CORRUPTION IN KENYA: LOOKING BACK, LOOKING FORWARD

C O N F I D E N T I A L SECTION 01 OF 06 NAIROBI 003927

SIPDIS

DEPT FOR AF/E
USAID FOR AA/AFR, AFR/DP AFR/EA
TREASURY FOR ANN ALIKONIS
LONDON AND PARIS FOR AFRICA WATCHERS
DEPT PLEASE PASS MILLENNIUM CHALLENGE CORP - KEVIN SABA

E.O. 12958: DECL: 09/22/2015
TAGS: ECON EAID KCOR PGOV KE
SUBJECT: CORRUPTION IN KENYA: LOOKING BACK, LOOKING FORWARD

REF: A. NAIROBI 539


B. IIR 6 854 0118 05 (NOTAL)

C. IIR 6 854 0169 05 (NOTAL)

D. NAIROBI 1425

E. NAIROBI 1593

F. IIR 6 854 0211 05 (NOTAL)

G. NAIROBI 0278

H. IIR 6 854 0217 05 (NOTAL)

Classified By: ECON COUNSELOR JOHN HOOVER FOR REASONS 1.4 (B) AND (D).


1. (C) Summary: More than six months after the Government of
Kenya's anti-graft credentials all but disappeared, the
country is at a crossroads in the war on corruption. On the
one hand, senior civil servants are driving a series of
systemic reforms and improvements in the country's legal and
institutional framework - with some good results. A fully
staffed and competent Kenya Anti-Corruption Commission,
combined with other reforms, has made it harder for networks
of well-placed officials and businessmen to engage in grand
scale theft. On the other hand, structural impediments in
the legal system continue to make it almost impossible to
secure convictions of corrupt high-level officials. More
disturbing, however, is the continued lack of political will
on the part of President Kibaki and his ministers in leading
the charge and taking decisive action to restore the
government's still-battered credibility. In fact, the senior
political leadership seems determined to avoid any
investigation into its own membership. The GOK is keeping
secret the details of a series of large, security-related

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procurement scams, and Kibaki took the path of least
resistance when recently confronted with evidence of grand
scale theft on the part of the country's senior-most military
leadership. We expect no change in the leadership's lack of
willingness to act against specific cases of high-level
graft, but believe we should continue to support the
underlying institutional reforms that are slowly beginning to
make a difference. End summary.

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Corruption Still at the Top of the List
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2. (C) Corruption - and what the Kenyan Government is or is
not doing to fight it - continues to be a central issue in
the broader debate over the country's political and economic
future. However, the tenor of this debate, both in public
and privately among development partners, has shifted slowly
and subtly in the months since early February, when the
resignation of anti-corruption czar John Githongo sent shock
waves through the donor community and plunged the GOK into a
crisis of confidence - a crisis fed by valid perceptions of
unchecked high-level corruption within the government's own
senior ranks (refs A and D).


3. (C) Since that time, some things have changed for the
better; others not at all. In the context of the upcoming
World Bank/IMF meetings and the imminent review by the
Millennium Challenge Corporation (MCC) of the latest draft of
Kenya's Threshold Program concept paper, now is a useful
moment to look at what has happened, what hasn't, and to
suggest where the USG might go from here in dealing with
corruption in Kenya.

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Emphasizing Laws and Institutions - With Success
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4. (C) On September 12, Justice Minister Kiraitu Murungi
re-emphasized the GOK's oft-stated intention to focus
primarily on strengthening the country's legal and
institutional framework as the best way to wage war on
corruption. The occasion was a "stakeholders forum"
organized by the GOK to report and assess progress on the
GOK's "Comprehensive Anti-Corruption Strategy Action Plan."
As some will recall, the Action Plan was unveiled in haste
prior to the GOK-World Bank Consultative Group meetings in
April (ref E). The Action Plan was (and still is) an
attempt to assure donors - and the Kenyan public - that the
GOK is serious about fighting corruption. Perceptions of its
success shift depending on how one looks at the issue.


5. (SBU) From the perspective of strengthening the country's
legal and institutional machinery for fighting corruption,
the September 12 review of the Action Plan revealed that the
GOK has indeed made important substantive progress over the
past several months. First, on the legislative front:

-- The Procurement Bill: A concerted campaign by the Finance
Ministry and others led to passage August 4 of the Public
Procurement and Disposal Bill, which is meant to overhaul the
country's procurement practices, in which many observers
believe as much as 80% of official corruption in Kenya takes
place. The bill still awaits Presidential assent and
implementation.
-- The Privatization Bill: Kenya's many remaining
parastatals continue to function more as springboards for
patronage and corruption than as genuine service providers.
The Privatization Bill, passed by Parliament on August 10, is
meant to convert parastatals into competitive private firms,
with the ancillary benefit of reducing the major role played
by the parastatal sector in the corruption problem in Kenya.
The bill still awaits Presidential assent and implementation.

-- The Statute Law (Miscellaneous) Bill: This omnibus bill
contains a potpourri of amendments to existing laws,
including the Anti-Corruption and Economic Crimes Act and the
Public Officers Ethics Act. Inter alia, it would strengthen
the powers of the Kenya Anti-Corruption Commission (KACC) and
require senior GOK officials make their declarations public
and to submit them to the KACC for verification (currently,
the declarations are confidential and thus virtually
meaningless - see para 14 below). The bill was submitted to
Parliament in April, but withdrawn by the GOK so that
additional, unrelated amendments could be added. The GOK
says it will resubmit the bill and secure passage in October.

-- Other Bills: Other anti-corruption-related legislation, at
various stages of preparation but not yet submitted to or
passed by Parliament, include: a Whistleblowers/Witness
Protection Bill, a Political Parties Bill (which, it is
hoped, will reduce incentives to steal public funds to
finance political campaigns),an Anti-Money Laundering Bill,
and a new Companies Bill to improve accountability in the
private sector.

Despite this progress, it remains unclear whether the
momentum established by passage in August of the Procurement
and Privatization Bills can be sustained in the face of a
generally unproductive Parliament and the inevitable
distractions of the country's upcoming Constitutional
referendum. The fate of key bills not yet passed, such as
the Statute Law, thus remain in limbo.

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Strengthening the Institutional Capacity Against Graft
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6. (SBU) On the institutional front, there has also been
progress, most notably at the Kenya Anti-Corruption
Commission. The KACC, on which the hopes of many rest, was
fully staffed as of August 1 with 212 officers, and KACC
Commissioner Aaron Ringera and other KACC officials claim the
investigative body is pressing full steam ahead in
aggressively uncovering corruption cases for prosecution by
the Attorney General. Ringera told Econ/C on August 29 that
KACC is investigating over 400 cases of alleged corruption
currently, including several involving government ministers.
While there is little transparency concerning the details,
the KACC also claims that it has referred 61 cases to the
AG's office that are now in court, and that 22 additional
cases have been conveyed to the AG awaiting disposition.
Eight of the cases under investigation, Ringera claims, are
among the 20 presented early in 2005 by British High
Commissioner Edward Clay to President Kibaki as highly
suspicious and worthy of investigation.


7. (SBU) In its Action Plan update, the GOK also claims
credit for other improvements in the country's investigative,
preventive, and prosecutorial infrastructure, including:

-- ongoing efforts to expand and strengthen the capacity of
the Department of Public Prosecution (DPP). The DPP is
widely seen as a bottleneck in the prosecution of justice
generally. (Note: USAID and the Embassy's Resident Legal
Advisor are intimately involved in training DPP prosecutors
as part of this effort. End note).
-- expansion of the authority and capacity of the Kenya
National Audit Office.
-- publication of the Ndungu Land Report and the beginning of
efforts to recover land illegally or irregularly allocated in
the past.
-- completion by October of the final report of the
Goldenburg Commission, established to investigate a massive
foreign exchange rebate scam which occurred over a decade
ago. The GOK says it will develop an Action Plan for
prosecuting or sanctioning wrongdoers by December.
-- a series of inter-related reforms and modernization,
spearheaded by the Finance Ministry, of Kenya's budget
planning, public expenditure and debt management systems.
-- imminent increases in the number of judges in the judicial
system.

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Grand Scale Corruption: Frozen in Place - For Now
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8. (C) In his September 12 remarks, Minister Murungi
reiterated an oft-heard claim: that due to improvements in
the legal and institutional framework for fighting
corruption, grand scale corruption along the lines of the
Anglo-Leasing scandal has been stopped in its tracks (see
para 12 below for more information on the Anglo-Leasing
scandal). KACC Director Aaron Ringera made the same point to
Econ/C August 29, arguing that KACC's growing investigative
prowess and greater general scrutiny of large government
procurement projects have meant that the longstanding
networks of corrupt businessmen who insinuated themselves
into the NARC administration in 2003 are now "frozen." This
sentiment is echoed by a number of observers in the
international community, who see little evidence of
newly-hached, large-scale scandals within the senior ranks of
the Kibaki government. Like Ringera, they credit ongoing
improvements in the way major procurements are being
processed and scrutinized, especially by the Finance
Ministry, and they also sense a more general change -- from
an atmosphere of impunity to one of greater fear on the part
of government officials of being investigated, exposed,
and/or prosecuted for wrongdoing.

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One Major Glitch: Prosecutions Next to Impossible
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9. (C) The Embassy agrees that at the very least, it has
become harder to engage in grand scale theft, and we commend
the progress being made, primarily by officials at the
Permanent Secretary-level of the Finance and Justice
ministries, on the legal and institutional fronts. That
said, there remain major problems and weaknesses that
continue to undermine the success of the overall effort
against graft. One such issue is the inability of the GOK to
secure successful prosecutions in corruption cases. In his
speech to donors and civil society in April (ref E),Justice
Minister Murungi called 2005 "the year of action," by which
he meant cases would be investigated and wrongdoers tried and
convicted. Unfortunately, not a single major corruption
conviction has been obtained since then. Indeed, only one
senior level GOK official has been convicted while in office
since the NARC regime came to power in 2002, and that
official was subsequently released under a general amnesty.


10. (SBU) The wheels of justice grind slowly in Kenya in
part because of a severe lack of both quantity and quality in
the DPP, as noted above. After being eviscerated politically
under the previous regime, the DPP requires more prosecutors,
technical assistance, money, training, internal reform,
greater independence from the political leadership - and not
least, time - before it will be fully effective in
prosecuting justice across-the-board, let alone in complex
white-collar crime cases in which they are up against
well-paid defense lawyers.


11. (SBU) Increasingly emerging as another, related
impediment are the rules of court procedure, which hinder
even competent, aggressive prosecutors. The weapons of
choice are constitutional challenges by defendants, which
lead automatically under current court rules to a stay of the
criminal case until the constitutional challenge (or
"reference") is resolved. Clever defense lawyers defending
corrupt officials often file a never-ending series of
back-to-back constitutional references (and/or use other
delaying tactics),effectively making it impossible for
criminal cases against corruption to ever move forward and
see the light of day. Currently, there appears to be neither
a mechanism nor the will to weed out frivolous constitutional
appeals, or to allow criminal cases to run concurrently while
constitutional references are being heard. The GOK is
beginning to recognize this problem as a major impediment and
participants at the September 12 event were told the Chief
Justice has been asked to look into how it can be fixed.

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Anglo-Leasing Prosecution: Going Nowhere
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12. (C) The inability of Kenya's legal system to prosecute
corruption is nowhere more evident that in its pursuit of the
$93 million Anglo-Leasing scandals, which rocked the Kibaki
administration beginning in April, 2004, and which continues
to hang over the administration like a dark cloud, still
unresolved. When the GOK finally went to court in February
2004, no ministers were named as culprits, but the GOK
charged three former permanent secretaries and three other
mid-level officials. A preliminary hearing in March was
postponed when the DPP failed to provide defense counsel with
requisite documents, and then the six defendants all filed
constitutional references in the case. With this
constitutional reference in play, it appears likely the cases
will drag out until at least October, when a ruling on the
reference is finally expected.

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The Still-Missing Elements: Transparency and Political Will
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13. (C) Of greater concern than the inability of the justice
system to prosecute corruption cases is the one critical
element in the war on corruption that is still missing:
political will on the part of President Kibaki and the
country's senior leaders. The difficulty in obtaining
convictions only highlights the need for Kibaki to use the
administrative powers and political authority at his disposal
to take tangible action to restore the administration's
still-tarnished credibility and provide momentum in the war
on graft. The simplest such action would be dismissing or
asking ministers or others suspected of wrongdoing to step
aside pending full investigations. In a refreshingly candid
comment, new World Bank Country Director Colin Bruce told GOK
officials at the September 12 stakeholders forum that the
government's credibility in the graft war remains low, and
would always be in question until the GOK leadership begins
to follow the international trend of holding high-level
officials more accountable for their actions, and of
dismissing ministers, fairly or unfairly, when a perception
of wrongdoing undermines confidence in government. But the
advice seems to fall on deaf ears.


14. (C) The leadership's behavior suggests it remains
utterly unwilling to lead the charge in this way. One
illustration has been the GOK's response to calls for greater
transparency and scrutiny of wealth declarations. Under the
current law, the declarations are sealed, and can only be
unsealed in cases of probable cause in a criminal
investigation. As such, they are in many respects a sham.
The GOK response to pressure to make the declarations more
useful is to propose changing the Public Officers Ethics Act
to require submission of declarations to the KACC for
verification (para 5 above). Donors and civil society have
repeatedly suggested that the President short-circuit what
could be a drawn out legislative process by simply asking his
ministers and advisors to voluntarily submit their
declarations - as a way to restore credibility and enhance
transparency generally. But such calls have been met with
silence, largely due to a political culture at the top that
refuses to see the need for maintaining higher standards of
ethics for government officials.


15. (C) Even more revealing is the unwillingness of the
leadership to make transparent and act decisively on the
findings of an audit of 18 large, security-related
procurement deals begun in the Moi era but inherited by the
NARC government in mid-stream, many under the purview and
then-Minister of National Security (and now Minister of
Transport) Chris Murungaru, widely seen as the NARC's
corruption kingpin. Following preliminary investigations by
former anti-corruption czar John Githongo in 2003 and 2004,
the GOK under the leadership of the Finance Ministry froze
payments on the 18 suspect deals, which are believed to have
followed a similar pattern to the Anglo-Leasing scam:
identification of often non-essential but big-ticket,
security-related projects by a small network of private
businessmen working with senior insiders in government;
secretive procurement processes cloaked under the guise of

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national security; and massive overpayment for goods and
services received - if goods and services are received at all.

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The Navy Frigate Scandal
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16. (C) One such scam among the 18 is the acquisition by the
Kenyan Navy of a frigate being procured from a firm called
Euromarine, which in turn contracted construction to Spanish
shipbuilders Astilleros Gondan SA Shipyard (refs B and C).
The existence of the ship tender was the subject of rumors
for months after the Anglo-Leasing scandals broke, but was
not confirmed until February, 2005 by the Kenyan Department
of Defense (KDOD). KDOD vehemently denied any
irregularities in the tender, which it claimed was
competitive and proper. This, however, is not the case.
Subsequent credible reports have the ship being delivered to
Kenya as a civilian vessel that will require expensive
military retrofitting later, fueling suspicions that the
purchase price was vastly inflated. Further, reporting in
other channels puts veteran corrupt businessman Anul Perera
in the middle of the deal, though he is now frustrated that
payments are not being made. Finance Permanent Secretary
Joseph Kinyua told Econ/C on August 16 that the internal
audit of the frigate deal found that the country was not
"buying air," i.e. that the ship actually exists, but that
the purchase price (believed to be around $51 million) is
four times what it should be. He said payments on the
contract remain frozen, but that the GOK faces a quandary
because it is contractually obligated to pay. Kinyua said
the GOK will likely attempt to renegotiate the deal for
better terms.

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The Communications Center Scandal
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17. (C) A similar scandal, but one which crossed the finish
line before all payments could be frozen, was the
construction of a communications center for KDOD on the
southern outskirts of Nairobi. Little is known about the
deal except what is reported ref F: that the commcenter
appeared almost mysteriously out of thin air, with no
reference to KDOD's procurement plan, and was likely
constructed for "personal gain" on the part of senior KDOD
officials.

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Reaction to KDOD Scandals: No Accountability, No Will
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18. (C) The official response to the frigate and commcenter
scandals (and whatever else is being uncovered in the audits
and investigations into the remaining security-related deals)
speaks volumes about the contradictions in Kenya's stance on
corruption. On the one hand, institutionally, the scandals
are being investigated by the KACC, just as they should be.
KACC Director Ringera told Econ/C that he successfully pushed
for unprecedented access to KDOD files and personnel in
investigating both the frigate and commcenter cases. He
built strong cases, directly confronted then-Chairman of the
Joint Chiefs of Staff Joseph Kibwana, and took the files
twice to President Kibaki to present evidence of graft on the
part of Kibwana and others.


19. (C) The response by President Kibaki to Ringera's
findings makes clear the corresponding failure of political
will to deal with massive corruption within the GOK's own
ranks. As reported ref I, Kibaki on August 10 announced a
major change in the KDOD leadership, including the retirement
of Kibwana and Vice Chief of Staff Nick Leshan. Both were
given post-retirement jobs as Chairmen of the Kenya Ports
Authority and the Kenya Meat Commission respectively.
Ringera argued that the shake-up amounted to "administrative
action" by Kibaki against corruption, and sees it as a
personal victory. Econ/C pointed out that not only are the
KDOD brass not being prosecuted and/or exposed publicly, but
are being given plush golden parachutes in retirement. In
short, with his back to the wall, and with overwhelming
evidence from Ringera in hand, Kibaki did the absolute least
possible to avoid actually having to name, shame, and/or
prosecute fellow senior officials on his watch.

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Is KACC Compromised?
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20. (C) More disturbing are persistent claims that Ringera
himself is on a short leash, and that aggressive
investigations into standing ministers are off-limits to
KACC. Environment Minister Kalonzo Musyoka told the
Ambassador in July that he had heard from two sources,
including a close advisor to Kibaki, that State House had
instructed KACC to stay away from investigating standing
ministers (ref G). A visiting IMF official told the
Ambassador August 18 that Ringera himself had told him that
KACC had recently sent several case files to State House
implicating senior GOK officials, and that the files had been
sent back with instructions not to proceed. In our own
discussions with Ringera, he refutes these allegations,
claiming no interference or limits on his actions. In
oblique terms, however, he acknowledges that KACC operates in
a highly politicized (and thus restrictive) environment.

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Comment: The U.S. Stance
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21. (C) In essence, we have a government committed at the
senior civil servant level to pushing ahead with important
institutional and systemic reforms, some of which are
beginning to have an impact in terms of closing off avenues
used for corrupt activities. But we also have a political
leadership that remains utterly unwilling to transparently
and aggressively root out high-level corruption within its
ranks. This lack of will on the part of the leadership in
turn threatens further progress on the longer-term
institutional front. The old corruption networks may be
frozen, but they have yet to be named, shamed, and
dismantled. Other reporting indicates they are chomping at
the bit to get back into business - when the time is right
again. Those earnest permanent secretaries driving the
reform process now can be dismissed or bullied out of office
the same way John Githongo was when his efforts hit too close
to home. This precarious situation won't change for the
better anytime soon. Given the complex equities in a
coalition government deeply divided over region, tribe,
politics, and personalities, and in which there is probably
at least a little dirt on everyone, we view it as highly
unlikely that the Kibaki administration in its present form
will ever be more transparent and aggressive in pursuing the
corrupt ministers and presidential advisors operating in its
midst. As such, it has no chance of ever recovering the
credibility it owned when it came to power.


22. (C) Where does this leave us? In our view, we should
continue to engage and, where it is sensible, assist in the
longer-term effort to improve the legal and institutional
framework for combating graft, including by strengthening the
DPP as we are doing now, and perhaps venturing into new
areas, such as procurement reform through the MCC's Threshold
Program. In addition to the substantive impact our
assistance can have, it has the added benefit of signaling to
reformers in the GOK that we stand with them. At the same
time, we need to regularly make clear both privately in our
conversations with the leadership, and in our public
statements, that we remain deeply disappointed by the lack of
accountability and political will on the part of the Kibaki
administration. We need to also make clear that our
assistance and support is conditional and that any
backsliding on the legal and institutional fronts will
threaten our cooperation and assistance in the same way as
happened when John Githongo resigned in February.
BELLAMY