KENYA: SCANDAL CONTROL CROWDS OUT INTEREST IN

C O N F I D E N T I A L NAIROBI 002870

SIPDIS

SIPDIS

E.O. 12958: DECL: 06/29/2026
TAGS: KDEM PREL KCOR EAID KE
SUBJECT: KENYA: SCANDAL CONTROL CROWDS OUT INTEREST IN
GOVERNANCE

REF: A. NAIROBI 1614


B. NAIROBI 2616

Classified By: Political Counselor Larry Andre for reasons 1.4 (b,d)


1. (C) SUMMARY: With another corruption scandal emerging,
this time involving private corporations whose malfeasance
may have been enriching government officials, and another
ministerial tirade against the media, the government has
again demonstrated its aversion to transparent, democratic
governance. And just when Kenyans needed them most, two of
the country's most prominent civil society organizations have
undergone leadership crises that threaten to reduce their
effectiveness as watchdogs in the public interest.
Distracted and dysfunctional, the Kibaki government has
little energy to expend on addressing issues of importance to
the U.S., a situation unlikely to improve as the 2007
elections approach. END SUMMARY.

CHARTERHOUSE HEATS UP
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2. (C) What promises to be the next mega-corruption scandal
cracked open further on June 23, when Shadow Finance Minister
Billow Kerrow tabled in Parliament a Central Bank of Kenya
(CBK) investigative report detailing a massive tax evasion
and money laundering scheme perpetrated by Charterhouse Bank
and Nakumatt Holdings. This scandal, which may involve up to
18 billion Kenyan shillings (US$254 million),was first
investigated in 2004, but only came into the public eye in
March of this year. Minister of Finance Amos Kimunya ordered
CBK to shut Charterhouse down and freeze all accounts on June
24, stating in the press that it was not because of any
wrongdoing on Charterhouse's part, but because of the
"unnecessary panic" caused by the report's release. He also
said that he has ordered a follow-up investigation of
Charterhouse, the results of which will be available "next
week." In the opinion of John Wanyela, the executive
director of Kenya's largest banking trade union, however,
there is no panic within the banking community whatsoever.
He further speculated as to why Kimunya might have waited so
long to act, saying that it has been common knowledge in the
banking community for over two years that Charterhouse was
involved in shady dealings. He said that "the marketplace"
is saying there can only be two reasons for Kimunya's
inaction: pressure from powerful figures associated with
Nakumatt and Charterhouse (ref A),or, that money from
Charterhouse is being funneled into the Kibaki administration
war chest for the 2007 election. Or perhaps both.

MICHUKI STILL RATTLED
--------------


3. (SBU) The Charterhouse scandal developments come while
the government is still groping its way around the
"Armenians" saga (ref B) and allegations of the Artur
brothers' connection to high-level government officials.
Internal Security Minister John Michuki's latest strategy was
to take out an ad and write the story himself. Michuki's
full-page paid advertisement on June 25 slammed the media for
"blowing out of all proportion" every government misstep.
Michuki accused media houses of serving as "mouthpieces for
not-so-well-meaning partisan interests," and continued on to
finger The Standard as "the worst offender." The Minister
highlighted two recent Standard editorials which suggested
that the Internal Security Minister had lied to protect the
"Armenians." Michuki's treatise followed a June 20
government statement decrying "wild allegations
and...preposterous speculations," with respect to the Arturs.
In that announcement Spokesman Alfred Mutua instructed media
members not to take parts of his statement out of context,
further fueling the rumors, but instead to "use full
sentences."

PARLIAMENTARY OVERSIGHT PREVAILS
--------------


4. (SBU) If there is a bright spot in the "Armenians" saga
it is that members of Parliament will be able to conduct
their own inquiry, albeit a limited one, into why the Artur
brothers were in Kenya and who their political connections
are. Arguing that the Presidentially appointed Commission of
Inquiry (ref B) could not impartially probe the case, MPs
asserted that a joint Legal Affairs and National Security

Committee in Parliament should have that authority. Minister
for Justice and Constitutional Affairs Martha Karua, however,
countered that the committee did not have authority over a
matter already before a special commission. Deciding against
Minister Karua, Speaker Francis Kaparo on June 27 ruled in
favor of the MPs, with the restriction that they could only
question cabinet ministers and public officials (to the
disappointment of the press and the politicians who looked
forward to the public questioning of the unofficial second
wife of President Kibaki, who has been linked to the strange
duo).

SETBACK FOR CIVIL SOCIETY
--------------


5. (C) While legislative oversight of the executive may have
won a victory, civil society's battle against corruption
suffered a setback on June 23. Transparency International's
Kenya branch announced it had fired Executive Director
Mwalimu Mati for irregularities in the awarding of contracts,
while Mati alleged conflicts of interest within TI's Board.
TI-Kenya is supported by a donor group comprised of USAID,
the U.K., Finland, and the Netherlands. After two meetings
with the Board and Mati, the donor group is planning to send
a letter to TI-Kenya suggesting an external audit with
December 1, 2006 as the deadline for review of continued
funding. In a separate blow to civil society, prominent NGO
Kenya Human Rights Commission's (KHRC) outspoken young
Executive Director Jennifer Miano resigned at the end of May.
Her interim replacement was most recently hand-picked by
President Kibaki to serve on the latest Panel of Eminent
Persons reviewing the constitutional review process.

COMMENT: DYSFUNCTION AND DISTRACTION AT WHAT PRICE?
-------------- --------------


6. (C) COMMENT: Despite a series of scandals which have
rocked the Kibaki administration, transparent governance
still seems to elude some in its senior-most ranks.
Kimunya's actions, or lack thereof, regarding the burgeoning
Charterhouse scandal are not the kind of decisive, swift, and
transparent action against corruption the government needs to
win back the public's confidence in its integrity. Rather,
they are more of the same delay and obfuscation that have
become so characteristic of the Kibaki administration. The
events of the past week - mushrooming corruption, swipes at
the media, and a credibility crisis for one of the country's
most important anti-corruption watchdogs - are disappointing
indicators of the government's level of commitment to, and
perhaps even its understanding of, transparency and good
governance. The unsettling bottom line is that the
government's distractions - squashing scandals, personal
enrichment, and sparring with the media - leave the real
business of governing utterly neglected. The resulting
dysfunction leaves little room for government of Kenya
attention to matters of interest to the U.S., a trend that is
only likely to worsen as the 2007 general elections approach.
END COMMENT.
ROWE