The telecommunication giant Safaricom PLC which is also now involved in financial services similar to banking has been sued for Sh305billion by three Kenyans for alleged illegal appropriation of money belonging to non-borrowing M-Pesa users to advance Fuliza loans.
The petitioners also argue that Safaricom also engaged in banking and financial business despite not being a bank or financial institution for the purposes of the Banking Act.
The plaintiffs, Gichuki Waigwa, Lucy Nzola, and Godfrey Okutoyi have also sued Vodafone Group, Central Bank of Kenya (CBK) and the Communications Authority of Kenya (CA) alongside the Chief Executive Officer (CEO) Peter Ndegwa’s led Safaricom PLC.
The trio are now seeking Sh305billion in damages from the Safaricom, Vodafone, CBK and CA.
They accuse them of engaging in fraudulent misrepresentation, material non-disclosure of facts, illegal and unlawful investment of MPesa account holders’ funds, predatory lending practices, and charging of exorbitant interest rates.
They say that the government, through the then Permanent Secretary in the Ministry of Finance, falsely claimed that the service was sound, safe, and reliable, while it knew that the service was unsafe and unreliable.
“The government of Kenya through Mr. Kinyua as the then Permanent Secretary in the Ministry of Finance (Treasury) was guilty of fraudulent misrepresentation and material non-disclosure of facts in relation to the risk assessment audit ordered by Hon. Mr. Michuki as acting Minister for Finance.” Part of the court documents reads in part.
They further argue that the MPesa Service was in competition with commercial banks and was in dire need of regulation to protect the rights of marginalized people.
According to the court documents, the three argue that the Fuliza overdraft service that allows MPesa users to complete transactions even when they don’t have enough funds in their accounts illegally used money belonging to non-borrowing MPesa users and is engaged in banking and financial business despite not being a bank or financial institution for the purposes of the Banking Act.
Waigwa, Nzola, and Okutoyi also claim that Safaricom and other associated defendants invested MPesa account holders’ funds illegally and unlawfully. They say that the trust account into which money was collected by M-Pesa agents was a ‘sham trust’.
They further claim that Safaricom is a “financial institution” as defined by the Proceeds of Crime and Anti-Money Laundering Act. Furthermore, the Plaintiffs claim that Safaricom fraudulently and illegally invested M-Pesa Accountholders’ funds with third-party banks, mingling them with Safaricom and Vodafone Group’s.
The three accuse CBK of failing to provide sustained and effective oversight of the service. They argue that CBK failed to ensure that MPesa account holders’ funds were always safeguarded and kept separate from money used in Safaricom’s ordinary operations.
They also accuse CBK of failing to prudentially regulate Safaricom and the MPesa Service by requiring it to control risks by overseeing and ensuring that its reporting and public disclosures requirements were met.
The plaintiffs are seeking a declaration that the Communications Authority of Kenya, as Safaricom PLC’s adjunct regulator in relation to the MPesa Service, violated its statutory duty to ensure full compliance with its functions pertaining to the provision of telecommunication services and the regulation of electronic transactions, as contemplated by Sections 23 and 83C of the Kenya Information and Communications Act.
The plaintiffs allege that Safaricom and MPesa Holding commingled funds, resulting in Vodafone Group owing MPesa Accountholders KES 305 billion for the years ended March 31, 2019, and March 31, 2020.
They say the funds should never have come into the hands of Vodafone Group and that the money should be paid to MPesa account holders.