KENYA BACK TO THE FUTURE: CHARTERHOUSE BANK LOOKS

C O N F I D E N T I A L NAIROBI 001885 E.O. 12958: DECL: 09/03/2019 TAGS: ECON EFIN KCRM KE PGOV PREF KCOR SUBJECT: KENYA BACK TO THE FUTURE: CHARTERHOUSE BANK LOOKS SET TO REOPEN REF: A. 06 NAIROBI 4469 AND PREVIOUS ¶B. NAIROBI 1859 Classified By: AMBASSADOR MICHAEL RANNEBERGER. REASONS: 1.5(B) AND (D) ¶1. (C) Ambassador met with Central Bank of Kenya (CBK) Governor Njuguna Ndung'u at the latter's request on September ¶2. Ndung'u provided Ambassador with a heads-up that Charterhouse Bank (reftel a),which has been closed by order of the Ministry of Finance and supervised by the CBK for the last three years is likely to reopen imminently. Charterhouse Bank was temporarily closed in June 2006 by then Finance Minister Amos Kimunya and put under the CBK's supervision. The bank was closed because of significant evidence of money laundering and tax evasion, and a large number of accounts lacking account opening forms or other identifying information. Charterhouse management/ownership includes bank owner John Harun Mwau (an MP and the Assistant Minister for Transportation),who is a notorious drug trafficker. Three whistleblowers against Charterhouse qualified for refugee status in the United States after fleeing Kenya out of fear for their lives to Tanzania in 2006. ¶2. (C) Ndung'u told the Ambassador that he was briefing the IMF, the World Bank, President Kibaki and Prime Minister Odinga on Charterhouse's imminent reopening. Ndung'u said his message to stakeholders was the same: the judicial system, in general, and the Attorney General specifically, did not support the CBK's continued supervision of Charterhouse. According to Ndung'u, Charterhouse's lawyers had successfully argued that the bank should be fined rather than prohibited from operating. He noted that to permanently close Charterhouse would require extensive investigations of tax evasion by the Kenya Revenue Authority and money laundering legislation (Comment: Yet another version of Kenya's anti-money laundering legislation has been submitted to Parliament, but -- given years of GOK foot dragging on a bill -- we have no expectation that it will pass in the foreseeable future. End comment.) Instead, according to Ndung'u, the CBK needed to cut the best deal possible to help prevent future criminality at the bank. Such a deal with Charterhouse could include a new Board of Directors with 3 independent directors and the establishment of three Committees of the Board to provide oversight. All directors and all new senior staff would be vetted and approved by the Central Bank. ¶3. (C) Ambassador told the CBK chief that any effort to reopen Charterhouse would be a step backward for reform in Kenya. Such a step would, on top of the fiasco surrounding the reappointment of Kenya's feckless corruption czar, Justice Ringera (reftel b),further damage U.S./Kenya relations. IMF Resident Representative Scott Rogers told Econ/C that in his meeting with Ndung'u, he told the Governor to continue to fight against Charterhouse's reopening. Rogers told the CBK Governor that to concede victory to Charterhouse would negatively impact Kenya's investment climate, sending a signal to both domestic and international markets that the financial sector in Kenya is weak. If, said Rogers, the CBK had to allow Charterhouse to reopen, it should insist on all new management and shareholders, vetted by the CBK. The reopening should be followed immediately by an amended Banking Act and anti-money laundering legislation (Comment: neither of which will come quickly under any circumstances. End comment.). Comment ¶4. (C) Charterhouse was rotten to the core. It is not evident that the CBK or the government can ensure this bank can return in a cleaned up fashion. The old owners are too powerful politically and yet another major corruption case will see the principals returned to the status quo. If this bank reopens, it is yet another sign of the government's lack of commitment to fight for accountability in Kenya or to change the system in any meaningful way. End Comment. RANNEBERGER