StanChart reveals secrets of Sh100m paid to avoid NYS fraud prosecution

Standard Chartered Bank Kenya #ticker:SCBK (StanChart) has revealed to American regulators that it opted to pay Sh100 million in exchange for a two-month reprieve from the prosecution of its executives in connection with the theft of funds at the National Youth Service (NYS).

The bank through its London-based parent company, Standard Chartered Plc, disclosed that the Office the Director of Public Prosecutions (ODPP) had not taken further action against it or its managers for not reporting suspicious transactions involving the NYS under anti-money laundering laws.

StanChart told US regulators on February 1 that it opted to enter a deal with the DPP after the bank got wind that the Directorate of Criminal Investigations (DCI) had recommended charges against its executives over the NYS theft.

The charges related to the theft of billions of shillings from the NYS in a scam that saw dozens of senior government officials and businesspeople charged in May 2018 with various crimes.

StanChart revealed new details of the DPP deal in regulatory disclosures to the Securities Exchange Commission (SEC).

Firms are required to make filings with the powerful SEC if their securities are publicly traded in America, raised funds in the US or have shareholders required to file corporate actions with regulators in Washington.

The DCI probe followed the move by the Central Bank of Kenya (CBK) to fine five top commercial banks for failing to report suspicious transactions related to the NYS.

Penalties totalling Sh392.5 million were imposed on Standard Chartered Kenya, Equity #ticker:EQTY , Diamond Trust, Co-operative Bank of Kenya #ticker:COOP and KCB Group #ticker:KCB .

This is the first time any of the banks is revealing details of the deal with the DPP, including the events that led the lenders to pursue a settlement.

The other banks –KCB, Equity, DTB and Co-op Bank— have not announced the status of their co-operation with the DPP.

"In December 2019, SCBK agreed a settlement of this matter with the DPP. Under the terms of SCBK's settlement, the DPP agreed to defer prosecution against both SCBK and personas affiliated with SCBK and the DPP imposed a penalty of Sh100 million ($964,000) on SCBK," StanChart said in SEC filings.

Facilitating theft

"The deferred prosecution agreement had a 60-day term, which expired as scheduled in 2020 and the DPP has not taken any further action."

It’s not clear if the lenders met the terms of the DPP deal despite the DPP, Noordin Haji, having insisted that the banks executives were still open to prosecution for facilitating theft of billions of shillings at the NYS.

The deal with StanChart required the bank to implement various anti-money laundering measures, which include taking disciplinary action against all staff members who were involved or implicated in the scandal.

StanChart in December 2018 announced the exit of chief executive Lamin Manjang, who was at the helm when the bank received Sh1.6 billion from the NYS. He was replaced by Kariuki Ngari.

The banks were also compelled to provide information that would help State agencies arrest persons suspected to have siphoned cash from the NYS.

The banks were also at risk of prosecution should they demand reimbursements from insurance firms to cover the millions paid to the office of the DPP and the CBK for facilitating the fraud.

The DPP fined the five banks a total of Sh385 million.

This pushed the total fines over their handling of the NYS cash to Sh777 million.

Criminal prosecution

The DPP said investigations found the lenders had failed to put in place adequate systems to combat money laundering and failed to know their customers as the law required.

The five top commercial banks were to face criminal prosecution for facilitating the NYS scam where they received about Sh3.5 billion believed to have been stolen from the State agency.

The banking regulator said that the banks had also failed to report large transactions and to undertake proper due diligence on customers.

It also accused them of approving large transactions without proper documents.

Investigations revealed that funds were stolen at the NYS through fictitious invoices and multiple payments on one supplier invoice.

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