CMC gives up bid to recover billions in Jersey slush fund

The new owners of motor dealer CMC Holdings have given up the fight to recover billions of shillings that former directors allegedly siphoned from the company and stashed in secret Jersey Island accounts.

Mr Mark Kass, the new chief executive of CMC, said the company is not interested in pursuing the offshore accounts that were allegedly setup by former directors and shareholders.

“We want to leave that legacy behind and progress with our vision for the company. These things happened a long time ago and we frankly don’t know what exactly happened,” he said.

Instead, he said, Dubai-based firm Al Futtaim – which wholly acquired CMC Holdings in a Sh7.5 billion deal – will focus on expanding market share and growing earnings.

The decision should come as a big relief to former long-serving directors who were named as having benefited from the secret accounts.

They include Joshua Kulei, who served as private secretary to former President Daniel Moi, former Attorney-General Charles Njonjo, billionaire Jeremiah Kiereini, former CMC MD Martin Forster and CMC founder (deceased) Jack Benzimra.

Al Futtaim’s change of heart comes barely a year after CMC hired investigators and lawyers to recover the funds allegedly stashed away in foreign accounts by past directors.

A forensic audit by South African firm Webber Wentzel established that the Jersey secret slush fund had received £8.6 million (Sh1.2 billion) in commissions between 1977 and October 2013.

CMC delisted from the Nairobi bourse early this year following the acquisition by the Dubai firm.

Mr Kiereini is, however, not out of the woods yet as he is currently in court fighting the Capital Markets Authority (CMA), which accuses him of fraudulently receiving Sh65.2 million during his tenure as CMC chairman.

READ: Capital markets watchdog revives fight with Kiereini over CMC’s millions

CMA last month told the High Court that it had noticed aggressive selling of Mr Kiereini’s portfolio at the Nairobi Securities Exchange-listed firms, interpreting the move as an attempt to frustrate its recovery plan.

Claims of financial impropriety have forced the capital markets watchdog to freeze the trading of shares owned by Mr Kiereini at the Nairobi bourse.

The CMA says it lifted the ban in May to facilitate the buyout of CMC by Al-Futtaim Group, a deal from which Mr Kiereini earned Sh947 million for his 12.5 per cent stake. The regulator says Mr Kiereini used the opportunity to sell his shares in other companies.

Audit reports say that CMC directors accumulated the slush funds by colluding with suppliers to overcharge CMC on invoices.

The funds accruing from such invoices would then funnelled to the Jersey accounts before being paid back to the directors alongside a select group of senior managers.

Cash held in the account was never disclosed in the firm’s annual reports to shareholders or to the Kenya Revenue Authority.

The secret accounts first came to the limelight after Bill Lay replaced long-serving chief executive Martin Forster and claimed he had bumped onto the information while going through files that Mr Forster had left behind.

News of the secret accounts saw auditors Ernst & Young offer a qualified opinion on the CMC’s 2013 financial statements, meaning that there were information gaps in the balance sheet and earnings statements.

CMC said in its 2013 annual report that it “was still pursuing recovery of any money in foreign accounts through investigators and lawyers… until the matter is resolved conclusively.

“The existence of certain foreign offshore bank accounts set up in prior years by certain past directors ... have not been included in the financial statements,” the report said.

Webber Wentzel, the South African audit firm that the CMA hired to probe the affairs of the troubled motor company linked Mr Kiereini, Mr Njonjo, Mr Forster, former (deceased) directors Benzimra and P K Jani to the secret accounts.

The forensic report said CMC directors built the secret account over three decades by inflating import prices of Land Rover, Nissan UD and Suzuki vehicles. CMC would order the vehicles and strike a particular legitimate contract price.

The firm would then ask the international car makers to increase the bill by between two and 1.5 per cent and present this as the full invoice to CMC Motors.

The additional amount would be routed into an investment trust account and the proceeds secretly paid to past directors and current and past employees.

“Kiereini, Forster, Jani and Njonjo were the directors of both Corival (1996) and CMC Group, the cheque signatories to the bank accounts,” said the Webber report.

At one point in 2010, the offshore account had a bank balance of £1.7 million or Sh243 million at current exchange rates.

Mr Njonjo, 93, owned 1.32 per cent of CMC Holdings, while Mr Kiereini, 84, controlled a 12.5 per cent stake. Andrew Hamilton, Mr Kiereini, Mr Njonjo and businessman Richard Kemoli quit CMC’s board in the past two years.

Allegations of legal and regulatory breaches at CMC Motors were unearthed following boardroom wars that initially pitted newcomers against the old-guard. The warring shareholders reached a truce in February and agreed to sell the company to the Dubai firm.

The Jersey secret account saga has sucked in auditing firm Deloitte which is accused of failing to unearth a secret offshore account – funded through over-invoicing of CMC’s vehicle imports – and also used to discreetly siphon out cash from the motor dealer.

The capital markets regulator in 2012 filed a complaint with ICPAK in relation to the conduct of Deloitte as the external auditors who ought to have pointed out the financial malpractices at CMC, including a secret account held in Jersey Island.

Deloitte was accused of misstating CMC’s accounts by abetting the booking of undelivered vehicle sales as revenues and not capturing interest payments for cars sold on credit, thereby inflating its earnings.

But Deloitte has blamed CMC Motors management for the “substandard” financial statements, adding that the car dealer’s directors and board intentionally presented falsified documents that the audit firm used as the basis of its opinions.