How Imperial Bank owners used separate firm to start new bank

The owners of collapsed Imperial Bank registered a separate company which they used to acquire a stake in Dubai Islamic Bank and to apply for a banking licence to open a Kenyan subsidiary of the Middle East lender, the receiver managers have revealed.

The directors and shareholders of Imperial Bank formed Downstream Investments Limited and used it to apply for a licence to run a subsidiary of Dubai Islamic Bank (DIB) in Kenya, according to fresh filings in the court battle between the Kenya Deposit Insurance Corporation (KDIC), the bank’s receiver manager, and its owners.

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The KIDC reckons that DIB’s Kenyan arm is registered to Downstream Investments which is owned by nine companies, eight of which owned 100 per cent of Imperial Bank. 

Mohamud Ahmed, the receiver manager, says in court papers that DIB Kenya and the collapsed Imperial Bank appear to be interlinked as they share the same staff, registered offices and ownership.

The KDIC made the claims in reply to a suit two companies — Sandview Properties and Upperview Properties — owned by Imperial Bank’s deceased former managing director Abdulmalek Janmohammed and some of the bank’s directors, including Alnashir Popat, have filed against the fallen bank and its receivers.

Imperial Bank’s shareholders, however, insist that the claims are an attempt by the KDIC to tarnish their image by making all their business transactions appear suspicious.

Mr Ahmed says investigations had revealed that real estate firm Sandview Properties was charging rent to Imperial Bank and DIB for the same space in a prime building it owns in Nairobi’s Upper Hill area, adding that the transaction is still under investigation.

“The rent being charged by Sandview to DIB Kenya is charged on the same floors occupied by Imperial Bank. Downstream Investments owns DIB Kenya and the shareholders of Downstream are Imaran Limited, Reynold & Company, East Africa Motor Industries, Momentum Holdings, Abdulmal Investments, Kenblest Limited, Rex Motors, Janco Investments and Weywater Limited,” Mr Ahmed says.

Sandview has sued Imperial Bank seeking to recover its books of accounts, records and electronic tax registers which were seized by the KDIC. The materials confiscated were inside Imperial Bank’s Upper Hill branch, which sits in the building owned by Sandview.

But the KDIC has refused to release the documents arguing that the three companies tied to the building — Imperial Bank, DIB Kenya and Sandview — are linked to the fallen bank’s Sh34 billion scandal.

Imperial Bank is owned by Downstream Investments — which are in turn owned by Imaran Limited, Reynold & Company, East Africa Motor Industries, Momentum Holdings, Abdulmal Investments, Kenblest Limited, Rex Motors and Janco Investments.

These companies are co-owned by Mr Popat, former Imperial Bank chairman, Mr Janmohammed, Hanif Amirali Somji, Vishnu Dhutia, Mukesh Kumar Patel, Anwar Hajee and Jinit Shah.

The late Janmohammed, who the KDIC believes ran a Sh34 billion embezzlement scheme at Imperial Bank over 13 years, owned Janco Investments.

Downstream Investments was reported to have got the Central Bank of Kenya’s (CBK) green light to establish a local subsidiary of DIB and even hired a chief executive for the operation but the plan stalled after the CBK imposed a moratorium on the licensing of new banks in November last year to allow it time to strengthen oversight on the banking sector.

The decision has delayed DIB’s planned entry into Kenya.

Sandview, which is also owned by the Imperial Bank shareholders, says it will file a formal application before the High Court to expunge Mr Ahmed’s claims on DIB, arguing that it has no bearing on the case at hand.

Sandview adds that Imperial Bank has no authority to comment on Sandview’s lease agreement with DIB as it is not a party to the contract. Sandview has, however, denied charging both Imperial Bank and DIB Kenya rent for the same property.

“It is not true that rent was fraudulently being charged twice to DIB Kenya and Imperial Bank. Each of the said tenants had a separate lease in respect of separate and distinct premises. Any alleged issues surrounding Sandview’s lease with DIB Kenya can only be raised by parties to that agreement. Imperial Bank is not a party to that lease,” says Mr Popat, one of Sandview’s directors.

Mr Popat does not, however, specify whether Imperial Bank and DIB were to share the Upper Hill space but insists that the KDIC’s claims are false and speculative.

The KDIC has in the same case accused Imperial Bank’s owners of inducing its auditors, PKF Kenya, with a Sh500 million low-interest loan to turn their attention away from the massive embezzlement scheme at the collapsed lender.

Justice Fred Ochieng will mention the case on August 22.

DIB, the largest bank in the United Arab Emirates, said in July last year that it had been issued with an approval-in-principle to operate a subsidiary in Kenya. The bank in a past interview with a UAE-based magazine stated that it would cede 30 per cent of its Kenyan unit to a local partner.

The UAE-based lender is targeting the nascent but fast-growing Shariah banking driven by wealthy but unbanked Muslims in Kenya.

Kenya has two fully fledged Shariah-compliant banks, First Community Bank and Gulf African Bank. CBK data shows that the two lenders held deposits of Sh29 billion as at the end of last year, up from Sh22.8 billion the previous year.

Their combined market share stood at 1.09 per cent six years after they started operations, underlining the growth and potential of Shariah banking.

Kenya has been seen as a pioneer in Islamic banking with some of its neighbours, such as Uganda, currently in the process of passing Shariah regulations in the banking sector.