Posted  Monday, August 8  2011 at  00:00

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Mr Samuel Gichuru, former Kenya Power MD (left) and Mr Chris Okemo, former Energy minister

The fraud and money laundering charges facing Nambale MP Chris Okemo and former Kenya Power managing director Samuel Gichuru make an interesting read. Not because of the colossal amounts involved, but because of the complexity of the system that facilitates the alleged kinds of transactions and the level of secrecy that’s entrenched in the world of offshore accounts and tax havens.

Mr Gichuru and Mr Okemo may be just but tiny cogs in the big underworld wheel of money, influence and hubris.. Small minions compared to many others who have turned the Guernsey and Jersey Islands as well as Isles of Man into havens where they store loot in jurisdictions that offer official protection to the boggie men and banks that ask no questions.

In these financial high streets, clients enjoy the advantage of secret services from banks, both big and small but are only too eager to abet their high net-worth clients through colluding, sheltering, channelling and cleaning up dirty money in off-shore jurisdictions designed for such a purposes.

Accountants, in particular large global ones, catalyse this process through deviant red tape that makes it impossible to uncover the extent of the looting so as to conceal the wealth and profits that are then transferred abroad.

The lawyers kick in by devising legal entities (fictitious companies, Trust entities, nominee accounts etc.) and legal rules designed to conceal the identities of the persons behind dirty transactions and to keep them out of jail.

The media help by highlighting only the stage appearances of the big names entangled in the web, without unmasking the actors behind money laundering machine.

Those seeking a better insight into how this machine works need to read the stunning but pleasurable exposé written by Evgenia Peretz and Federica Rampini about Silvio Berlusconi’s nights of “bunga bunga” parties in his basement disco and the web of corruption and wealth concealment that goes with the impunity of power even in a so-called developed democratic country.

Papi Silvio, as the 73-year-old Italian Prime Minister is popularly known to his army of young lovers, is standing trial once more, this time for allegedly sexually abusing a minor – 17-year-old Moroccan belly dancer, Ruby Rubacuori (aka Ruby Heart Stealer). How will Papi Silvio get out of this one? The plot thickens.

Of course if you are Papi Silvio, you simply use your media empire to go after any persons or institutions threatening your interests. If you are not Papi Silvio, you strike cosy relationships with the owners of the media or threaten them with destructive legal suits should they dare.

In this series, I use the on-going Okemo and Gichuru case as a case in point to show that this is just the tip of the iceberg as far as dirty money flows are concerned. The term increasingly used is “illicit capital flows”.

The Okemo and Gichuru vs the British Crown Dependency Territory of Jersey is the story of two Kenyan public officials, Chris Okemo (former Finance and Energy minister) and Samuel Gichuru (former Managing Director of a state electricity company Kenya Power).

The duo are fighting not to be hauled to the little Island of Jersey, to stand trial for allegedly receiving bribes between 1999-2002, from an international company (Alcatel-CIT) and laundering the money through bank accounts they hold in the Island.

Why Jersey?

A background of Jersey is in order to put the story in context. Like Guernsey and the Isle of Man, Jersey is a British crown dependency. Together with seven British Overseas territories (let’s call them surviving colonies) such as Cayman Islands, Gibraltar, British Virgin Islands and Bermuda, Montserrat, and Turks & Caicos. These islands are some of the world’s most notorious financial secrecy jurisdictions and tax havens.

A 2009 study by Christian Aid (the Financial Secrecy Index, 2009) ranked the US state of Delaware as the biggest provider of International Financial Secrecy, the City of London ranked a distant 5th. Jersey and Guernsey took eleventh and 13th positions respectively, out of 60 countries.

They thrive on offering secrecy services or opaqueness, in particular concealment of the identities of beneficiaries of companies registered there and the actual owners of bank accounts.

That they are tax havens means that their main attraction to companies registering there is low or zero taxes. The combination of secrecy and low/zero tax services provides a fatal pull for companies to launder profits away from where they make them–while evading taxes back home–and for those who want to hide dubious sources of wealth and profits from public scrutiny.

The architect of this extradition request is the United States of America, acting under what is called the Foreign Corrupt Practices Act (FCPA) of 1977. This law requires the American Government to smoke out any bribery activity abroad which brings injury to the United States or involves companies listed in the United States.

What precipitated this particular action was that Alcatel, a US registered company, was compelled by evidence presented against it in a Florida Court in December 2010, to initiate a plea bargain in order to reduce its penalty and reputational damage.

In this plea bargain, Alcatel admitted to having bribed foreign officials in a number of countries, including Kenya. It claimed to have paid a $20 million bribe to the executives of a telecommunications company, KenCell to secure a contract as the partner who would roll out the telco’s network.

KenCell at the time was a joint venture between 2 companies; owned 60 per cent by a company registered on the Kenyan Stock Exchange market (therefore a Kenyan Company), the Sameer Investments owned by a local business magnate Naushad Merali and 40 per cent by the French conglomerate, Vivendi.

Wrapped in secrecy

The contract with Alcatel was negotiated by Vivendi, who informed Alcatel that they would win the contract on condition that they, Alcatel, agree to pay a bribe of $20 million to an “intermediary”.

People familiar with the matter have suggested that the bribe may have been paid to facilitate the award of a second mobile network license to Mobitelea, which at some point in time was a shareholder of Safaricom (Kenya’s flag-ship mobile telephone company) whose majority shareholder is Britain’s Vodafone.

The real persons behind Mobetelea remain wrapped in anonymity and the company was not even known to the Kenyan parliament for three years after it acquired shares in Safaricom.

Mobitelea paid $5 million in cash to take a five per cent stake in Safaricom. What is known is that Safaricom admitted to utilising the “advise” of Mobitelea when it was entering the Kenyan market, a case being investigated somewhat, by the Kenyan and British authorities.

The legal web concealing the real persons behind Mobitelea is in itself intriguing. Mobitelea was registered in the other British Crown Dependency, Guernsey, as a “shell” company.

Like Jersey, Guernsey is a secrecy jurisdiction as well as a tax haven. Mobitelea was registered in Guernsey as owned by two other Guernsey registered Nominee companies Mercantor Nominee Ltd and Mercantor Trustees Ltd.

The directors of these companies are also companies: Anson Ltd and Cabot Ltd who are registered in Anguilla and Antigua, which are also tax havens and secrecy jurisdictions.

Note the web of companies– owned by companies –which are in turn owned by companies or trusts all registered in a secrecy jurisdiction. SECRECY is the key driver of dirty money. And incidentally many of the major offshore secrecy jurisdictions are British.

Terminology

Before we proceed with the story, we need to explain some terminology used repeatedly throughout this 3-part series in order to aid understanding.

“Shell companies” are Trusts formed to hold the wealth/assets of their clients in off-shore financial centres (OFC). An OFC hosts a functional financial services centre with branches or subsidiaries of major international banks. Banks prefer to call these centres, International Financial Centres (IFCs). They tend to offer a range of secrecy services for their non-resident clients and may provide massive tax incentives. In the latter case, they will also be called tax havens.

Tax havens do not require banks to publicly disclose account details of their clients and it is exceedingly hard for small countries to obtain tax information from tax havens. Most of the big international banks are registered in these OFCs to facilitate business for their clients. It is reported that at least 270 of the world’s biggest banks have presence in Cayman Island alone and may even exist in different forms and more than one.

In OFCs, “shell entities” hold offshore accounts for their clients. Bankers anywhere open accounts in the name of off-shore entities which often impede monitoring and tracing of client activities which can facilitate illicit activities.

The term off-shore refers to geographic spaces that specialise in providing financial services to non-resident clients or even the conceptual space–the idea of designing rules and regulations aimed at benefitting non-resident asset holders.

Most OFCs are “secrecy jurisdictions”. This term refers to countries or territories that satisfy two characteristics:

(i) they create regulations for the primary benefit of non-residents.

(ii) they create regulations preventing the identification of their beneficiaries –regulations that are designed to undermine the legislation or regulation of other jurisdictions. For instance, regulations promoting secrecy will undermine the requirement for transparency held dear by other countries.

A trust is one such “Shell entity” and is formed whenever a person (the settler) gives legal ownership of an asset (the trust property) to another person (the trustee) on condition that they apply the income and gains arising from that asset for the benefit of a third person (the beneficiary).

Trusts can be established verbally but typically take written form. Trustees are frequently professional people or firms charging fees. In secrecy jurisdictions, the settler, the trustee and the beneficiary may all be other shell companies.

Nominee (Trust) accounts are accounts in which the owners may be companies or other entities (such as trusts) rather than natural persons and which disguise the real beneficiaries or donors. These anonymous trust accounts are the bread and butter of the offshore secrecy jurisdictions such as Jersey.

Banks may also open special name or numbered accounts. These are code names rather than names of natural persons. The purpose is to conceal the true identity of the beneficiary persons.

It takes the complicity of banks, lawyers, shadowy entities and colluding states to sustain the flow of dirty money.

How did Alcatel pay the bribe and how were the monies transferred abroad? To accommodate the bribery, Alcatel simply inflated the contract price by $20 million.

To pay it out, the “intermediary” (read, the fake company fronting for the corrupt politicians and other beneficiaries of the bribe) formed a company called “Company T’. You cannot reveal which natural human beings own it or benefit from it. Instead, Company T was represented in the financial transactions by a Mauritius-based shell company.

A ‘shell company” is one which is used for a business transaction but which does not have significant assets. A related term is a “special purpose vehicle” which is a company or Trust, or partnership or any form of legal entity set up for a particular purpose in the course of completing a transaction, or series of transactions, typically with the principal or sole intent of obtaining a tax advantage.

Three payments

Some of the money was paid directly to Company T, through a German Bank in Mauritius, the Deutsche Bank. The payment to the Mauritius agent was paid into one of Britain’s biggest banks, HSBC. There was a 3rd payment which the “intermediaries” directed to be paid to yet another company, called “Company Z” to an account in Dubai.

It turns out that Company Z is an offshore holding company of Sameer Investments, the same Kenyan Company owned by Merali, that held the majority share in Ken-Cell in partnership with Vivendi, and which awarded the contract to Alcatel in the first place.

I may be thick in the head but is it far-fetched to suggest that the payment to Company Z may have been the kick-back to Sameer company possibly for arranging the bribery deal successfully?