Financial Transparency Coalition

I recently had the opportunity to hear a talk by Michela Wrong, author of It’s Our Turn To Eat: The Story of a Kenyan Whistle-blower. The book focuses on the Anglo-Leasing scandal, which the inside cover calls “Kenya’s version of Watergate,” and the role of John Githongo, the administration’s anti-corruption czar who was forced to flee the country and go into hiding when he persisted in his investigation of the scandal.

About three months ago I stood in a bookstore in Nairobi, asking if they sold the book. The response I got was something along the lines of: “Are you crazy?! I want to eat…do you want to feed me?”  After I expressed my disappointment and continued to talk with the bookseller, he told me, “I’ve already done my part. I’ve sold 400 copies. None with my name attached.” The experience of this bookseller reflects a larger phenomenon in which copies of Wrong’s book are being smuggled into the country and sold under the table. The book has caused waves throughout Kenya and generated a response throughout Africa, dealing with a scandal and a man unique to Kenya, but one whose themes have wide resonance.

The Anglo Leasing scandal allegedly began with a government contract with Anglo-Leasing and Finance Company Limited (ALFC). ALFC was awarded the contract at 30 million Euros to replace Kenya’s passport printing system even though the lowest bid came from a French firm for 6 million Euros. ALFC later sub-contracted the French firm, and has since been found not to be a registered company and to have been “an unnecessary intermediary that the government could do without…the Government would have spent more than the prudent amount required for the supplies and the taxpayer would not get value for money.” The Anglo Leasing scandal as a whole involves a series of Anglo leasing type contracts in the defense sector. Many of these contracts were financed through non-revocable promissory notes from the Kenyan government, leaving Kenya’s taxpayers in considerable debt.

The contracts are believed to have started in the fiscal year 2001/2002 with their value growing eight times over by 2005/2006. During the time between 2001 and 2003, the value of security related contracts that were authorized by the Treasury and financed through promissory notes grew by KSh. 6.2 billion (90.699 million USD using the 2008 official exchange rate), or just under 55%. The magnitude of money lost in the Anglo-leasing scandal amounts to close to 1 billion USD in a country with a GDP of 31.42 billion USD. In addition to a loss of money, the lack of quality or completion of these security contracts compromise the quality of security equipment in Kenya.

USE OF THE GLOBAL FINANCIAL SYSTEM

The perpetrators of this scandal made use of secrecy jurisdictions and tax havens to create shell companies and to launder money. In her talk, Wrong noted that in many cases, the companies used for Anglo Leasing were “no more than shop fronts” and referred to ALFC as, “a shop front in Liverpool.”

When I asked for her to elaborate on the role of the developed world in high level corruption in Kenya through the availability of tax havens and secrecy jurisdictions, Wrong had heavy criticism of the UK, and praised the United States in comparison for engaging the issues in her book and for a better record on enforcing legislation such as the Foreign Corrupt Practices Act.

At the same time, Universal Satspace (North America), a company registered in Delaware, was given a contract worth $28.1 million to provide ten years’ worth of bandwidth and was paid $16 million though it fulfilled only “a fraction of its contract.” A PricewaterhouseCoopers report gives legal advice to the government of Kenya, encouraging the government to fight a claim by Satspace and to counterclaim for $15 million, however, Satspace has no assets to sell to recover this money. In fact, the report finds that Satspace appears to be a “company of little substance.” Other examples of the use of the international financial system in this scandal include the involvement of the Guernsey operation of Investec, an Anglo South African merchant bank listed on the London Stock Exchange, in the scandal – Investec Trust documents showed the laundering of billions of Kenyan Shillings through bank accounts in Jersey, Guernsey, Southampton and Zurich.

ALL THE WAY TO THE TOP

Anglo leasing was a scandal that went to the top. The group implicated in its promulgation is known as the Mount Kenya Mafia, a group of political figures surrounding the president. Some of Githongo’s evidence has linked the scandal to the need to obtain funds for the 2007 election, the idea being that kickbacks from these contracts would be used as funding.

According to Wrong, John Githongo used to say that in order to tackle these problems, you have to go to the top, and that “a fish rots from its head down.” He has now changed his approach, recognizing the need for grassroots action because a fish “won’t fry itself” – those in power won’t stop corruption of their own accord. It seems to me that there is another side to this.  How can Kenya’s citizens hold their government accountable when its members are able to utilize an international financial system that allows for the creation of shell companies and provides safe havens for stolen cash?

IT’S DANGEROUS

This is a fish that needs to be fried. Not only does corruption hinder development, it also destabilizes the state and contributes to ethnic tensions. The title of Wrong’s book alludes to a pervasive philosophy in Kenya in which it is perceived that a citizen will benefit from the government when a member from his or her tribe is in power, and will suffer when this is not the case. As such, when a representative from one’s tribe enters government, the notion is that it is “our turn to eat” – to benefit from the spoils of government. In her talk, Wrong explained the presence of the “it’s our turn to eat philosophy” in the 2007 elections, and that despite rigging on both sides, people felt that the election was stolen by the ruling party (PNU) which rigged more effectively. Wrong pointed to desperation and fury, and a fear that anyone not in the president’s ethnic group would be left in the cold, as part of what made the violence so intense. In Wrong’s opinion, the elections showed that not only does the “it’s our turn to eat philosophy” hurt development, it is also a destabilizing force, showing that “corruption can eat away at the heard of a society like Kenya.”

On a more practical level, the pervasive usage of procurement of security contracts to generate kickbacks and pay back campaign financiers weakens the security of the state through decreasing the quantity and quality of security equipment.

These politicians have engaged in what Jayne Mati from Mars Group Kenya, a highly respected anti-corruption group, described to me as “greed that’s reached a level where it’s actually self destructive.” She asserted that the level of social frustration is such that the next time there is violence, it will be revolt. This level of discontent was discussed by Hon. Paul Muite, Kenyan human rights activist and lawyer, who, at a recent Center for Strategic International Studies event stated that the next time there is an implosion in Kenya it will be a class issue, not an ethnic issue.

As Kenya moves towards the next election in 2012, it’s time that the developed world does its part to help fry the fish, or at least prevent it from escaping the grips of those who would fry it. What does this mean? This means increased pressure on tax havens and secrecy jurisdictions to reduce the availability of places corrupt leaders can use to launder and hide dirty money.