Kenya’s anti-money laundering watchdog, the Financial Reporting Centre (FRC), failed to take action on suspicious transactions in the Youth Enterprise Development Fund’s (YEDF) account at Chase Bank, leading to the loss of Sh180 million, Parliament heard Tuesday.
Chase Bank, which hosted the youth fund’s account, told Parliament that the FRC did not act on reports signalling suspicious transactions in the account belonging to Quorandum Limited, the firm that did business with the YEDF.
At the time of reporting to the FRC, only Sh6.4 million out the Sh115.7 million in Quorandum’s account had left the bank.
“Even as the transaction was done, the bank was uncomfortable and on March 5, 2015 initiated a report under the proceeds of crime and money laundering regulations to the Financial Reporting Centre citing a suspicious transaction,” said Parmain Ole Narikae, the director for external and regulatory affairs at Chase Bank.
On February 23, 2015, the bank had obtained sufficient documentation to effect the first transfer of Sh115.7 million to Quorandum’s account.
Even after accepting the funds, the bank said it remained uncomfortable with the transaction and in the interest of protecting public funds, restricted access to the funds on the same day.
Quorandum is then said to have provided the bank with a contract it had signed with the YEDF and invoices in support of its documentation to prove that had done genuine business with the fund.
“At this stage, and given the fact that the bank had obtained all supporting documents from both parties in the transaction, we had no choice but to allow the customer access to the funds,” said Mr Narikae.
He said Quorandum had never received such huge payments before and had during the lifetime of the account only received Sh3,000.
On April 27, 2015, the bank received further instructions from the YEDF to transfer Sh65 million to Quorandum but funds in the account were not sufficient to make the transaction. The account had only Sh20.9 million.
The bank contacted the then chief executive of the youth fund, Catherine Namuye, informing her of the developments, to which she sent amended instructions that Sh64.6 million be transferred.
Since the bank had already conducted due diligence in the prior transaction by the fund it proceeded to effect it.
The due diligence the bank had carried out include obtaining updated mandates for the operation of the youth fund through a board extract, obtaining contracts and invoices between the fund and Quorandum and reporting suspicious transactions to the FRC.
The YEDF had on April 6, 2015 booked Sh219.8 million in a fixed deposit account at Chase Bank and instructed that the amount be rolled over for two months.
On July 2015, the fund instructed the bank to liquidate the deposit of Sh219.8 million and transfer Sh120 million to its account held at KCB, which Chase Bank effected.
In August 2015, the bank received instructions from the fund to roll over Sh99.8 million for two months. The funds matured automatically.
Four months later (December 2015), the bank received an order authorising a one-off signing mandate for operating the YEDF account. The directive came from the fund’s chairman, Bruce Odhiambo.
Mr Odhiambo is on the spot for unilaterally appointing Ms Namuye to be the sole signatory of the account that resulted in the theft of Sh180 million.
Ms Namuye and Mr Odhiambo are said to have side-stepped Chase Bank relationship manager Jedida Kabiru and dealt with the bank directors in transferring the millions of shillings.
Ms Namuye, who is under suspension, transferred the money in two instalments, 10 days after Mr Odhiambo wrote to Chase Bank informing its managers of the change in signatories.
Mr Odhiambo further gave the names of Ms Namuye and Ms Judy Kimeto, the lending and investment manager at the fund, as the signatories for Class A accounts.
Finance manager Benedict Atavachi, Robert Mrima (senior accountant) and Benson Mutwi, an accountant, were signatories of Class B accounts.
On February 2016, Chase Bank received a letter from acting CEO Emannuel Odero asking for information regarding the YEDF account.
“We reiterated that the fund had issued a new mandate and his name was not included in the list of mandates,” said Mr Narikae.