How Forster helped auditors to trail offshore accounts
Former CEO of the CMC Motors Group Martin Forster (left) at a past launch. Photo/ FILE
During his 33-year tenure as CMC chief executive, Martin Forster managed to keep one top secret in a safe at his Lusaka Road office— the details of off-shore accounts that only a select group of employees benefited from and an even smaller fraction knew about.
Webber Wentzel, the South African auditors that the Capital Markets Authority hired to look into the troubled motor company’s affairs say Mr Forster left the documents behind when he was sacked on March 14, 2011 allowing his successor to find them.
Mr Forster has since stated that he deliberately left the documents behind because money in the offshore accounts belongs to CMC.
That decision has helped the auditors to piece together the covert and elaborate money laundering scheme with a global footprint.
The auditors found that the fraudulent scheme began with the opening of Fair Valley Trust before 1996 that fed a bank account named Corival in National Westminster Bank at St Heiler in Jersey, Channel Islands.
It was Mr Jack M Benzirma, a former chairman of the auto dealer (deceased), who formed the trust “for the benefit of past, present, and future CMC’s employees.’”
Jeremiah Kiereini, the long-serving CMC chairman who succeeded Mr Benzima is one of the first people to have been introduced to the scheme before Mr Forster was roped in.
Together, Benzirma, Kiereini, and Forster laid the ground rules for payments from the trust.
The cardinal principle was that annual payments to beneficiaries would be made only from dividend, interest, and commissions received but leave the capital untouched.
The trio also agreed that individual annual payment and terminal benefits would not exceed three per cent and five per cent of the trust’s value at any one time.
Documents found in Mr Forster’s safe reveal that it was him who recruited former Attorney-General and long-serving board member Charles Njonjo into the scheme.
On October 5, 1999, Mr Forster wrote to Mr Kiereini informing him that he had arranged for Mr Njonjo to become a signatory to the Corival account after getting his passport details.
That letter was followed by another dated October 27, 1999, in which Mr Forster and Mr Kiereini advised the trustees of yet another trust, Fair Valley, to include Mr PK Jani, then a CMC board member, as a signatory.
This trust and another one named CMC Group Limited were financed through over-invoicing of certain motor vehicle brands that the auto dealer paid for at higher margins of between 1.5 and two per cent.
CMC’s Land Rover, Nissan Diesel (UD), and Suzuki franchises were the main targets of the scheme.
Mr Forster actively managed overcharging of the vehicle imports, following up with suppliers on their remittances to the Corival account.
In 2006, for instance, the CMC chief executive wrote to Mr T Sato, the general manager of Japanese trading company Sojitz Corporation, demanding remittance of inflated vehicle import charges to the Jersey accounts.
Secret accounts
“The payment you know about and has been administered for years, according to you, cannot now be paid and we will still look to your company to find a way of affecting this payment,” Mr Forster wrote.
His patience with the Japanese supplier run out the following year when he terminated the contract with Sojitz on May 3, 2007.
Mr Forster acted only a few days after Sojitz paid the full $248,000 freight overcharges into the secret accounts and four months later entered into an agreement with Marubeni, another Japanese firm to supply the Nissan Diesel brands.
Nissho Iwai, another Japanese trading firm, also run into problems making the remittances to Corival an account with a name that was different from their trading partner in Kenya CMC.
To overcome that challenge, Mr Forster opened a bank account named CMC Group Limited that remained dormant as the fraudulent scheme progressed through Corival.
In correspondence seen by Webber, Mr Forster indicated to his contacts that he would consistently destroy his copies of telefax and letters in Nairobi.
He and Mr Kiereini, who are identified as the key beneficiaries of the secret accounts, dug deeper into the fraudulent scheme by arranging for CMC to borrow the same money it had lost through the overcharges.
On February 4, 1999, for instance, Corival invoiced CMC for interest at nine per cent on a £100,000 loan for the period between February 10, 1998 and February 4, 1999.
Mr Stanley Lewis, who managed Corival out of Cyprus, wrote to Mr Kiereini on February 2000 advising him on loans from the off-shore account to CMC that he described as being more formal than those used in the past “which I think is essential to support their credibility.”
The auditors say the communication offers evidence that the former chairman and group managing director of CMC (Mr Forster) “engaged in lending with interest the monies they had siphoned off CMC back (to the company.”
Fair Valley Trust had Sterling Pound income and capital bank accounts at Kleinwort Benson — a bank based in Channel Islands — from which the bi-annual payments were made.
New investments
In the trust’s financial year ended September 30 — which is similar to CMC’s reporting period — Fair Valley reported that it had purchased new investments worth £1,826,662 and recorded a loss of £17,947 in its disposal of £550,000 worth of investments.
This left its investments with a book value of £1,533,139 and a market value of £1,477,434.
“This would indicate that the trust received some £1.23 million in commissions from principals and/or intermediary financiers on sales of vehicles of approximately £24.6 million,” the auditors say.
And to drive the point home to the CMC shareholders, the South African auditors say that “the £1.23 million rightfully belonged to CMC Holdings and its results for the year ended September 30, 2009 were duly understated by this amount.”
Based on an average exchange rate of Sh125, CMC lost Sh153.7 million in the overcharges even as it reported a loss of Sh181 million.
Webber reported that Paul Ndung’u, a director of CMC, was constantly frustrated by the way the auto dealer was run, especially in terms of financial reporting where on several occasions he pointed at irregular accounting.
It remains unclear when the overcharges and irregular borrowing started and ended, and Webber has recommended further investigations into the matter.
