Imperial bank seeks to recover $350 million in fraud suit

From manipulated software, dummy accounts and parallel banking systems, the Imperial bank fraud is unravelling, showing how the former senior management colluded to defraud the institution of more than $350 million.

The revelation is promising to bring back ghosts of the collapsed Charterhouse Bank in 2006, where one of the key depositors, W.E. Tilley (Muthaiga) Limited, is once again entangled in another lender’s fall.

The bank on Tuesday already filed two suits seeking to attach properties of more than 20 firms and individuals believed to have profited from the fraud, which spanned 13 years, that now threatens to wipe more than three quarters of the depositors’ cash amounting to $580 million.

In the court papers, George Oraro, acting on behalf of Imperial bank’s receiver manager Peter Gatere, accuses the former deceased managing director Abdulmalek Janmohammed of using shell companies to defraud the institution.

Kenyan High Court judge Fred Ochieng issued the conservatory orders freezing the assets till an inter party hearing set for Thursday.

“The Bond Holders whose monies were taken as recently as August 2015 and the depositors’ holdings amounting to about $870 million will lose all their money for a long time to come unless the same can be traced forth,” Imperial bank argues in the suit.

The bank also said that a speedy recovery of the fraudulently acquired funds will be key in the banks future.

“A speedy determination of the case is necessary because the receiver’s decision to reopen the bank or liquidate it will ultimately depend on whether the bank will manage to trace and recover the amounts that have been illegally and fraudulently obtained from the bank by the deceased and his associates” the court papers read.

READ: Imperial Bank depositors hopeful of lender’s healthy financial position

Re-opening

Kenyan’s Central bank has also indicated that the lender could be re-opened next month after shareholders were presented with a proposal that would require the injection of new capital, conversion of some of the large deposits to equity, recovery and collateralisation of the fraudulent loans, as well as a change of board of directors and senior management.

“The proposal will allow for full access to small deposits, and a structured schedule of repayment to large depositors,” CBK said in a statement.

The court papers show that the fraudulent monies siphoned from the bank were used in purchasing real estate properties and shares in some of Kenya’s corporate firms.

The fraud is said to have been perpetrated by Mr Janmohammed in collusion with other senior member of staff of Imperial bank. It involved the opening of accounts at Imperial Bank, where monies were deposited before being moved out of the financial institution. The accounts were then closed and their records deleted from the system.

It also emerged that one of the companies listed as defendants, W.E. Tilley (Muthaiga) Limited admitted receiving $100 million from the bank and has offered to have a second charge created over its properties.

The court papers also reveal that it is the current acting managing director Mr Naeem Shah (formerly the bank’s head of credit) and Mr James Kaburu (former chief finance officer and current deputy managing director) who exposed the rot at the bank.

“The deceased (Mr Janmohammed) had for some time instructed them to carry out certain false, fraudulent, unlawful and illegal activities in the Bank,” the bank said it the suit.

The senior management permitted the shell companies among other customers at the bank to withdraw vast sums of money from their accounts without having any loan facilities or accommodation.

They also manipulated the bank’s books so that the fraudulent transactions would not be reflected in its accounts and could therefore not be exposed in the bank’s financial statements.

The suit seeks to recover the moneys from Mr Janmohammeds accounts and companies. Some of the companies the former executive had invested in included a five per cent stake in Butali Sugar Mills and another five per cent in Imperial Bank.

Other companies he had a stake in include Old Mutual, Saniew Properties, Plymouth Holdings, Nature Stone Queries and Apex Securities among others.

The country’s banking sector regulator has already hired American business aisory firm FTI Consulting in a bid to unmask the perpetrators and events behind the fraudulent scheme.

Already, Bank of Uganda (BoU) has put its shareholding in the Ugandan subsidiary up for sale as it seeks to ensure its banking industry is not affected by the Kenya’s unit tribulations.

“Our interest is to see that shares held by Imperial Bank Kenya, the majority shareholder in Imperial Bank Uganda are sold to a deep pocketed solid financial institution that will be responsible for appointing a new Board of Directors that will take on the duty of controlling the affairs of Bank,” Ms Christine Alupo, BoU Director of Communication said.