CHARTERHOUSE WHISTLEBLOWER DETAILS MONEY

C O N F I D E N T I A L NAIROBI 003217

SIPDIS

SIPDIS

TREASURY PASS TO FINCEN

E.O. 12958: DECL: 07/25/2026
TAGS: KCOR KCRM PREF ECON EFIN KE TZ UG
SUBJECT: CHARTERHOUSE WHISTLEBLOWER DETAILS MONEY
LAUNDERING AND TAX EVASION AND REQUESTS REFUGE IN U.S.

REF: A. A. NAIROBI 2870


B. B. NAIROBI 2482

C. C. NAIROBI 1688

D. D. NAIROBI 1614

Classified By: Charge John F. Hoover for reasons 1.4 (B) and (D)


1. (C) Summary: Kenyan auditor Peter Odhiambo exposed
billions of shillings of tax evasion and money laundering at
his former employer, Charterhouse Bank, by a group of major
companies partly owned by notorious businessman John Mwau and
MP William Kabogo. On July 20, Odhiambo briefed Emboffs on
the details of the scam, and explained he had experienced
death threats and a frightening attempt by some policemen to
serve him with a bogus warrant. Because the people
implicated in the scandal are dangerous and appear to have
bought influence and protection from the GOK, Odhiambo
requested refuge in the U.S. Refugee Officer is prepared to
write an Embassy referral for Odhiambo to DHS for processing
his application for refugee status, and DHS is willing to
interview him. End summary.

Money Laundering and Tax Evasion at Charterhouse Bank
-------------- --------------


2. (C) Peter Odhiambo met with PolOff and EconOff on July
20 to describe his role in exposing massive money laundering
and tax evasion by the Nakumatt Group of companies. (See
reftels for more details.) Odhiambo moved from Barclays Bank
to Charterhouse in May 2003 as the internal auditor. Within
two months, he noticed suspicious transactions in accounts
lacking the customer identification information required by
the Central Bank of Kenya,s (CBK) &Know Your Customer8
regulations. Some accounts also appeared to violate CBK
prudential limits on loans and liquidity. Charterhouse
concealed the violations by manipulating the figures just
before the end of the month submissions were compiled, or
before visits from external or CBK auditors, and then
reverted the figures immediately afterwards. The General
Manager told Odhiambo not to write down anything about the
suspicious accounts in any report the CBK auditors might see.


3. (C) Odhiambo examined the suspicious accounts and found
many personal savings accounts with (annual?) turnovers in
excess of Ksh2 billion ($27 million). The transactions
records showed funds were being diverted from Nakumatt
Supermarket and related firms into various personal savings
accounts, presumably to avoid taxes by under-declaring
revenues to the Kenya Revenue Authority (KRA). In May 2004,
Odhiambo collected the information on 85 accounts with annual
turnover of about Ksh20 billion ($270 million) and presented
it to the KRA, which promised strict confidentiality to
protect him. KRA however, took no action, and did not give
Odhiambo the 1% reward its newspaper ads promised to
informants who revealed tax fraud.


4. (C) Odhiambo identified the companies involved in tax
evasion and money laundering as the five companies in
Nakumatt Holdings: XXXXXXXXXXXX.
(A CBK report also implicated the John Harun Group, Triton
Petroleum, law firm Kariuki Muigua & Co., Pepe Ltd, XXXXXXXXXXXX,
and businessmen William Gitau). Odhiambo stated that, although
six South Asian Kenyans were listed as the owners of Nakumatt
Holdings, some of them were proxy holders of shares actually
owned by John Haroun Mwau and MP William Kabogo,
both of whom have been linked to smuggling XXXXXXXXXXXX.
Odhiambo noticed a deposit of Ksh10 million/day into Nakumatt,s
or Tusker Mattresses, accounts, and he suspected the funds were
smuggling proceeds from Harun Mwau,s container depot
company, Pepe. Odhiambo believes the perpetrators evaded
about Ksh43 billion ($573 million) in taxes, but that KRA has
been purposefully understating the figure.

Whistleblowing is Hazardous in Kenya
--------------


5. (C) When KRA made no effort to pursue the fraud and money
laundering at Charterhouse, Odhiambo presented the
information in August to CBK Governor Mullei. Mullei formed
a task force with KRA and the Kenya Anti-Corruption
Commission (KACC) to investigate Odhiambo,s information.
Odhiambo left Charterhouse in August 2004. In November 2004,
colleagues still at Charterhouse warned him the bank was
aware of his disclosure of information. He began receiving

disquieting calls, but claims he was not offered any bribe
for silence. Odhiambo suspected someone at KACC revealed his
whistleblowing role to Charterhouse. In February 2005,
Mullei offered him a position at CBK advising the task force,
and his situation &quieted down.8 Odhiambo said the task
force confirmed Odhiambo,s information. (Note: Press
reports claimed the Charterhouse Bank Archives were destroyed
in a fire, so it is not clear whether the task force was able
to view the files Odhiambo copied. End note.) Press reports
said CBK fined Charterhouse for violations of the Banking Act
and on March 20, 2006 recommended to the Minister of Finance
that he cancel the bank,s license (ref A). A few days
later, Governor Mullei was charged in court with four counts
of abuse of office, apparently in retaliation for his effort
to indict Charterhouse.


6. (C) In an effort to defend himself, Mullei leaked
information on Charterhouse to the press, and Finance
Minister Kimunya was forced to close the bank temporarily to
prevent a run. On July 6, shadow Finance Minister Kerrow
tabled a bootlegged CBK report claiming the Nakumatt Group of
companies had evaded Ksh18 billion of taxes. On July 7, two
men who identified themselves as police officers from the
Central Station confronted Odhiambo at the CBK and ordered
him to accompany them to his house for a search.
Fortunately, the acting CBK Governor demanded to see the
warrant, and rejected it because it was dated July 2005 and
the applicant was no longer the General Manager of
Charterhouse.


7. (C) Fearing further police harassment, Odhiambo called
the Daily Nation, which published his story on July 8, and
the Kenya National Human Rights Commission (KNHCR). The head
of the Commission arranged a meeting for Odhiambo on July 11
with Justice Minister Martha Karua, who was concerned by his
story and regretted how &criminals had taken over so much of
the Kenyan Government.8 She advised Odhiambo to write a
letter to Police Commissioner Ali asking him to guarantee his
safety. He sent copies of the letter to Minister Karua,
Finance Minister Kimunya, Internal Security Minister Michuki,
the Attorney General and the CBK Acting Governor to ensure
they were all aware of the effort to use the police to
intimidate or threaten him. Odhiambo never received any
acknowledgment of the letters, nor any protection. Nor have
the CBK, KRA, KACC, or the Ministry of Finance taken any
further action against Charterhouse Bank or the account
holders. The Ministry has not officially released any of the
CBK,s reports on the Charterhouse investigation. A scathing
July 8 press article called into question Finance Minister
Kimunya's credibility in getting to the bottom of the matter,
pointing out a number of critical omissions and deceptions in
the Minister's June 27 statement to Parliament, when he
announced the temporary closure of the bank.


8. (C) After the July 8 newspaper stories, Odhiambo said he
began receiving threatening phone calls warning him to leave
Kenya, suspicious people were seen lurking around his house,
and his cell phone may have been bugged. He claimed one of
the Task Force members connected with him has also received
threatening calls. Odhiambo sent his family to the U.S.,
changed his cell phone, and changed his residence twice. He
suspects Mwau and the other businessmen bought protection
from all GOK enforcement agencies by funneling large sums of
money to senior officials to pay for the NARCs constitutional
referendum campaign in November 2005. For example, one
acquaintance at KRA told Odhiambo the KRA Commissioner
receives Ksh5 million/month from Mwau,s group. Odhiambo
fears Mwau, Kabogo and others involved will kill him or
&make him disappear8 both to retaliate and to deter other
potential whistleblowers. He does not believe any GOK agency
will protect him effectively.

Whistleblower Requests Refuge in the U.S.
--------------


9. (C) Odhiambo therefore requested refuge in the U.S.,
where he would like to study and work in the banking field.
He believes protecting him would demonstrate the USG cares
about corruption in Kenya, protect people in jeopardy, and
shame the GOK into a better recognition of the need to
seriously address corruption. Odhiambo said it would be
dangerous, but he would be willing to return temporarily to
Kenya as a witness, if his testimony in court was needed to
convict the criminals. He said he was considering fleeing
Kenya shortly, with or without arrangements for onward travel
to the U.S. He believed he could travel to a neighboring
country and be safe for a time. Refugee Officer discussed

the possible options and procedures available for refugee
processing. He said he would discuss the issue with the DHS
officer responsible and get back to Odhiambo ASAP.


10. (C) Credible contacts familiar with the case, including
XXXXXXXXXXXX and the journalist investigating
the Charterhouse scandal, are unequivocal in lending credibility
to Odhiambo's fears. The believe that Odhiambo, as a low-profile
"small fish", makes a perfect victim through which Mwau and his
accomplices can vent their anger and send a message to other
whistleblowers to lay off. They urge the USG to do whatever it can
do now to assist Odhiambo, both for his own physical safety, and to
send a signal that the U.S. supports whistleblowers on corruption.


11. (C) Refugee Coordinator discussed this case with DHS rep
and others within the Mission. The consensus view among
those consulted, as well as Refugee Coordinator's own view,
is that the rarely used in-country DHS interview approach
would not be suitable in this case. However, Refugee
Coordinator is prepared to write an Embassy referral for
Odhiambo should he go to another country, and DHS is willing
to interview him for refugee processing. While Emboffs do
not advise anyone to become a refugee, we will let Odhiambo
know when he contacts us again that should he depart Kenya,
we will arrange an interview for him. Odhiambo has been out
of contact since July 20, and Emboffs are concerned about his
safety.


Comment
--------------


12. (C) Odhiambo,s story is credible. It fits well with
information from other sources about Harun Mwau, Nakumatt,
and the others implicated in the Charterhouse scandal (see
reftels). We believe he has a well-founded fear of being
injured or killed. The perpetrators would most likely be
thugs working for John Harun Mwau and his accomplices, but we
can't rule out that corrupt police or security officers would
do the job. In any event, Odhiambo cannot expect GOK
protection given the strong ties we believe Mwau enjoys at
all levels of the Kenyan government. MP William Kabogo, if
he is involved as now alleged, also has a reputation for
being a ruthless businessman. Like Mwau, he got rich by
means of a large-scale smuggling operation in Mombasa. He is
believed by many to be behind the New Years Eve murder of a
CID officer investigating smuggling there. Given the stakes
involved (penalties that could reach roughly $1.3 billion,
plus potential criminal charges and prison) they have both
the incentive and the track record to make an example out of
Odhiambo through violent means.


13. (C) Although the GOK recently passed a Whistleblower
Protection Act, the recent death from pneumonia and in
poverty of Goldenberg whistleblower David Munyakei
demonstrates the neglect and lack of protection the GOK
provides. Odhiambo,s story and concerns sound realistic. A
DHS visit to a neighboring country could be arranged
relatively quickly, allowing DHS to make a refugee status
determination in short order, if Odhiambo chooses that route.
HOOVER