Kenyan Officials Caught in Export, Bank Scams

Revelations about government payments to bogus traders put pressure on Moi administration

NUMEROUS scams allegedly backed by the Kenyan government are making a few people richer and a lot of people poorer.

In recent months, senior officials and bankers have been connected to schemes involving millions of dollars in government payments to bogus export deals. The schemes allegedly involve large-scale kickbacks, for which the Moi administration has come under increasing fire from Kenyan attorneys and Western diplomats.

The payments have significantly increased the amount of money in circulation, these sources say, compounding an annual inflation rate that is already above 40 percent.

"The bottom line is the effect on the economy," a Western diplomat says. "It's increasing inflation."

The largest scam centers on the Goldenberg Company, a gold and diamond exporter, and could cost Vice President George Saitoti his job.

In late 1990, businessman Kamlesh Pattni applied to the Kenyan government for the Goldenberg company to have exclusive rights to export gold and diamonds from Kenya.

At that time, many businessmen argued that the gold exported from Kenya went through black marketeers, depriving the government of any benefit in hard currency from the sales.

According to a series of investigative reports in the Kenyan daily, The Nation, Mr. Pattni said that if gold dealers were paid enough and the gold were sold cheaply enough abroad, he could bring a lot of prized hard currency to Kenya.

The Kenyan government has, on occasion, paid compensation or an incentive to exporters worth 20 percent of the sale, upon proof of shipment, sale, and deposit of hard currency in Kenya.

Pattni argued that he needed 35 percent. Mr. Saitoti apparently approved the Goldenberg deal in 1990, making the company the sole exporter of gold.

If such deals are done correctly, the Kenyan government receives the hard currency from the sales and gives the exporters a like amount in Kenyan shillings.

The government then uses the hard currency for purchases abroad or exchanges it for shillings and allows Kenyan firms to make foreign purchases.

But an official at the Central Bank of Kenya reportedly discovered that the Goldenberg Company, while receving the compensation payments, was not providing the normal verification of shipments and sales.

Diplomats suggest there may have been kickbacks to government officials from these payments.

The payments were for "diamonds and gold that did not exist," a Western diplomat charges. Kenya has no known source of diamonds and very little gold.

Government compensations to Goldenberg were halted in April when the first details of the scheme began to emerge in public. Saitoti denies any wrongdoing and appears to be fighting for his political life.

"The speculation is that Saitoti will go soon," says a senior United States diplomat in Kenya.

The president here has the power to dismiss the vice president, and President Daniel arap Moi is catching criticism from opposition leaders for allowing the alleged scams to happen.

"It's no longer enough to expose frauds. The time for action has come," says Paul Muite, a leader in the opposition Forum for the Restoration of Democracy branch in Kenya.

International donors want the government to prosecute the perpetrators of the scams, the US official says.

But President Moi's critics argue that Moi is unlikely to ask his attorney general to prosecute the cases because many senior officials may be involved.

They add that Moi has considerable influence over the Kenyan judicial system, which could affect the outcome of any lawsuit brought against the perpetrators.

Other alleged scams involve so-called political banks, commercial banks that allegedly borrow money from the Central Bank of Kenya and funnel the funds to Moi's political cronies. These banks are often headed by close associates of the president, and are causing even greater inflation, says Mr. Muite and the US official.

"The Central Bank of Kenya has advanced money to them [the political banks] on the promise they will bring in foreign exchange," the US official explains. Instead, that money ends up being used corruptly, he says.

An audit of the political banks was carried out in June at the request of the International Monetary Fund, and it "implicated many top ranking officials" in the banks, the US official says.

AS in the Goldenberg case, Saitoti is also under fire in the political banks scams. He was Minister of Finance during much of the time these banks were operating.

Saitoti says the Goldenberg scheme was under government investigation. But Gibson Kamau Kuria, a Kenyan human rights attorney, is skeptical.

"It's just the same old story of trying to suggest to the donors something is going to be done," he says.

But some financial reforms have been attempted. Kenya's Finance Minister Musalia Mudavadi recently closed two of the alleged political banks, including Exchange Bank, which Goldenberg had been using for its transactions.

But on Aug. 3, Exchange bank won court permission to continue operations under the supervision of the Central Bank. Last month, Moi replaced the governor of the Central Bank and several of its top managers. But diplomats are waiting to see if the Central Bank will reform its ways or whether the changes are only cosmetic.