Thread by @historykenya101

The Goldenberg scandal was a perfect illustration of how state capture works.

It was proof that mega-scandals could only work if they had sponsorship from the highest levels of government.

The current thieves of your taxes, got a lesson or two from the Goldenberg.

***Thread***

In seeking to understand how Goldenberg was executed, one is well advised to read the 2005 Report of the Judicial Commission of Inquiry into the Goldenberg Affair chaired by Justice Samuel Bosire, who was later fired in 2012.
kenyalaw.org/kl/fileadmin/C…

The 2005 Bosire Report concluded that up to Sh158bn was transacted with 487 companies and individuals, constituting over 10% of GDP, which at the time stood at $8.2bn in 1992.

The scandal wrecked the economy on a scale not witnessed before or since.
theelephant.info/features/2019/…

Goldenberg International Ltd (GIL) was registered on July 17, 1990 by a 25-year old Kamlesh Pattni and James Kanyotu, the then Director of Intelligence, who in the Memorandum of Association, described himself as a farmer.

The two also registered Exchange Bank Ltd, with a purported share capital of Sh40mn that was never paid up and never followed up by CBK.

Pattni initially wanted to name the bank, Republic National Bank (Kenya) Ltd.

Such was his hubris

Background

Back then, Kenya was a fairly closed economy with the government controlling prices, interest rates and forex transactions.

It was illegal for anyone else to be in possession of or trade in foreign currency.

Peter Warutere on Goldenberg:
oldsite.issafrica.org/uploads/Paper1…

Then there was the Export Compensation Scheme started in 1974 to encourage manufacturing for export.

The scheme made it possible for exporters bringing in forex through exports to get a refund on taxes paid to facilitate those exports, normally at 20% of export value.

The scheme was easily abused.

Suppose you were in diaspora, you could get someone to send you a calabash worth $5 but quoted at $500. You would then send the person $500. They, in turn, would claim 20% or $100 from govt.
--Peter Warutere

The scheme was in effect a subsidy.

In his 1982/83 Budget Speech, the then Minister for Finance, Arthur Magugu, suspended the Scheme arguing that it had been used as a vehicle of fraud.

George Saitoti arbitrarily reinstated and expanded the scheme in 1990, just in time for Goldenberg's grand heist.

In October 1990, Saitoti granted exclusive/monopoly rights to GIL to export gold and diamond jewellery.

In December 1990, First American Bank (in which Kanyotu was a director) confirmed that GIL had made its first export to Solitaire of Switzerland (a non-existent Co.)

With Goldenberg in motion, the value of precious minerals exports jumped from Sh1.5bn in 1991 to Sh9.6bn in 1992, even as balance of payments continued to deteriorate & there was no new discovery of minerals.

Between 1990-94, CBK reported no such precious metal exports.

One of the companies to which Goldenberg purportedly sold gold and diamonds was DPN Trading, owned by Ketan Somaia, who is currently serving jail time for multi-million dollar fraud.

Somaia was also a bagman for PS Hezekiah Oyugi and a major conman.
businessdailyafrica.com/news/The-many-…

While export compensation was paid at 20% of exports, Goldenberg (GIL) got 35%, with 15% termed ex-gratia by Finance PS Mbindyo and disguised in the budget as a customs refund.

Remember, GIL was exporting nothing, meaning they simply walked money out of the Central Bank.

GIL's initial exports turned out to be made up entirely of gold smuggled from the DRC. Later, the company stopped smuggling gold altogether and merely completed export declaration forms, produced fake hard currency deposit slips and got paid.
theelephant.info/features/2019/…

Payments to GIL were authorised by the highest office:

"Ex-Kenyan president Daniel arap Moi ordered payments worth $76m to a company involved in fictitious exports, a second civil servant has alleged."

Pattni also claimed that Moi was a shareholder.
news.bbc.co.uk/2/hi/africa/34…

In 1992, David Munyakei alerted opposition MPs to Goldenberg and was fired by CBK. The ensuing uproar prompted LSK, led by Willy Mutunga, to file a private prosecution petition, at which point AG Wako woke up and terminated it.

https://twitter.com/WMutunga/status/1233476841899515904?s=19

In 1997, under pressure from the IMF as the country's hard currency crisis worsened, AG Wako indicted Pattni.

His reluctance to prosecute mega-corruption cases including Goldenberg was to later earn the current Busia Senator a travel ban from the United States government.

Some of the banks that transacted with Goldenberg included:

-KCB
-Citibank
-Trust Bank
-Trade Bank
-National Bank
-Exchange Bank
-Postbank Credit
-Pan African Bank
-Transnational Bank
-First American Bank
-Delphis Bank (owned by Somaia)
businessdailyafrica.com/news/Goldenber…

Some of the companies listed in the Bosire Report as receiving Goldenberg money included:

KQ: Sh3.0mn
Caltex: 4.0mn
Ketepa: 5.5mn
Lima Ltd: 6.3mn
Transami: 3.6mn
World Vision: 6.6mn
Miwani Sugar: 8.5mn
Marshalls EA: 10.0mn
Mugoya Const: Sh10mn
Athi River Mining: 5.6mn

Individuals listed as primary recipients included:

-Philip Moi: 1.4mn
-Gideon Moi: 8.0mn
-Mark Too: Sh1.5mn
-George Eshiwani: 12.0mn
-Abraham Kiptanui: 3.0mn
-Habib Omar Kongo: Sh4.4mn

Funds were also used to purchase shares in a number of Somaia companies as listed below:

People involved included:

-Daniel arap Moi: President
-George Saitoti: Minister of Finance
-Karuga Koinange: PS Finance
-Eric Kotut: Gov, CBK
-Eliphaz Riungu: Deputy Gov, CBK
-Elijah arap Bii: Manager, KCB
-Kamlesh Pattni; James Kanyotu: Masterminds
nation.africa//kenya/news/ne…

In 2012, Justice Samuel Bosire, Chairman of the Commission of inquiry, was accused of failing to protect national interests and was sacked.

He had ignored a court order to interview President Moi, VP George Saitoti and James Kanyotu.
businessdailyafrica.com/economy/Vettin…

A court ruled that Saitoti couldn't be charged.

The charges against the others -Bii, Kotut, Riungu, Koinange - were quashed by High Court Judge Joseph Mutava citing delayed justice.

Pattni found God, converted to Brother Paul and ran for office.
nation.africa//kenya/news/ne…

Direct casualties

David Munyakei, the CBK whistleblower, died lonely and broken, just 6 months after the release of the Bosire Report in 2006.

Naftali Lagat, a police constable who once caught Pattni with 100kgs of gold, survived to tell his tale.

Eventually, the country lost billions...

-GDP fell from $8.21bn in 1992 to $5.75bn in 1993;
-Interest rates rose from 14% to 70%+;
-The shilling lost over 60% of its value;
-Inflation; rates & prices trebled;
-Banks & companies shut down;
-The national debt spiked.