RAISING THE LATEST MEGA-SCANDAL WITH KENYAN

C O N F I D E N T I A L SECTION 01 OF 02 NAIROBI 001688

SIPDIS

SIPDIS

DEPT FOR AF/E, AF/EPS, EB/IFD/OMA
USAID FOR AFR/DP WADE WARREN, AFR/EA JEFF BORNS AND
JULIA ESCALONA
MCC FOR KEVIN SABA AND MALIK CHAKA
TREASURY FOR LUKAS KOHLER
LONDON AND PARIS FOR AFRICA WATCHERS

E.O. 12958: DECL: 4/19/2031
TAGS: ECON PGOV EAID EFIN KCOR PREL PINR KE
SUBJECT: RAISING THE LATEST MEGA-SCANDAL WITH KENYAN
DELEGATION TO WORLD BANK/IMF MEETINGS

Ref: A) Nairobi 1635, B) Nairobi 1614

Classified by Econ Counselor John Hoover for reasons 1.4
(B) and (D).


1. (C) Summary: This is an action request - please see para

6. It is increasingly clear that Kenya has another mega-
scandal waiting in the wings to be exposed. In this case,
it takes the form of a massive money laundering and tax
evasion scheme involving a small local bank and the
country's largest supermarket chain, both reportedly
controlled by the same powerful and influential
businessman. The ball is in the court of Minister of
Finance Amos Kimunya, who has yet to act publicly on a
letter conveyed to him March 20 by the Central Bank
providing details of the scandal and recommending closure
of the bank. In the context of Kimunya's upcoming visit to
Washington to repair relations with major donors over
governance issues, Embassy Nairobi strongly recommends that
USG interlocutors raise the issue with Kimunya and
encourage him to take swift and decisive action to expose
and investigate the allegations. End summary.

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Pieces of the Puzzle Fit Together
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2. (C) Econ/C met April 18 with respected local Nairobi
journalist and businessman Robert Shaw (strictly protect)
at the latter's request. Shaw confirmed the story pieced
together and reported ref B, namely that an investigative
team assembled by Central Bank of Kenya (CBK) Governor
Andrew Mullei had over the past year uncovered a massive
tax evasion and money laundering scandal involving Charter
House, a small local bank, and Nakumatt Holdings, Kenya's
largest supermarket chain. Shaw agreed with other
observers that Mullei's subsequent arrest and dismissal was
directly linked to the investigation, and that the charges
of "abuse of office" were merely a pretext to get him out
of the way. Like others, Shaw believes John Harun Mwau,
who holds a controlling share in the bank and supermarket
chain, was behind Mullei's dismissal. According to Shaw,
Mwau did so by manipulating First Lady Lucy Kibaki to
demand Mullei's exit from her husband, President Mwai
Kibaki.


3. (SBU) Shaw wrote a stinging commentary in the April 7
edition of the Nation newspaper calling on Finance Minister
Amos Kimunya to act decisively and transparently on a
letter received March 20 from Mullei recommending closure
of the bank and further investigation. Shaw told Econ/C
that the Nation had a copy of both the letter and the
underlying 30-page audit report containing the detailed
evidence of the money laundering operation and tax evasion
scheme. Thus far, the Nation has published only limited
details publicly, taking care not to identify the bank or
Mwau by name. In response to the press revelations,
Kimunya has publicly acknowledged receipt of the Mullei
letter. Terming the case "complex," he has said he will
study the issue before making any decisions. It is now
nearly a month since Kimunya received the Mullei letter.

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Upshot: Kimunya Needs to Act to Save Credibility
-------------- ---


4. (C) The upshot of these developments is that Kenyans,
and especially Finance Minister Kimunya, find themselves at
yet another critical and uncomfortable crossroads in the
war against corruption and political impunity. Kimunya is
not tarnished in any way by the money laundering and tax
evasion allegations. But he will discredit himself if he
fails to act swiftly, decisively, and transparently to deal
with this latest mega-scandal. Inaction or cover-up would
also further undermine what little confidence remains at
home and abroad in the GOK's broader commitment to good
governance. And this comes ironically at precisely the
moment Kimunya is working hard to repair the GOK's image
and its relations with donors in the wake of the Anglo-
Leasing revelations (ref A).


5. (C) This will not be easy to do. Kimunya is a relative
lightweight politically and is ultimately up against a

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culprit in John Mwau who has formidable political influence
at State House and essentially unlimited financial
resources. Mwau may pose a physical threat to those who
cross him, as well (see ref B).

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Talking Points for Washington
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6. (SBU) Nonetheless, it is in this context that Embassy
Nairobi strongly recommends that USG policymakers at State,
Treasury, and the Millennium Challenge Corporation raise
the money laundering scandal when meeting with Minister
Kimunya and his delegation during or on the margins of this
weekend's World Bank/IMF meetings. Given the primary
purpose of Kimunya's visit - to repair damage done to the
credibility of the GOK in fighting corruption - we should
encourage Kimunya to resolve the budding scandal as quickly
and decisively as possible. We have urged the local reps
of the IMF, the World Bank, and the UK government to
recommend similar action with their counterparts in
Washington and London. Suggested talking points follow:

-- We understand you are in possession of a letter and a
report from the Central Bank which detail credible evidence
of a massive money laundering and tax evasion scandal.

-- We are deeply concerned about these latest allegations
of another mega-scandal.

-- We are especially concerned about allegations of a major
international money laundering operation since this is
almost certainly linked to other illicit activities, such
as perhaps narco-trafficking.

-- Can you tell us how you are addressing this issue?

-- It's absolutely essential to your own and to your
government's credibility that the issue be resolved
swiftly, decisively, and transparently.

-- If there is a scandal here, then it represents an
opportunity for the Kenyan leadership to put its rhetoric
into action by taking decisive action.

-- We urge you to capitalize on this opportunity to signal
an end to the culture of impunity and to rebuild the
confidence of the Kenyan people and your friends in the
international community.
Bellamy