Investment services firm Sanlam and Stanbic Bank are seeking to quash a court order that directed them to release millions of shillings that had been flagged as possible proceeds of the National Youth Service loot, arguing that letting go of the cash exposes them to severe regulatory sanctions.
Sanlam, which is owned by the giant South African underwriter, and Stanbic, made the submission at the High Court in response to a lower court’s orders that they release the money to the depositors.
The two firms say in documents filed at the anti-corruption division of the High Court that releasing the money before its source and ownership is determined would be in breach of the proceeds of crime and anti-money laundering law.
Wangui Gethi, Martin Gachare, Charity Wangui and Eden Restaurant deposited Sh9 million in cash with Sanlam Investment in 2015 leading to its freezing on suspicion that it was part of the Sh800 million said to have been stolen at NYS.
The two financial firms moved to action a few days after the Central Bank of Kenya revealed it had imposed heavy fines on five commercial banks that handled millions of the NYS funds.
“The lower court disregarded the provisions of the Proceeds of Crime and Anti-Money Laundering Act in so far as the 2nd respondent is required to disclose the source of funds,” Jonathan Stichbury, the chief executive of Sanlam Investments East Africa, says in an affidavit.
The case is being seen an indicator of the extent to which financial institutions are ready to go to protect themselves against money laundering related sanctions.
Earlier this month, the CBK announced that it had fined Standard Chartered Bank #ticker:SCBK, Equity #ticker:EQTY, KCB #ticker:KCB , Co-operative Bank #ticker:COOP and Diamond Trust Bank Kenya #ticker:DTK millions of shillings for their handling of National Youth Service funds.
KCB was fined Sh149.5 million, Standard Chartered Bank (Sh77.5 million), Equity Bank (Sh89.5 million), Co-operative Bank (Sh20 million), and DTB (Sh56 million). President Uhuru Kenyatta last year signed into law the Anti-Money Laundering Bill that introduced tougher sanctions against economic crimes.
The Proceeds of Crime and Anti-Money Laundering (Amendment) Act, 2017, imposed stiff penalties on those found culpable besides providing for identification, tracing, freezing, seizure and confiscation of the proceeds of crime. The law states that a person, who fails to comply with the law is liable to a fine of not more than Sh5 million ($50,000), while the penalty for an institution will not exceed Sh25 million ($250,000).
Besides, an individual or institution who fails to comply with the law, is liable to an additional penalty of Sh10 million ($100,000) a day for a maximum of 180 days.
Sanlam and Stanbic argue that the court order lifting preservation of the funds is not enough to protect them from sanctions as some of those laying claim to the cash are facing charges in court.
Wangui Gethi, Martin Gachare, Charity Wangui and Eden Restaurant deposited the Sh9 million in three tranches in 2015, but attempts to register new entities as owners of the cash led to suspicion that it may have originated from the NYS.
Mr Gachare and Ben Gethi, son to Wangui Gethi were among those charged with the theft of Sh791 million from the NYS. Fresh court filings show that Mr Gachare, who was in contact with Sanlam, was unable to provide evidence of the source of the cash and its ownership.
On November 30, 2015 Wangui Gethi and Mr Gachare deposited Sh3 million into Sanlam’s Stanbic account.
Then on December 1, 2015, Eden Restaurant and Charity Wangui deposited Sh5 million in the same account before Mr Gachare separately deposited Sh1 million in the account the same day.
Sanlam reckons the account into which the funds were deposited is a collection account where money belonging to potential investors in the unit trust are held pending the opening of an investment account.
Mr Gachare on December 2, visited the Pan African Asset Management (now Sanlam) office where he provided Parachute Insurance Agency, a firm registered by Gervase Maina, as the beneficiary of the funds.
Mr Gachare initially provided his bank account details as receiver of any proceeds from the investment but allegedly changed mind and provided a bank account jointly owned by Mr Maina and one Grace Mathenge.
Mr Gachare once again decided to change the information that the investment would be in the name of Charity Wangui Gethi, provided her identification details but failed to provide bank details. In April 2016, Mr Gachare sent a demand letter seeking release of the funds to him but the request was rejected on grounds that no account was opened and no bank details provided.
Meanwhile detectives from Directorate of Criminal investigations unit obtained orders and froze the funds on suspicion that it was part of the NYS loot.
But Mr Gachare on April 12, 2018 successfully convinced the magistrate’s court to lift the freeze orders prompting Sanlam and Stanbic to contest the directive at the high court.
Justice Onyiego of anti-corruption court on May 22 suspended the proceedings at the lower court, offering reprieve to Sanlam which had argued that lifting the freeze orders was not enough to protect it against regulatory sanctions.
Mr Gachare has denied that the funds are proceeds of crime, arguing that DCI investigators allowed lifting of the orders after establishing it was legitimate income belonging to his client, Horizon Limited.