Former Attorney General Charles Njonjo. Mr Njonjo was one of only a small clique of the CMC’s company directors who knew about the secret accounts that were allegedly used to divert funds from the motor dealer.
What exactly did former attorney-general and long-serving CMC board member Charles Njonjo know about the secret offshore accounts that were allegedly used to divert funds from the motor dealer?
This is one of the questions that Webber Wentzel, the South African audit firm that the Capital Markets Authority (CMA) hired to probe into the affairs of the troubled motor company, has had to deal with in the past six months of the assignment.
Mr Njonjo was one of only a small clique of the company’s directors who knew about the secret accounts that were funded through over-invoicing of CMC’s vehicle imports, according to the forensic investigation report seen by the Business Daily.
The former AG, who is still serving on the CMC board, is named in the report as one of only five directors who had powers to operate the account since it was opened in 1978.
The report says “certain current and former (CMC) directors are under investigation for allegedly arranging for the over-invoicing of imported vehicles from certain manufacturers and funnelling the over-invoiced foreign currency money transferred into the foreign bank accounts.”
Former head of Civil Service and CMC board chairman Jeremiah Kiereini, former chief executive of the company Martin Forster and former (deceased) directors Jack Benzima and P K Jani are the other individuals named as having wielded the powers to “settle” the offshore account, whose proceeds were used to make secret payouts to “past, current and future” CMC employees.
“Kiereini, Forster, Jani and Njonjo were the directors of both Corival (1996) and CMC Group, the cheque signatories to the bank accounts,” states the Webber report.
The CMA only released a summary of the Webber report last Friday, but did not reveal names of individuals who were found to have breached market regulations.
The investigators say they involved the attorney-general’s office to investigate signatories of the secret account opened in the tax haven island of Jersey, indicating that legal charges could be filed against directors found to have defrauded shareholders of the Nairobi Securities Exchange (NSE) listed motor firm.
In the Press statement signed by CMA chairman Kung’u Gatabaki, the markets authority said it had set up an ad hoc committee “to conduct proceedings involving the directors who established and operated the accounts.”
The Webber report says CMA has “sought the assistance of the attorney- general to obtain all documentation including the underlying bank accounts and statements and details of income distributions made from inception to date.”
At one point in 2010, the offshore account whose existence CMC chief executive Bill Lay revealed last year had a bank balance of £1.7 million, equivalent to Sh221 million at current exchange rates.
Mr Lay, who took office in June last year, sparked a storm when he first lifted the lid on the secret accounts, prompting the CMA to order a forensic audit into CMC’s books.
Cash held in the account was never disclosed in CMC’s annual reports to shareholders or to the Kenya Revenue Authority.
Mr Forster and Mr Kiereini, who recently resigned as chairman of East African Breweries Limited (EABL), are said to have drawn cash from the account, though Webber could not find documental evidence that Mr Njonjo was a beneficiary of the secret fund.
Mr Njonjo, who owns 1.32 per cent of CMC Holdings, could not be reached for comment on Friday afternoon as his cell phone was switched off. Mr Forster, the former CEO, however, admitted he had been summoned by the Webber auditors who authored the report. “They interviewed me, you can refer to the report,” said Mr Forster.
According to the Webber report, CMC directors built the secret account over three decades by padding (inflating) import prices of Land Rover, Nissan UD and Suzuki vehicles.
CMC would negotiate for arms-length cost with makers of these vehicles, which would be the legitimate price that would go to the manufacturers. They would then ask the car makers to inflate the prices for Land Rovers by 1.5 per cent, Nissan UD prices would be padded by a margin of two per cent while Suzuki invoices were over-stated by 1.5 per cent.
The over-charged invoices would be presented to CMC Holdings with the agreement that the proceeds are wired to the secret account.
Accounting firm Ernst & Young assisted in opening the “Fair Valley Trust” offshore account in St Hellier, Jersey Islands, whose main source of funding was cash deposits in a NatWest Bank account named Corival (1996) that the Webber auditors traced to the CMC directors.
To boost the secret account, the Webber report says certain CMC directors would push for “a high risk strategy of selling its products on credit,” for the sole purpose of raising sales volumes.It involved focusing on “volume” driven sales as opposed to “profitable” sales.
“Allied to this volume strategy was the incentive to import as many units as possible to generate corrupt commission income for the Fair Valley Trust and thus for the beneficiaries of the Trust,” says the Webber report. Income distributions from the Jersey account were made twice a year. An estimated £538, 648 (Sh70 million) was distributed to the beneficiaries between 2008 and 2011.
The Webber report is, however, silent on allegations by Mr Lay that Peter Muthoka, a former chairman and current board member of the motor dealer, used his position to charge inflated bills for transportation, clearing and forwarding services offered by his company to CMC.
A separate PricewaterhouseCoopers (PwC) report commissioned by Mr Lay found that CMC may have lost up to Sh1.1 billion in the past five years in the alleged inflated charges by Andy Forwarders — a logistics company owned by Mr Muthoka.
Mr Muthoka has disputed findings of the PwC report, arguing that the audit firm was biased in its investigations.
The Webber report notes that salary increases that were made to some staff at the time when he was chairman of the board did not contravene corporate governance rules, as the committee that authorised the raise “was mandated to do so and affect all acts and things required pertaining to the running of the company”-- though it notes that 15 of the 61 beneficiaries were from one tribe.
Mr Muthoka’s company, Andy Forwarders, is however found to have contravened the 25 per cent shareholding limit for listed companies, and CMA says it will “require the shareholder to come into full compliance with capital markets mergers and takeover regulations.”
The Webber auditors say they have not found evidence of insider trading even though the directors dealt in shares of the company during price sensitive periods.
The report also talks of a dysfunctional CMC board “engaged in harmful and destructive practices motivated by self interest,” a finding that is expected to put the chairman, Joel Kibe’s side of the CMC board that has been denying the schism under renewed pressure.
The audit finds that the engagement of certain directors with the company amounted to a conflict of interest, but faults the motor firm for not keeping a formal platform where directors could register such an interest.
“Certain former and current directors were engaged in business activities in conflict of the interest of CMC, but the company does not maintain a Register of Interest in Contracts in which all declarations of interest should be recorded.”
In a finding that is likely to further poison the bad blood between Mr Muthoka and Mr Lay, the audit report not only shows that Pewin Motors, the sales agent whose contract Mr Lay signed on his first day in office has received millions of shillings in irregular payments, but also that Mr Muthoka’s revelation that Mr Lay had irregularly hired Pewin was aimed at “diverting attention from his alleged misconduct.”
It, however , says Pewin Motors’ contract is “onerous on CMC” and “flawed” as it should have been drafted to exclude the payment of commission on loss making sales.
The CMA is expected to release the full report in the coming weeks, paving the way for the next level of action that should include a roadmap for the return of CMC shares to the trading floor at the NSE.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
