Nairobi law firm Kaplan & Stratton has been entangled in the multi-million shilling National Youth Service scandal after police blocked its bank account over suspicion that it had handled part of the stolen funds.
The Banking Fraud Investigation Unit (BFIU) obtained a court order barring the law firm from transacting any business on an account it holds at Barclays Bank, Queensway Branch, on grounds that it was used to help a mining company launder part of the Sh791 million stolen from the National Youth Service (NYS).
BFIU investigators believe that looters of the NYS funds used advocates to purchase property on their behalf as part of a scheme to launder the funds, and are investigating Kaplan & Stratton’s possible involvement in a similar scheme.
Kaplan & Stratton has since obtained a High Court order opening the account as investigations into the alleged crime continues.
Justice Fred Ochieng granted Kaplan & Stratton’s prayers unfreezing the bank account even as he warned the law firm’s partners that they would be held to account in the event that any funds withdrawn from the account is proven to have been from the NYS.
“In consideration of this order, the partners in the law firm of Kaplan & Stratton are directed to give their undertaking that if any money is paid out from their bank account and it is later proved that such funds were part of the money fraudulently obtained from the NYS, the partners will be held to account,” Justice Ochieng said, adding that the temporary unfreezing of the account does not bar the BFIU from investigating the law firm.
The BFIU had obtained the freezing orders from the magistrate’s court, arguing that it needed time to ascertain whether funds used in a real estate transaction was part of the missing Sh791 million from the NYS.
The magistrate’s court had also allowed the investigators to record statements from Barclays Bank employees who handled transactions on Kaplan & Stratton’s account between October 1, 2014 and last Friday.
The BFIU was also allowed access to bank statements and other documents covering transactions within the same period.
The Investigators reckon that Kaplan & Stratton helped one of its clients - Mayfox Mining Company – to purchase property using an undisclosed amount believed to be part of the Sh791 million NYS funds.
Kaplan & Stratton last Friday sued the BFIU and the Chief Magistrate’s Court that issued the freezing orders, arguing that what was frozen is a client account.
The law firm further told the court that it does not hold any funds on behalf of Mayfox Mining Company as alleged by the anti-fraud police and accused the BFIU of acting maliciously by seeking orders to freeze the said account without warning or informing the law firm of its intention to probe the Barclays Bank account.
Neither the BFIU nor the Chief Magistrate’s Court has responded to the suit Kaplan & Stratton filed at Nairobi’s Milimani Commercial Court.
Tier one law firm
Kaplan & Stratton is one of Kenya’s oldest law firms that was established 89 years ago and has more than 20 partners and 40 associates.
Legal 500, an institution that analyses the performance of law firms around the world, last year ranked Kaplan & Stratton as a tier one law firm in banking and finance, mergers and acquisitions.
Peter Gachuhi, a senior partner at the firm, says in an affidavit that the firm only discovered the freezing of the contested account on Monday evening – three days after the order was issued.
“None of Kaplan & Stratton’s partners had been asked to provide the BFIU with any statement or explanation on any dealings with any of its clients and in particular Mayfox Mining Company prior to issuance of the preservation order nor is it clear in what sense the applicant is implicated in the subject matter of the claim,” Mr Gachuhi says, adding that the applicant (Kaplan & Stratton) holds no funds for or to the account for its client Mayfox Mining Company.
Mayfox is a Kenyan mining firm that begun its operations in 2012 when it was awarded a licence to explore for gold in Turkana County over an area measuring 5,900 square kilometre in radius.
Mayfox says in its website that the Turkana mining radius is set to be narrowed down to 2,895 square kilometres as it expands its operations to Mozambique.
Kaplan & Stratton’s application seeking to quash the freezing of its accounts is due for hearing this morning before Justice Charles Kariuki.
Kaplan & Stratton is the second law firm to be entangled in the NYS theft scandal after Nairobi-based Ogola & Mujera Advocates was accused of laundering cash on behalf of controversial businessman Ben Gethi.
The newly formed Assets Recovery Agency, alongside the BFIU, has filed recovery proceedings against Mr Gethi, businesswoman Josephine Kabura and 11 other individuals believed to have benefitted from the looted NYS funds.
The NYS scandal first came to light in June after it was discovered that nearly Sh800 million had been irregularly transferred from NYS’ Integrated Financial Management System (IFMIS) accounts to three companies for procurement of building materials.
Police say the money was first transferred to three firms owned by Ms Kabura before being wired to other firms.
Bank accounts belonging to another mining firm - Akili Mining Services (AMS) - have also been frozen. The firm, which in 2013 partnered with Canadian firm Stockport Exploration for gold prospecting and mining in Migori, is believed to have received a slice of the funds swiped from the NYS.
The storm surrounding the scandal also saw Anne Waiguru resign from her post as Devolution and Planning minister in November.