Equity Bank, one of the leading banks in the country has paid the biggest fine to Director of Public Prosecutions (DPP) Noordin Haji to avoid being prosecuted for failing to report suspicious transactions linked with the theft of funds at the National Youth Service (NYS).
The James Mwangi led bank offered to pay Sh120 million in a deferred prosecution arrangement while Standard Chartered Kenya, Diamond Trust, KCB Group, and Cooperative Bank, paid Sh100 million, Sh80 million, Sh60 million and Sh25 million respectively.
Cumulatively, the five top commercial banks were slapped with a total of Sh385million in form of fines banks by the DPP based on the number of breaches established to have been conducted by the banks by the Directorate of Criminal Investigations (DCI).
However, earlier, the Central Bank of Kenya (CBK) had imposed penalties totaling Sh392.5 million on Standard Chartered Kenya, Equity, Diamond Trust, Co-operative Bank and KCB Group bringing the total fines slapped on the banks to Sh777.5 million.
The five top commercial banks were to face criminal prosecution for facilitating the NYS scam after they received about Sh3.5 billion believed to have been stolen from the State agency.
This sharply contradicts assertions by former Youth Affairs Principal Secretary Lillian Omollo, who in court documents claimed no money was lost at the National Youth Service.
Through court documents filed in court, Omollo says that the Assets Recovery Agency (ARA) froze her bank accounts based on the fact that she was the Permanent Secretary at the NYS where more than Sh400 million allegedly was lost through dubious contracts and procurement irregularities.
She says the alleged procedures have not been described and there is no proof the funds are traced to her bank accounts.
“It is not laid out what role I played or failed to play that would form the basis to probe my bank accounts,” she says.
However, a multi-agency probe by the DPP, DCI George Kinoti and the Ethics and Anti-Corruption Commission (EACC) unearthed a web of collusion between bank in full knowledge of top executives and the NYS fraudsters in what points to a clear case of economic crimes and money laundering.
CBK had earlier revealed the penalties it had slapped on each of the five banks.
KCB was fined by the CBK Sh149.5 million for handling Sh639 million from the NYS suspects, with the fine amounting to 23.3 percent of the illicit cash.
Equity was ordered to pay Sh89.5 million for its role in aiding the transfer of Sh886 million, with the penalty representing 10.1 percent of the NYS inflows.
StanChart paid Sh77.5 million despite receiving the largest sum of Sh1.6 billion. DTB was fined Sh56 million or 34.5 percent of the Sh162 million it received, with the lender having the largest disgorgement rate among the five institutions.
Co-op Bank paid the smallest fine of Sh20 million, representing 7.6 percent of the Sh263 million NYS deposits it received.
The DPP, DCI and the banking sector regulator say that the banks had failed to report large transactions or to undertake proper due diligence on customers. The agencies also accused them of approving large transactions without proper documents.
In yesterday’s media briefing attended by DPP Haji, Director of the Directorate of Criminal Investigations George Kinoti and top executives of the five banks including KCB CEO Joshua Oigara, DTB CEO Nasim Devji and Co-op Bank CEO Gideon Muriuki warned the five banks he was deferring prosecuting them, to see if they met a deadline to improve their practices.
The DPP said that should the banks fail to adhere to terms of the deal the prosecution deal could be terminated. Fines on the banks were slapped based on the number of breaches, added the DPP.
“The said amounts were paid into the Prosecutions Fund Account and will be restituted to the public following the existing laws and procedures,” said the DPP.
Under the deal, the agreement requires the banks to implement various anti-money laundering measures, which include taking disciplinary action against all staff members who were involved or implicated in the scandal.
A differed prosecution agreement is an agreement reached between the prosecution and a corporate organisation that would otherwise be prosecuted for an offence.
“Having learnt of the findings of the ODPP, each of the banks through their respective legal representatives wrote to the Office requesting to cooperate and resolve the matters in lieu of prosecution,” said the DPP yesterday at a press briefing.
As part of the deal, banks agreed to review their Know Your Customer (KYC) framework to ensure proper supporting documents for customer transactions.
Under the deal, the lenders risk prosecution should they demand reimbursements from insurance firms to cover the fines slapped by the office of DPP and CBK.
“The bank shall not seek or accept directly or indirectly reimbursement or indemnification from any source with regard to the payment or any other payment under agreement entered into with the Central Bank of Kenya or any other national agency in relation to the offences,” says the plea bargain agreement between the banks and the DPP. “The bank and the ODPP agree that this settlement is appropriate given the facts, nature and circumstances of this case and that it is public interest to defer the prosecutions.”
Under the agreement, the banks were compelled to provide information that would help State agencies nab persons suspected to have siphoned cash from the NYS. The ODPP said that it would today reveal what each of the five banks had paid to avoid prosecution.
StanChart had last Thursday disclosed that it had paid Sh100 million to the DPP under the plea bargain deal.
Standard Chartered Bank Kenya had in December 2018 announced the exit of chief executive Lamin Manjang, who was at the helm when the bank received Sh1.6 billion from the NYS. He was replaced by Kariuki Ngari.