Charles Njonjo, Joshua Kulei named in CMC scandal

Fresh details have emerged about investigations into fraud allegations at motor dealer CMC Holdings, shedding new light on the extent of secret payments to well-connected individuals who served as directors and executives of the company.

Details of investigations by the Capital Markets Authority, the regulator, and CMC Holdings have identified more prominent personalities who benefited from a mysterious Sh3.1 billion slush fund than previously disclosed.

Mr Joshua Kulei, who served as private secretary to former President Daniel Moi, and former Attorney-General Charles Njonjo are included on the list of individuals who allegedly received tens of millions of shillings in what regulators have termed illegal dealings.

The two have been identified as part of the “special 25”, including former head of Public Service Jeremiah Kiereini, who together allegedly received Sh1.5 billion from a slush fund on the English Channel island of Jersey, which was fed by inflating prices of motor vehicles supplied to CMC.

Former CMC shareholders, comprising more than 14,000 individuals, were earlier this year bought out by Dubai firm Al-Futtaim for Sh13 per share for a total of Sh7.5 billion.

READ: CMC director in group of 7,000 owners bought out in forced exit

CMC has for decades been a major supplier of government vehicles such as Land Rover and Volkswagen, raising the possibility that the taxpayer may have unwittingly paid more to benefit a few individuals.

Secret accounts

According to the investigation report seen by the Sunday Nation, the price inflations were wired to secret accounts in Jersey as commissions, forming a pool that was paid out to the individuals from 1977 to the late 2000s.

“All commission income from 1977 to date (October 2013) is at least £8.6 million (Sh1.2 billion). Adjusted for inflation, this would now represent some £21.6 million (Sh3.1 billion),” reads part of the investigation report.

“At least £11 million was paid out to individuals.” The payouts, described as “salary top-ups”, were made twice a year in pounds sterling.

Details of the payments are revealed in disclosures by financial institutions in Jersey, the UK, and Switzerland, including Regent Trust Co, Royal Bank of Scotland and RBS International.

Records indicate that Mr Kulei allegedly received an equivalent of Sh35.2 million in the early 2000s when he was actively involved in CMC affairs.

Mr Kulei had become a significant shareholder in the company by that time. Mr Njonjo is shown to have allegedly received Sh82.9 million in his capacity as a director and shareholder of the motor dealer.

This is the first time the former attorney-general has been identified as an alleged beneficiary of the slush fund, with previous investigations only showing he was a signatory to the offshore accounts.

Mr Kiereini’s total benefits are alleged to amount to Sh65.2 million. The former top civil servant was also a major shareholder and chairman of CMC for decades.

He is currently fighting to protect his assets from seizure by the CMA, which is seeking to recover nearly Sh200 million from him, including fines on the cash the regulator says he received illegally.

It remains to be seen whether CMA will also go after the other major beneficiaries of the secret scheme. Mr Kiereini has defended himself in the matter, saying the secret funds were set up for the benefit of “past, current and future employees of CMC.”

Fund beneficiaries

He has, however, not explained why the funds were kept secret nor has he explained the criteria used to identify beneficiaries, some of whom have since died.

The regulator’s lawyers describe the payments — which were not taxed — as unjust enrichment and recently moved to court to freeze Mr Kiereini’s shares at the Nairobi Securities Exchange.

READ: CMC directors ousted in fresh board shake-up

“Pending the hearing and determination of this application inter partes, this honourable court hereby issues a temporary injunction restraining (Mr Kiereini) from selling, transferring, or in any manner dealing with any shares… in any listed company in the NSE and the Central Depository and Settlement Corporation,” reads part of a Nairobi High Court order issued on August 28.

The case is set for hearing inter partes on September 10.

The businessman has, however, sold or transferred shares valued at Sh1.2 billion in the past few months, a move the regulator claims is meant to frustrate justice. It is unclear whether he has traded all of his stock holdings. Mr Kiereini’s lawyer Njoroge Regeru has said the businessman will challenge the order stopping him from trading at the Nairobi bourse.

Former managing director of CMC Martin Forster is alleged to have received Sh168.8 million. The biggest beneficiary, however, was the company’s founder Jack Benzimra, who received payments totalling Sh369.3 million.

Mr Benzimra, who has since died, established the first of the offshore accounts and trusts, Corival Overseas Investment Inc, in the 1970s.

Largest commission

Over time, other offshore entities such as Fairvalley Investments, Fairvalley Trust, Corival Limited, and CMC Group would emerge, with some remaining inactive.

The offshore firms received commissions from motor vehicle manufacturers who had dealership agreements with CMC, which charged a commission of between 1.5 per cent and two per cent of a vehicle’s price.

The multinationals, which acted together with a section of CMC’s directors including Mr Forster, were British Leyland, Land Rover, Ford and Volkswagen. Leyland remitted £1.7 million (Sh246 million), the largest commission to the offshore accounts.

A legal opinion accompanying the investigation report says it is not clear whether the multinationals are guilty, saying their decision to charge the commissions could have been part of their dealership agreement with CMC officials who one would expect to represent the interests of all shareholders and employees.

By the time Mr Forster was forced out of CMC in March 2011, he had become a key player in the management of the slush fund. Mr Forster actively managed the overcharging of the company’s vehicle imports, following up with suppliers on their remittances to the Corival account.

The documents show Mr Benzimra had fought to retain control of the funds following his retirement as chairman of CMC in 1999 when he was replaced by businessman P.K. Jani.

Mr Benzimra argued that he needed to protect the trust funds from the new owners, whom he feared would “raid” the offshore accounts. He was, however, unsuccessful and he was removed from the list of beneficiaries in subsequent years.

Damning documents

Mr Benzimra had set some rules for the scheme, including the demand that all annual payments to be made only from dividend, interest, and commissions received and that the capital was to remain untouched. No individual annual payment and terminal benefits were to exceed three per cent and five per cent of the trust’s value at any one time.

At the turn of the century, most manufacturers stopped remitting the commissions, and the offshore accounts were gradually drained from the payouts to the individuals. As of August 23, last year, Fairvalley Trust — which remains active — had a balance of £1,086,729.5 equivalent to about Sh157.5 million.

Existence of the scheme was revealed when Mr Forster was fired by the board of CMC, leaving behind documents in his office safe that captured part of the payments. When his successor, Bill Lay, took office in May 2011 he discovered the damning documents and soon went public with the findings.

On the documents were Mr Forster’s handwriting that said: “Upon my demise please give this to the group chairman (Mr Kiereini)”. The discovery sparked a full investigation into the offshore accounts, leading to a protracted battle between CMA and some of the former directors of the motor dealer.

Mr Forster has said he left the documents on purpose, adding that the offshore funds are CMC’s property despite the fact that only a few individuals benefited from them.

The fresh documents seen by Sunday Nation show the operators had at various times contemplated repatriating the cash to Kenya to either fund CMC’s pension plan for all employees or build a training centre. Those plans were never implemented.

While CMA is keen on recovering the money, it is not clear who exactly will benefit from it as CMC shareholders have been bought out by Al-Futtaim.

The legal opinion accompanying the investigation report suggests that effort should be focused on recovering the cash from beneficiaries who are still alive, whose whereabouts are known and who have “deep pockets”.