US watchdog says bribes paid to secure tyre contracts

A worker removes a tyre during production at a Goodyear factory in Indonesia. The US tyre firm revealed that bribes had been paid to Kenyan officials. PHOTO | REUTERS
A worker removes a tyre during production at a Goodyear factory in Indonesia. The US tyre firm revealed that bribes had been paid to Kenyan officials. PHOTO | REUTERS 

Top Kenya government officials are on the spot once again for pocketing more than Sh138 million ($1.5 million) in bribes from a subsidiary of American tyre firm Goodyear Tire & Rubber Company, US regulators said.

The bribes were paid in exchange for the award of multi-million shilling tenders to supply tyres to some of Kenya’s largest state corporations, government agencies and public listed firms.

The US Securities & Exchange Commission (SEC) said Goodyear paid the bribes to Kenya Ports Authority (KPA), Armed Forces Canteen Organization (Afco), Nzoia Sugar, Kenyan Air Force, Ministry of Roads, Ministry of State for Defence, East African Portland Cement Company (EAPCC) and Telkom Kenya executives to win contracts.

US detectives also established that additional Sh1.3 million ($14,457) was dished out to lure Kenya Police and City Hall officials to award the Ohio-based tyre maker multi-million shilling deals.

The corrupt dealings, committed between 2007 and December 2011, were executed through Treadsetters Tyres Ltd, then a subsidiary of Goodyear.


Goodyear made the illicit payments to Kenyan officials in cash and recorded the spending in its financial books as advertising expenses, according to a forensic audit by the SEC.

“Treadsetters’ general manager and finance director were at the centre of the scheme,” the SEC said in its filings. “They approved payments for phony promotional products, and then directed the finance assistant to write-out the checks to cash.”

The well-orchestrated bribery ring involving Kenyan bureaucrats is captured in a ruling in which Goodyear has agreed to pay a Sh1.48 billion ($16.22 million) fine for engaging in corrupt practices abroad.

“Treadsetters’ management regularly authorised and paid bribes to employees of government-owned or affiliated entities, and private companies, to obtain business,” the investigators found.

The SEC investigation followed an anonymous report alleging that Goodyear had made bribery payments in Kenya to secure business deals.

“In June 2011, an anonymous source reported, through our confidential ethics hotline, that our majority-owned joint venture in Kenya may have made certain improper payments,” Goodyear said in a regulatory filing dated February 14, 2012.

The tyre scandal now turns the heat on those who served as chief executives of the parastatals and ministers whose dockets are mentioned, for presiding over corrupt entities contrary to the demands of good corporate governance and demands of public office.

James Mulewa was fired as KPA managing director in 2010 over allegations of massive fraud at Kenya’s port of entry, and replaced by current MD Francis Gichiri Ndua.

Afco, now rebranded as Defence Forces Canteen Organisation (Defco), runs a network of shops in military locations. Its top policy making body is the Defco council which is chaired by the chief of defence forces (CDF).

General Jeremiah Kianga served as the chief of the general staff (now renamed CDF) between 2005 and 2011.

Those in charge at Nzoia Sugar when Goodyear made bribery payments to secure tyre supply contracts include Josephat Akoyo, the firm’s former boss and current MD Saul Wasilwa who took over in 2009.

Major General Harold Tangai served as Air Force commander between 2005 and 2011 and was succeed by Joff Otieno who retired last year. At the Roads ministry, Kipkalya Kones (deceased) served under the Grand Coalition government and was succeed by Franklin Bett.

The Defence minister during the period under review was Yusuf Haji, who is now Garissa senator.

Former EAPCC bosses Ndegwa Kaggio and his successor John Nyambok (2008 to 2010) as well as current MD Kephar Tande will be hard pressed to explain the alleged tyre bribery scam at the firm.

Those at the helm of Telkom Kenya include former MDs Dominique Saint Jean (2007 to 2009) and his heir Mickael Ghossein who retired last year.

Former Nairobi Mayor George Aladwa and those who served as Town Clerks Philip Kisia (2009 to 2012) and his predecessor John Gakuo will also be required to explain their role in the tyre scandal.

Goodyear acquired a minority stake in Treadsetters in 2002 and four years later, increased its shareholding to have a controlling stake. However, the day-to-day operations of the Kenyan business continued to be run by Treadsetters’ founders and the local general manager.

SEC filing show that Treadsetters Tyres Ltd posted annual revenues of Sh1.8 billion ($20 million).

“The practice was routine and appears to have been in place prior to Goodyear’s acquisition of Treadsetters,” said the US markets regulator.
Treadsetters was founded in 1987 and has a current capacity to produce 12,000 retread tyres monthly.

The counts of corruption were filed under the US Foreign Corrupt Practices Act, which prohibits use of inducements to employees of companies to influence decisions and win business deals.