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Wednesday, August 01, 2007

How to steal 56 billion shillings from 35 million people

Everything you never really wanted to know about Kenya's ‘Anglo Leasing’ Promissory Notes

Fact Sheet prepared by the brilliant L. Muthoni Wanyeki, political scientist and columnist for The East African. The italicized comments are mine.

1. What is ‘Anglo Leasing’?

‘Anglo Leasing’ is the name given to the first grand corruption scandal facing the government of the National Rainbow Coalition (NARC) headed by President Mwai Kibaki.

The name is taken from the name of the company that got two of the 18 security-related contracts which make up the grand corruption scandal. All the contracts were signed by the government of the Kenya African National Union (KANU) of former President Daniel arap Moi from 1999 onwards. These contracts were all single sourced, signed in some cases with companies that later proved to be non-existent for overpriced goods and services which were only partially delivered (when delivered at all). Why do the words Bechtel and Halliburton come to mind?

Despite these facts, the government of NARC failed to cancel the contracts until the details about them emerged in 2005, following the release of information to the public by John Githongo, the then Special Advisor to the President on Ethics and Good Governance. Githongo is currently in exile in the United Kingdom as a result.

2. What are the ‘Anglo Leasing’ promissory notes?

Promissory notes are payments in the form of sovereign paper. They are commitments by the Government of Kenya (GoK) to payments of specified amounts at specified times. Akin to bearer bonds, they can be redeemed by anyone holding them and presenting them to the GoK. They can also be traded on international financial markets.

The ‘Anglo Leasing’ promissory notes were the means through which payments for the 18 contracts were to be effected. Through the ‘Anglo Leasing’ promissory notes, The GoK essentially ‘lent’ money to itself for the goods and services under the 18 contracts at stake, through third parties, at interest. As Githongo put it on November 22, 2005, the ‘Anglo Leasing’ promissory notes amounted to the government making ‘fictitious loans to itself’ to the tune of at least KES56 billion.

3. Why should we care about the ‘Anglo Leasing’ promissory notes?

With respect to ‘Anglo Leasing’ in general, the Vice Presidents (under whose docket some of the contracts fell), the Ministers of Defence and Internal Security, Finance and the Attorney General of both the KANU and NARC governments have political, if not legal, accountability for enabling ‘Anglo Leasing’ to occur. The Ministers of Finance and Constitutional and Legal Affairs of the NARC government have political, if not legal, accountability for attempting to cover up ‘Anglo Leasing.’

With respect to the ‘Anglo Leasing’ promissory notes, Kenya (and Kenyan taxpayers) have been unnecessarily exposed to external debt to the tune of at least KES56 billion.

In terms of legal and political accountability around the ‘Anglo Leasing’ promissory notes, Treasury broke the the External Loans and Credit Act, Cap 422 by not assessing the desirability and legality of this external debt; enabling the Debt Management Union to process payments without confirming delivery/implementation and not cancelling the contracts and stopping payments until the ‘Anglo Leasing’ grand corruption scandal broke. The Attorney General’s office was either incompetent or complicit by failing to analyse contract terms so as to protect the GoK, failing to verify the transacting entities and, worse, issuing legal opinions as to the irrevocability of the ‘Anglo Leasing’ promissory notes.

The key question now is: where are the promissory notes?

4. What is the government position on the ‘Anglo Leasing’ promissory notes?

The Minister of Finance, in responding to Paul Muite and Joseph Nyagah and other parliamentarians on April 19, May 2 and 3, 2007 respectively has argued that:

Payment against the promissory notes will only be done upon verification of goods and services rendered—which the new GoK-commissioned audit into ‘Anglo Leasing’ by Price Waterhouse Coopers (PWC) is meant to ascertain. However, this does not address the issue of unnecessarily borrowing from the public through a third party with interest or accountability. Neither does this address the fact that all promissory notes are irrevocable in nature (and, in some cases, were issued with the AG’s opinion to that effect).
The government was seeking the court’s guidance on how to proceed. However, it is doubtful that this is true as there has been no reporting of any such interpretive proceedings in the Kenyan courts.
The promissory notes were cancelled. However, this contradicts his first assertion. And ignores the fact that the promissory notes cannot be cancelled.
He is in possession of six of the promissory notes. However, no evidence was tabled in parliament to this effect. Even if the assertion is true, it does not account for all of the promissory notes. Neither does it explain why he is in possession of the promissory notes, rather than the GoK’s banker, the Central Bank of Kenya (CBK)

5. What should we demand of the government regarding the ‘Anglo Leasing’ promissory notes?

Objective one: achieving a clear, truthful and legally sustainable government position on non-payment of the promissory notes

This could be, for instance, through evidence of return of the promissory notes. It could also be through evidence of a strong legal position on non-payment, for example, through repudiation on the basis of charges laid against government accessories/conspirators and/or against the 18 contractors/financiers for non-delivery/performance.

The PWC audit is not enough as it will, apparently, only determine non-delivery/performance. It will not deal with how costs were arrived at, how financing modalities were agreed upon (amounting to the government lending public money to itself at interest rates through unnecessary external parties) and thus questions of accountability and future prevention. In fact, the PWC audit is itself another unnecessary cost given the three special audits into ‘Anglo Leasing’ related contracts conducted by Kenya National Audit Office and the PAC through 2004 and 2005 as well as the 18 individual audits conducted into all 18 ‘Anglo Leasing’ related contracts by the Controller and Auditor General.

Objective two: achieving legal and political accountability for unnecessary exposure to external debt through the promissory notes issues

The suggestion here is to institute private proceedings against the government accessories/conspirators mentioned above on the grounds of conspiracy, criminal negligence, fraud or a Tort of Malfeasance. When the AG moves to terminate these proceedings, the suggestion is to file for a constitutional reference regarding the role of the AG’s office.

Objective three: ensuring preventative measures are instituted systemically

These could include strengthening the role of the Treasury’s External Debt Management Unit, strengthening the role of the AG’s office to ensure government contracts and financial modalities are in the public interest, ensuring publication and parliamentary debate of the External Debt Register, repeal of the Official Secrets Act, developing a policy statement and checklist for procurement addressing the financing and payment modalities used in the ‘Anglo Leasing’ related contracts, ensuring vigilance at all stages of the procurement process and so on.

For more documentation, evidence, research, go to the website of the MARS (Media Analysis and Research) Group.


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