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### Viewing cable 06NAIROBI3217, CHARTERHOUSE WHISTLEBLOWER DETAILS MONEY

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
06NAIROBI3217 | 2006-07-26 02:02 | 2011-02-27 23:11 | CONFIDENTIAL | Embassy Nairobi
Appears in these articles: http://www.the-star.co.ke/

`

    VZCZCXYZ0000
    OO RUEHWEB

    DE RUEHNR #3217/01 2070251
    ZNY CCCCC ZZH
    O 260251Z JUL 06
    FM AMEMBASSY NAIROBI
    TO RUEAWJF/HQ DHS WASHDC IMMEDIATE
    RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
    RUEHC/SECSTATE WASHDC IMMEDIATE 3228
    INFO RUEHXR/RWANDA COLLECTIVE PRIORITY
    RUCNFB/FBI WASH DC PRIORITY

` `

    C O N F I D E N T I A L NAIROBI 003217

    SIPDIS

    SIPDIS

    TREASURY PASS TO FINCEN

    E.O. 12958: DECL: 07/25/2026
    TAGS: KCOR KCRM PREF ECON EFIN KE TZ UG
    SUBJECT: CHARTERHOUSE WHISTLEBLOWER DETAILS MONEY
    LAUNDERING AND TAX EVASION AND REQUESTS REFUGE IN U.S.

    REF: A. A. NAIROBI 2870

         ¶B. B. NAIROBI 2482
         ¶C. C. NAIROBI 1688
         ¶D. D. NAIROBI 1614

    Classified By: Charge John F. Hoover for reasons 1.4 (B) and (D)

    ¶1. (C)  Summary: Kenyan auditor Peter Odhiambo exposed
    billions of shillings of tax evasion and money laundering at
    his former employer, Charterhouse Bank, by a group of major
    companies partly owned by notorious businessman John Mwau and
    MP William Kabogo.  On July 20, Odhiambo briefed Emboffs on
    the details of the scam, and explained he had experienced
    death threats and a frightening attempt by some policemen to
    serve him with a bogus warrant.  Because the people
    implicated in the scandal are dangerous and appear to have
    bought influence and protection from the GOK, Odhiambo
    requested refuge in the U.S.  Refugee Officer is prepared to
    write an Embassy referral for Odhiambo to DHS for processing
    his application for refugee status, and DHS is willing to
    interview him.  End summary.

    Money Laundering and Tax Evasion at Charterhouse Bank
    --------------------------------------------- --------

    ¶2. (C)   Peter Odhiambo met with PolOff and EconOff on July
    20 to describe his role in exposing massive money laundering
    and tax evasion by the Nakumatt Group of companies.  (See
    reftels for more details.)  Odhiambo moved from Barclays Bank
    to Charterhouse in May 2003 as the internal auditor.  Within
    two months, he noticed suspicious transactions in accounts
    lacking the customer identification information required by
    the Central Bank of Kenya,s (CBK) &Know Your Customer8
    regulations.  Some accounts also appeared to violate CBK
    prudential limits on loans and liquidity.  Charterhouse
    concealed the violations by manipulating the figures just
    before the end of the month submissions were compiled, or
    before visits from external or CBK auditors, and then
    reverted the figures immediately afterwards. The General
    Manager told Odhiambo not to write down anything about the
    suspicious accounts in any report the CBK auditors might see.

    ¶3. (C)  Odhiambo examined the suspicious accounts and found
    many personal savings accounts with (annual?) turnovers in
    excess of Ksh2 billion ($27 million).  The transactions
    records showed funds were being diverted from Nakumatt
    Supermarket and related firms into various personal savings
    accounts, presumably to avoid taxes by under-declaring
    revenues to the Kenya Revenue Authority (KRA).  In May 2004,
    Odhiambo collected the information on 85 accounts with annual
    turnover of about Ksh20 billion ($270 million) and presented
    it to the KRA, which promised strict confidentiality to
    protect him.  KRA however, took no action, and did not give
    Odhiambo the 1% reward its newspaper ads promised to
    informants who revealed tax fraud.

    ¶4. (C)  Odhiambo identified the companies involved in tax
    evasion and money laundering as the five companies in
    Nakumatt Holdings: XXXXXXXXXXXX.
    (A CBK report also implicated the John Harun Group, Triton
    Petroleum, law firm Kariuki Muigua & Co., Pepe Ltd, XXXXXXXXXXXX,
    and businessmen William Gitau).  Odhiambo stated that, although
    six South Asian Kenyans were listed as the owners of Nakumatt
    Holdings, some of them were proxy holders of shares actually
    owned by John Haroun Mwau and MP William Kabogo,
    both of whom have been linked to smuggling XXXXXXXXXXXX.
    Odhiambo noticed a deposit of Ksh10 million/day into Nakumatt,s
    or Tusker Mattresses, accounts, and he suspected the funds were
    smuggling proceeds from Harun Mwau,s container depot
    company, Pepe.  Odhiambo believes the perpetrators evaded
    about Ksh43 billion ($573 million) in taxes, but that KRA has
    been purposefully understating the figure.

    Whistleblowing is Hazardous in Kenya
    ------------------------------------

    ¶5. (C)  When KRA made no effort to pursue the fraud and money
    laundering at Charterhouse, Odhiambo presented the
    information in August to CBK Governor Mullei.  Mullei formed
    a task force with KRA and the Kenya Anti-Corruption
    Commission (KACC) to investigate Odhiambo,s information.
    Odhiambo left Charterhouse in August 2004.  In November 2004,
    colleagues still at Charterhouse warned him the bank was
    aware of his disclosure of information.   He began receiving

    disquieting calls, but claims he was not offered any bribe
    for silence.  Odhiambo suspected someone at KACC revealed his
    whistleblowing role to Charterhouse.  In February 2005,
    Mullei offered him a position at CBK advising the task force,
    and his situation &quieted down.8  Odhiambo said the task
    force confirmed Odhiambo,s information.  (Note: Press
    reports claimed the Charterhouse Bank Archives were destroyed
    in a fire, so it is not clear whether the task force was able
    to view the files Odhiambo copied.  End note.)  Press reports
    said CBK fined Charterhouse for violations of the Banking Act
    and on March 20, 2006 recommended to the Minister of Finance
    that he cancel the bank,s license (ref A).  A few days
    later, Governor Mullei was charged in court with four counts
    of abuse of office, apparently in retaliation for his effort
    to indict Charterhouse.

    ¶6. (C)  In an effort to defend himself, Mullei leaked
    information on Charterhouse to the press, and Finance
    Minister Kimunya was forced to close the bank temporarily to
    prevent a run.  On July 6, shadow Finance Minister Kerrow
    tabled a bootlegged CBK report claiming the Nakumatt Group of
    companies had evaded Ksh18 billion of taxes.  On July 7, two
    men who identified themselves as police officers from the
    Central Station confronted Odhiambo at the CBK and ordered
    him to accompany them to his house for a search.
    Fortunately, the acting CBK Governor demanded to see the
    warrant, and rejected it because it was dated July 2005 and
    the applicant was no longer the General Manager of
    Charterhouse.

    ¶7. (C)  Fearing further police harassment, Odhiambo called
    the Daily Nation, which published his story on July 8, and
    the Kenya National Human Rights Commission (KNHCR).  The head
    of the Commission arranged a meeting for Odhiambo on July 11
    with Justice Minister Martha Karua, who was concerned by his
    story and regretted how &criminals had taken over so much of
    the Kenyan Government.8  She advised Odhiambo to write a
    letter to Police Commissioner Ali asking him to guarantee his
    safety.  He sent copies of the letter to Minister Karua,
    Finance Minister Kimunya, Internal Security Minister Michuki,
    the Attorney General and the CBK Acting Governor to ensure
    they were all aware of the effort to use the police to
    intimidate or threaten him.  Odhiambo never received any
    acknowledgment of the letters, nor any protection.  Nor have
    the CBK, KRA, KACC, or the Ministry of Finance taken any
    further action against Charterhouse Bank or the account
    holders.  The Ministry has not officially released any of the
    CBK,s reports on the Charterhouse investigation.  A scathing
    July 8 press article called into question Finance Minister
    Kimunya's credibility in getting to the bottom of the matter,
    pointing out a number of critical omissions and deceptions in
    the Minister's June 27 statement to Parliament, when he
    announced the temporary closure of the bank.

    ¶8. (C)  After the July 8 newspaper stories, Odhiambo said he
    began receiving threatening phone calls warning him to leave
    Kenya, suspicious people were seen lurking around his house,
    and his cell phone may have been bugged.  He claimed one of
    the Task Force members connected with him has also received
    threatening calls.  Odhiambo sent his family to the U.S.,
    changed his cell phone, and changed his residence twice.  He
    suspects Mwau and the other businessmen bought protection
    from all GOK enforcement agencies by funneling large sums of
    money to senior officials to pay for the NARCs constitutional
    referendum campaign in November 2005.  For example, one
    acquaintance at KRA told Odhiambo the KRA Commissioner
    receives Ksh5 million/month from Mwau,s group.  Odhiambo
    fears Mwau, Kabogo and others involved will kill him or
    &make him disappear8 both to retaliate and to deter other
    potential whistleblowers.  He does not believe any GOK agency
    will protect him effectively.

    Whistleblower Requests Refuge in the U.S.
    -----------------------------------------

    ¶9. (C)  Odhiambo therefore requested refuge in the U.S.,
    where he would like to study and work in the banking field.
    He believes protecting him would demonstrate the USG cares
    about corruption in Kenya, protect people in jeopardy, and
    shame the GOK into a better recognition of the need to
    seriously address corruption.  Odhiambo said it would be
    dangerous, but he would be willing to return temporarily to
    Kenya as a witness, if his testimony in court was needed to
    convict the criminals.  He said he was considering fleeing
    Kenya shortly, with or without arrangements for onward travel
    to the U.S.  He believed he could travel to a neighboring
    country and be safe for a time.  Refugee Officer discussed

    the possible options and procedures available for refugee
    processing.  He said he would discuss the issue with the DHS
    officer responsible and get back to Odhiambo ASAP.

    ¶10. (C) Credible contacts familiar with the case, including
    XXXXXXXXXXXX and the journalist investigating
    the Charterhouse scandal, are unequivocal in lending credibility
    to Odhiambo's fears.  The believe that Odhiambo, as a low-profile
    "small fish", makes a perfect victim through which Mwau and his
    accomplices can vent their anger and send a message to other
    whistleblowers to lay off.  They urge the USG to do whatever it can
    do now to assist Odhiambo, both for his own physical safety, and to
    send a signal that the U.S. supports whistleblowers on corruption.

    ¶11. (C) Refugee Coordinator discussed this case with DHS rep
    and others within the Mission.  The consensus view among
    those consulted, as well as Refugee Coordinator's own view,
    is that the rarely used in-country DHS interview approach
    would not be suitable in this case.  However, Refugee
    Coordinator is prepared to write an Embassy referral for
    Odhiambo should he go to another country, and DHS is willing
    to interview him for refugee processing.  While Emboffs do
    not advise anyone to become a refugee, we will let Odhiambo
    know when he contacts us again that should he depart Kenya,
    we will arrange an interview for him. Odhiambo has been out
    of contact since July 20, and Emboffs are concerned about his
    safety.

    Comment
    ---------

    ¶12. (C)  Odhiambo,s story is credible.  It fits well with
    information from other sources about Harun Mwau, Nakumatt,
    and the others implicated in the Charterhouse scandal (see
    reftels).  We believe he has a well-founded fear of being
    injured or killed. The perpetrators would most likely be
    thugs working for John Harun Mwau and his accomplices, but we
    can't rule out that corrupt police or security officers would
    do the job.  In any event, Odhiambo cannot expect GOK
    protection given the strong ties we believe Mwau enjoys at
    all levels of the Kenyan government.  MP William Kabogo, if
    he is involved as now alleged, also has a reputation for
    being a ruthless businessman.  Like Mwau, he got rich by
    means of a large-scale smuggling operation in Mombasa.  He is
    believed by many to be behind the New Years Eve murder of a
    CID officer investigating smuggling there.  Given the stakes
    involved (penalties that could reach roughly $1.3 billion,
    plus potential criminal charges and prison) they have both
    the incentive and the track record to make an example out of
    Odhiambo through violent means.

    ¶13. (C)  Although the GOK recently passed a Whistleblower
    Protection Act, the recent death from pneumonia and in
    poverty of Goldenberg whistleblower David Munyakei
    demonstrates the neglect and lack of protection the GOK
    provides.  Odhiambo,s story and concerns sound realistic.  A
    DHS visit to a neighboring country could be arranged
    relatively quickly, allowing DHS to make a refugee status
    determination in short order, if Odhiambo chooses that route.
    HOOVER

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