Regulator reveals penalties against those implicated in a forensic audit report
Former directors of delisted motor vehicle dealer CMC Holdings #ticker:CMC have been forced to pay a penalty of Sh131 million for siphoning cash from the then publicly traded firm and stashing it abroad, the regulator has revealed.
The Capital Markets Authority (CMA) in its 2017 annual report says the money was recovered from a number of directors, but falls short of revealing their names.
Former CMC chief executive Mark Forster and long-serving board chairman Jeremiah Kiereini were among directors fingered in an audit report by South African law firm Webber Wentzel as having been aware of the existence of the secret offshore account.
The report detailed how prices of imported vehicles were inflated and the excess cash stashed in the secret account.
The scheme would eventually topple a group of powerful, long-serving directors of the motor dealer after the publication of the 2012 Webber report.
“The breach concerns the existence of a scheme involving over-invoicing on importation of vehicles into Kenya by CMC and operation of various off-shore bank accounts for purposes of channelling the margins from the over-invoicing for the benefit of select former key officers of CMC Holdings to the detriment of the company and its shareholders,” says CMA in its 2017 annual report.
“During the period (year to June 2017) the authority recovered the sum of Sh131.08 million from former directors of the company as disgorgement (repayment) of sums irregularly received from offshore accounts.”
Mr Kiereini and Mr Forster, however, went to court after the Webber Wentzel report was released, to challenge their implication in the matter.
The others linked to the offshore accounts by the report are former directors Jack Mordejay Benzima and businessman Prahlai Kalyani Jani, both deceased.
The CMC directors were found to have established an offshore account in the Jersey Islands, which was funded by inflating import prices of Land Rover, Nissan UD and Suzuki vehicles by between 1.5 per cent and two per cent.
Corporate governance malpractices
CMC would ask the car makers to funnel the excess funds to these foreign accounts, the report found. More than 19 CMC employees were cumulatively paid in excess of £500,000 from the offshore accounts between 2008 and 2011. The cash was wired to the beneficiaries as salary increments and bonuses.
The revelation in 2011 of corporate governance malpractices at the motor dealer, one of the oldest in Kenya, saw the firm’s share suspended from trading at the NSE, and most of the directors in place during the period were banned from sitting on the boards of listed firms.
The directors included former Attorney-General Charles Njonjo, businessman Richard Kemoli, former CMC finance director Sobakchand Shah and Andrew Hamilton.
CMC was later delisted from the exchange in February 2015 after Dubai firm Al Futtaim Group completed a Sh7.5 billion takeover.
The CMA annual report also shows other penalties levied on firms during the 2016/17 financial year. In total, the CMA collected Sh162.3 million in financial penalties in 2017, a large increase on the Sh784,000 collected in 2016. The CMA had collected Sh111 million in 2015.
British American Asset Management was hit with a Sh4.8 million levy for allowing a client—Genghis Unit Trust—to invest in Chase Bank in excess of the prescribed limit under CMA regulations.
KCB was also penalised Sh5.3 million for failing to report the same to the CMA. Equity Bank was directed to pay a former employee Sh242,660, for failing to repurchase shares allocated to the staff at the market.
Among stockbrokers, Faida Investment Bank (FIB) was penalised Sh316,667 for publishing unaudited accounts for the year ending December 2015, and subsequently submitting the audited accounts to the regulator late.
Seven other market intermediaries were fined between Sh2,000 and Sh16,000 each (totalling Sh45,555) for late submission of monthly management accounts and/or monthly risk-based capital adequacy returns.
CMA chief executive officer Paul Muthaura has in the past said there was need to increase the fines for breaching market rules and to make the penalties match the potential risk of exposure.
Two firms, Hutchings Biemer and A. Baumann, were also delisted during the year after years of suspension due to non-compliance with financial reporting rules.