Imperial Bank shareholders induced its auditors with a $5 million (Sh500 million) low-interest loan to turn their attention away from a Sh34 billion embezzlement scheme at the collapsed lender, the Kenya Deposit Insurance Corporation has claimed in court filings.
The KDIC, Imperial Bank’s receiver manager, says in documents filed at the Milimani High Court that top managers at audit firm PKF Kenya were lent Sh500 million through a real estate company they owned to rope them into the multibillion-shilling scandal.
Mohamud Ahmed of the KDIC holds that the PKF partners received the loan through East Africa Property Holdings and were to repay the amount in 7-10 years at an interest rate of 19 per cent per year.
Imperial Bank was also to buy out a $2 million (Sh200 million) loan the realtor took from Habib Bank AG, Zurich.
Former Imperial Bank chairman Alnashir Popat has, however, dismissed the KDIC’s claim, arguing that the loan deal was struck by deceased founder and managing director Abdulmalek Janmohammed.
He insists that Mr Janmohammed did not disclose to the directors details of the interest rates.
The KDIC has made the claims in a suit filed by two companies owned by the deceased Mr Janmohammed and some Imperial Bank directors including Mr Popat— Sandview Properties and Upperview Properties— against Imperial Bank and its receivers.
“In order to compromise the said auditors and prevent them from rendering accurate audits and conceal the monumental fraud, Sandview and Upperview’s directors being the board of directors of Imperial Bank approved a massive loan at a concessionary interest rate to the partners of PKF Kenya, trading as East Africa Property Holdings,” Mr Ahmed says.
“A document titled credit application for consideration by Board of Directors relates to an application by East Africa Property Holdings for a project finance facility of $5 million repayable over 7-10 years. An element of the facility was to take over an existing loan of $2 million the company had with Habib Bank AG, Zurich,” Mr Ahmed adds.
East Africa Property Holdings was listed among the top 50 Imperial Bank borrowers when the lender collapsed, with an exposure of Sh371 million to the lender. Mr Ahmed says Rajan Shah, a partner at PKF represented the auditors in the loan deal.
Sandview and Upperview have sued Imperial Bank and its receiver manager for the return of books of accounts, records and electronic tax register (ETR) machines confiscated by detectives investigating the massive embezzlement scheme allegedly run by the deceased Mr Janmohammed for more than 13 years.
Mr Popat, the former Imperial Bank chairman and a director at the two firms, insists the collapsed lender’s directors were not aware of the relationship between PKF and East Africa Property Holdings.
The KDIC says the Imperial Bank directors were well aware of the conflict of interest presented by the loan to its auditors but went ahead to approve the loan. The KDIC says the loan details were revealed in an audit being carried out by FTI Consulting.
“The concessionary interest rate of 19 per cent allowed to the partners of PKF was not brought to the attention of the board. It was not a board matter. The directors of Sandview and Upperview are not aware of the conflict of interest because the late managing director, certain members of his team and PKF conspired to deceive the board,” Mr Popat adds.