil society will find it useful as a reference source. We would most desire to see citizens use these reports to speak truth to power and demand accountability from their Government and leaders.
Since January 2007, the Mars Group has published the following reports: Report No. KACC # 1 KACC # 2 GAP # 1 GAP # 2 Report Title Kenya Anti Corruption Commission Annual Report 2005-2006 Kenya Anti Corruption Commission 4th Quarterly Report December 2006 VSAT @ Posta - Postal Corporation of Kenya VSAT contracts - March 2007 Illegally Binding - Anglo Leasing and Finance Limited Promissory Notes March 2007 Published January 2007 February 2007 March 2007 March 2007
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Table of Contents
PART ONE:
Introduction.....................................................................................12
Executive Summary.......................................................................19
Over to You, Wako .............................................................................. ..84 Uhuru PAC Probe .................................................................................... 84 The Githongo Dossier ............................................................................ .96 Heads Roll At The Top ......................................................................... .104 KACC Probes Scandal, Redux .............................................................. ..112 AG, KACC At Odds ..................................................................................114 Back In The Fold .................................................................................. ..116 KACC Clears Major Players .................................................................. .119
Section 2
Section 3
Section 4
Statement of Events by John Githongo, former Permanent Secretary for Ethics and Governance, Office of the President, November 2005. Transcript of Newsline talk-show, Kenya Television Network, aired on Thursday, 1st February, 2007.
Section5
Supporting Documents on Forensic Laboratories Section 6 Letter dated September 5th 2001. Dan Ameyo, Chief State Counsel to Forensic Laboratories Limited. Letter dated August 23rd 2001. J.F.A. Agili, Office of the President to Dan Ameyo, Chief State Counsel. Letter dated August 24th 2001. Dan Ameyo, Chief State Counsel to J.F.A. Agili, Office of the President. Letter Dated September 4th 2001. Dan Ameyo, Chief State Counsel to J.F.A. Agili, Office of the President.
Section 7
Section 8
Section 9
Section 10 Letter dated September 4th 2001. J.F.A. Agili, Office of the President to Dan Ameyo, Chief State Counsel.
Section 11
Letter dated June 15th 2001. Dan Ameyo, Chief State Counsel to J.F.A. Agili, Office of the President. Letter dated May 28th 2001. J.F.A. Agili, Office of the President to Dan Ameyo, Chief State Counsel. Legal Opinion of the Attorney General of Kenya dated September 3rd 2001. Signed by Amos Wako, Attorney General. Legal Opinion of the Attorney General of Kenya dated March 14th 2001. Signed by Dan Ameyo, Chief State Counsel. Addressed to the Permanent Secretary, Provincial Administration and Internal Security, Office of the President. Legal Opinion of the Attorney General of Kenya dated March 16th 2001. Signed by Dan Ameyo, Chief State Counsel. Legal Opinion of the Attorney General of Kenya dated March 19th 2001. Signed by Dan Ameyo, Chief State Counsel directed to J.F.A. Agili, Office of the President.
Section 12
Section 13
Section 14
Section 15
Section 16
Section 17
Letter dated March 19th 2001. J.F.A. Agili, Office of the President to Dan Ameyo, Chief State Counsel. Overview of the Forensic Sciences Laboratory Project (author unknown).
Section 18
Supporting Documents on Passports Section 19 Letter dated May 28th 2004. J.M. Oyula, Financial Secretary, Ministry of Finance to the Managing Director, Anglo Leasing and Finance Limited.
Section 20 Legal Opinion of the Attorney General of Kenya dated December 15th 2003. Signed by Amos Wako, Attorney General. Section 21 Undated Memorandum by Dr. Chris Murungaru, MP.
Section 22 Undated press release by Kiraitu Murungi, MP. Section 23 Undated response to the Controller and Auditor General by Dave Mwangi, Permanent Secretary, Provincial Administration and National Security.
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Section 24 Press Statement by John Githongo, September 19th 2006. Other Supporting Documents Section 25 Deferred Payment Agreement between the Government of the Republic of Kenya and First Mercantile Securities Corporation. July 11th 2002. Section 26 Transcript of a 3-way conversation between John Githongo, David Mwiraria and Kiraitu Murungi. Recorded on June 11th, 2004. Section 27 Assorted direct correspondence between the Government of Kenya and Anglo Leasing and Finance Limited. Section 28 The External Loans and Credit Act - Chapter 422 of the Laws of Kenya. Section 29 Republic of Kenya vs. Nedermar Technology BV Ltd (Netherlands). Section 30 President Kibakis speech to the nation on his Inauguration as Kenyas 3rd President. December 30th, 2002. Section 31 Extract from Kenya Gazette Notice, 19th January 2007.
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Introduction
The story of the Anglo Leasing Scandal cannot as yet be conclusively told. Too much information still remains hidden by the Government of Kenya from the people of Kenya. This is obviously not acceptable. The time has come, for the people of Kenya to call the Government of Kenya to account, and demand an end to the ceaseless investigations of Anglo Leasing that go nowhere.
In its entirety the Anglo Leasing grand corruption scandal is made up of 18 security related scandals, of which most were either with fictitious companies, or involved committing the government to pay for goods and services that were non-existent or overpriced.
Only two specific contracts were actually given to Anglo Leasing and Finance Limited. The first in 2001 was for the construction of a state of the art forensic science laboratory on Kiambu Road for the Kenya Police Criminal Investigation Department. The second in 2003 was for a state of the art immigration security and documentation control system for the Kenya Department of Immigration. The infamy of these two deals gave a host of other corruption scandals their name Anglo Leasing Type Contracts. It is common ground that there are 18 such contracts.
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It was a condition of the two Anglo Leasing and Finance Limited contracts that payments would be in the form of irrevocable promissory notes issued on the dates the two contracts were signed: to the order of Anglo Leasing and Finance Company Limited. Investigators have confirmed that this was a fatal (perhaps deliberate) mistake as Anglo Leasing and Finance Limited is not registered in any of the countries (Switzerland or United Kingdom) it claims to come from. Neither of the two projects ever got off the ground. Though this is denied by the Government of Kenya, official reports suggest that because of the 18 contracts, the total exposure of the Government of Kenya is over Kenya shillings 56.3 billion. This figure may seem alarming but it has been obtained from official government reports that have never been controverted by any Government official. In his April 2006 special audit of the 18 security related contracts, the Controller and Auditor General, Mr. Evan Mwai wrote that through the eighteen security related supplier/ financier credit contracts/ projects, Government has been committed to spending a total of Ksh 56.33 billion. The commitments were in the form of Irrevocable Promissory Notes which were given to the credit providers on the dates the respective credit agreements were signed.
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Even though over 50 separate irrevocable promissory notes with a total value of Kshs 6.9 billion shillings were issued to Anglo Leasing and Finance Company Limited by the Government of Kenya between August 2001 and December 2003; there is no mention in any official report thereafter, of what happened to these irrevocable promissory notes. This strikes one as odd considering that since May / June 2004, the Government of Kenya has consistently argued that all money paid out has been returned. We believe the Government of Kenya is intentionally misleading the Kenyan people. We publish this report with the intention of generating public discussion on the fate of the irrevocable promissory notes that were
unlawfully issued to various companies between 2001 and 2004. If one is interested in assessing how much money has been lost by the Government of Kenya, because of the 18 contracts, several questions arise. These questions should pose no difficulty if the GOK believes in accountability. Chief among them:
Why is there a determined effort by the GOK to avoid discussion of the irrevocable promissory notes?
What became of these irrevocable promissory notes which, as negotiable instruments of the sovereign kind, are irrevocable and
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therefore cannot be cancelled as simply as the Finance Minister Amos Kimunya claimed on Newsline on February 1, 2007?
Where is the evidence that the Ministry of Finance has issued formal instructions for the cancellation or repudiation of the irrevocable promissory notes?
Where is the evidence that the irrevocable promissory notes have been returned? The only way in which they will not be due for payment is if they have been voluntarily returned by those holding them. There is no mention in
official reports that they have been returned. Why? Further, where is the evidence that GOK has obtained a formal complete discharge and release of its obligations?
If they were returned, by whom, and when were they returned? Why, if they have been returned, have Kenyans not been shown evidence of their return to date?
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Who was responsible for handing Anglo Leasing and Finance Limited close to Ksh 6.9 billion?
Who was responsible for exposing the Government of Kenya and therefore the people of Kenya to a loss of Ksh 56.3 billion on 18 Anglo Leasing type contracts?
Why has the Treasury taken no serious action to push the investigation by KACC of this fraud? Why is it disinterested in the fate of the promissory notes?
Why has the Government of Kenya not acted to ensure that the detailed audit reports on each of the 18
contracts are tabled in Parliament as recommended by the PAC in March 2006? What is the AGs legal opinion on the validity of the promissory notes and indeed the 18 contracts? If he believes they are invalid, what action does the Attorney General propose to take to ensure that Kenya does not pay illegitimate debts? Can the AG inform the public of the number and status of all litigation related to these 18 contracts and other security related procurement for the period 1997 to
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date? This was actually the second recommendation of the 2006 PAC report.
This report is based on a comprehensive analysis of official reports (inPart Three) by inter alia the Controller and Auditor General, the Parliamentary Accounts Committee, and the Kenya Anti-Corruption Commission. It also contains (in Part Two), a compendium of media reportage on the Anglo Leasing scandal starting from the initial revelation and running through to recent developments. It is instructive that among the unchallenged findings of the Controller and Auditor General and the Public Accounts Committee of Parliament, are
specific findings against the Vice President, the Minister for Finance and the Attorney General all of whom individually approved the Immigration Department supplier/credit agreement with Anglo Leasing Finance Limited between September and December 2003. We have entitled this report Illegally Binding because it focuses on a payment system which has been exploited to assure the escape with public
Part Three of this report contains the Special Audit Report of the Controller and Auditor General on the 18 contracts
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money of the perpetrators of a fraud. A detailed discussion of the effect of Promissory Notes can be found at the very end of Part 1 of this report. The report is meant to be a living document. As the Anglo Leasing investigation unfolds we will update it in the hope and certainty that Kenyans shall know the truth about who embroiled us in this grand corruption scam, who has stolen our money, and who has allowed them to get away with it. The main question is where are the promissory notes?
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Executive Summary
Leasing and Finance Company Limited entered into 2 separate contracts with the Government of Kenya, under 2 different
administrations (Moi and Kibaki). As a result of these contracts the GOK committed itself to pay Ksh 6,930,209,999.25 (equivalent to US$ 92,402,799.99 or just under 25% of the GOK Health Budget). Had this money not been misused it would have increased per capita spending on the health of Kenyans by US$4 for the year. The value of the 2 contracts is equivalent to a third of the 2005/6 expenditure on health. It is 5 times as much as the annual CDF across the country.
The scandal was exposed in Parliament on April 20, 2004 by Maoka Maore, MP for Ntonyiri and a member of the opposition party KANU, who while contributing to the Government Financial Management Bill of 2004, asked a question that revealed
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corruption networks had survived the transition between Moi and Kibaki, unscathed.
Mr. Maore tabled a 3 page document which included a payment voucher for Ksh 91.6 million paid as a 3% commitment fee to a United Kingdom based firm called Anglo Leasing & Finance Limited of Alpha House, Liverpool, U.K, to supply the Department of Immigration with immigration security and documents control computer hardware and software, 300,000 passport documents and lamination films for passports. He asked for a response from the Government as to why it had just awarded a 2.7 billion shilling Department of Immigration contract to a company that
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had been blacklisted 6 years previously for supplying the Kenya Police with defective Mahindra make jeeps. Finally, he accused officials in the Ministry for Home Affairs (the parent ministry for the Department of Immigration) of conspiring to inflate the contract price by US$22 million (equivalent to Ksh 1.65 billion at an exchange rate of Ksh 75 for every US$1). This was explosive stuff coming barely 15 months into the life of the Kibaki government, which had been elected in December 2002, primarily on a promise that corruption will cease to be a way
to brief President Kibaki the next day on this development and to write thereafter to the Kenya Anti Corruption Commission requesting an investigation of Mr. Maores claims. According to Mr. Githongos diary of that period (colloquially known as the Githongo Dossier) Mr. Maores claims were not new to him, having first
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heard the same in early March 2004 from sources. Indeed, Githongo had already embarked on an enquiry into the matter which involved regular presidential briefings and consultations with Ministers and the Vice President Moody Awori, who was the substantive minister responsible for the Department of Immigration. At this
Vice President Moody Awori implicated by the PAC
establish who had perpetrated this fraud and did not suspect that Anglo Leasing and this passport deal would end his career within the Kibaki government and totally destroy any anti-corruption credentials Kibaki ever possessed. Within 2 weeks of the Maore parliamentary revelation, the Kenya Anti Corruption Commission investigators had established that Anglo Leasing & Finance Limited did not exist in the United Kingdom, and that the Department of Immigration passports contract was a fraud. On May 2, 2004 Githongo records that he briefed the President that senior officials in government were possibly implicated in the unfolding saga. Those mentioned by the investigators at this stage included Hon. Moody Awori,
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Hon. Kiraitu Murungi, Hon. David Mwiraria, Hon. Chris Murungaru, PS Home Affairs, Mr. Sylvester Mwaliko, PS Finance, Mr. Joseph Magari, PS Internal Security Mr. David Mwangi, Mr. Alfred Getonga, Mr. Deepak Kamani and Mr. Jimmy Wanjigi. That was the beginning of the most complex and significant corruption investigation in Kenyan history. A scandal
Deepak Kamani Wanted for questioning by KACC
that revealed the staying power of embedded national and internationally located corruption networks; the fragility
of institutional control systems in the Government of Kenya (assumed to have been strengthened since Kibaki took over); and the extent to which political motives and greed combined to cost the Treasury over Ksh 56.3 billion between 1997 and 2004. What follows is a report that traces the course of this investigation and asks certain questions, which we believe have been largely ignored by the officialdom and the mass media, on the first hand deliberately; while on the other, inadvertently. The report is based on a comprehensive analysis
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of official reports by inter alia the Controller and Auditor General, the Parliamentary Accounts Committee, and the Kenya Anti-Corruption Commission. It also contains a compendium of media reportage on the Anglo Leasing scandal starting from the initial revelation and running through to recent developments. The main question is where are the promissory notes? In his April 2006 special audit of the 18 security related contracts, the Controller and Auditor General, Mr. Evan Mwai wrote that through the eighteen supplier/ security financier related credit
Mr. Evan Mwai Controller & Auditor General
contracts/ projects, Government has been committed to spending a total of Ksh 56.33 billion. The commitments were in the form of Irrevocable Promissory Notes which were given to the credit providers on the dates the respective credit agreements were signed.
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18 security related scandals of which most were either with fictitious companies, or involved committing the government
to pay for goods and services that were non-existent or overpriced. The scandal was first exposed in April 2004 by a parliamentary question which triggered a 3 year investigation that has yet to reach a conclusion. A good description of what transpired in the Anglo Leasing scandal goes thus: The modus was clear. The Government of Kenya would enter into a contract with a number of financing entities that did not exist which meant that the Government had no legal recourse. It also implied an effort on the part of financiers to avoid revealing their true identities which flew against common practice by reputable international financiers. Secondly in most of the contracts the GOK started debt repayments before substantive implementation of the projects had begun. The implication of this was that the bogus financing companies used the Governments money to implement the projects and then proceeded to charge interest on what are in truth fictitious loans by the Government to itself. John Githongo, November 22, 2005
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The 2 specific contracts that were actually given to Anglo Leasing and Finance Limited were for the construction of a state of the art forensic science laboratory on Kiambu Road for the Kenya Police Criminal Investigation Department and for a state of the art immigration security and documentation control system for the Kenya Department of Immigration respectively. The infamy of these 2 deals gave a host of other corruption scandals their name Anglo Leasing Type Contracts. It is common ground that there are 18 such contracts.
It was a condition of both contracts that payments to Anglo Leasing and Financing would be in the form of irrevocable promissory notes issued on the dates the 2 contracts were signed to Anglo Leasing and Finance Company Limited. Investigators have confirmed that this was a fatal mistake in that Anglo Leasing and Finance Limited is not registered in any of the countries (Switzerland or United Kingdom) it claims to come from. Neither of the projects ever got off the ground. Though this is denied by the GOK, official reports suggest that under the 18 contracts, the total exposure of the GOK is over Ksh 56.3 billion. This staggering amount would, by way of example cater for the Ksh 1 billion per annum Youth Enterprise Fund announced by the Minister for Finance in
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his budget speech of 2006 for 56 years. It is equivalent to 68% of what the Minister for Finance allocated to physical infrastructure in 2006. It is 37 times more than the Ksh 1.5 billion that was allocated by GOK for water projects in the Arid and Semi Arid Lands of Kenya (comprising 65% of Kenyas land mass) presumably intended to serve more than 10.2 million Kenyans. This figure (Kshs. 56.3 billion) may seem alarming but it has been obtained from official government reports that have never been controverted by any Government official. As recently as April 2006, in a special audit of the 18 security related
contracts, the Controller and Auditor General, Mr. Evan Mwai wrote that through the eighteen security related supplier/ financier credit contracts/ projects, Government has been committed to spending a total of Ksh 56.33 billion. The commitments were in the form of Irrevocable Promissory Notes which were given to the credit providers on the dates the respective credit agreements were signed. Even though over 50 separate irrevocable promissory notes with a total value of Kshs 6.9 billion shillings were issued to Anglo Leasing and Finance
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Limited by the Government of Kenya between August 2001 and December 2003; there is no mention in any official report thereafter that states the fate of the irrevocable promissory notes. This strikes one as odd considering that since May / June 2004, the GOK has consistently argued that all money paid has been returned.
Both the Controller and Auditor Generals 2006 Audit Report and the Parliamentary Accounts Committee (2004 and 2006) found that all the 18 Anglo Leasing type contracts were either unlawful, irregular or have not been performed. Further the PAC in their 2006 Audit Report wrote
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In several of the 18 other cases the GOK has also been locked into long term repayment arrangements through the facility of irrevocable promissory notes, and in at least one case deferred payment agreements.
GOK wanted to use 980 Post Offices to roll out Internet services for the Postal Corporation of Kenya via a scheme called Posta Surf. GOK signed deferred payment agreements.
with maturity/due dates which run into the future, by as much as ten years hence. According to two special audits by the Controller and Auditor General and the Parliamentary Accounts Committee (2004 and 2006) all the 18 Anglo Leasing Type Contracts are either unlawful, irregular or have not been performed.
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