Category: Investigations

When Scholastica walked into the bank in or about the year 1998, all she wanted was a boast of loan from HFG in the tune of Sh3,000,000 to buy a piece of land worth Sh6,500,000 she didn’t know what was awaiting her outside after the loan.

She was supposed to repay the amount plus interest in installments of Shs.66,398 for 16 years at an interest rate of 26%. All was well until after 2000 when she lost her job and was unable to service her loan. She also started noticing irregular charges and penalties turning it to a long frustrating legal battle with her bank that would see her lose almost everything in her possession.

At one time when she complained about the variation of interest she was credited a sum of Shs2,500,000 without any explanation.

On Wednesday a ruling came as a reprieve for the businesslady after court ordered the Mortgage lender Housing Finance to compensate her Sh 52.7 million for selling her house after levying irregular charges and penalties on a loan she took 22 years ago.

This was after the Supreme Court rejected an appeal by Housing Finance saying there was nothing on the interpretation of the constitution about the case.

“Upon our perusal of the record, it is not evident that the matter took a constitutional trajectory to warrant our jurisdiction,” ruled the bench comprising of Chief Justice David Maraga, DCJ Philomena Mwilu and Mohamed Ibrahim, Smokin Wanjala and Njoki Ndung’u.

The judges said the central issues for determination were repayment of debt by Scholastica Nyaguthii, validity of a statutory notice before the sale of her house, valuation of the property, collusion and conspiracy between the parties and whether the house was sold by private auction or private treaty. While HF insisted the house was sold on public auction, the buyer in court said it was fine in private which made it illegal.

“At no point did any of the courts below us delve into matters of interpretation or application of the Constitution,” they said.

Housing finance finance had moved to the superior court after the Court of Appeal and High court had ruled in favour of the woman and faulted the bank for failing to keep proper records of her loan account but determined the amount through guess work.

Court records showed that by the time the house in Muthithi Gardens in Kiambu was sold in 2011, the bank had recovered a whooping Sh18 million, from the original amount of Sh3 million borrowed by the woman. Court also found out that HFG applied different regimes of interest rates ranging from 26% per annum to 34% per annum and that they  had not kept proper records of account and that the improper records impacted on the lady’s account to the extent that HFG without any explanation and without any request had written off sums ranging from Shs.2,478,618.65 to Shs.2,700,000 which the judge found to be a huge sum considering the loan amount of Shs.3,000,000 advanced.

“If the the 1st defandant cannot explain why it would grant such a rebate, then it is also arguable that the 1st defendant did not keep reliable accounts from which it could with certainty know what the plaintiff owed to it. It is therefore true that the amount alleged to be due by the 1st defendant is as a result of guess work. A court of law cannot determine issues of account based on guess work, and any bank which fails to keep proper records of account cannot make a calculable claim against a customer. Banks must keep proper records of account. It is on the basis of such records that a claim for or against a bank can be determined. Since between the bank and the borrower it is the bank who is obligated to keep proper records and to avail statements of account, a bank which cannot avail proper records of account will be disqualified from making any claims against a borrower and would be hard put to discharge any such claims by a borrower.”

The trial court found that unlawful regimes of interest had been charged on Nyaguthii’s account and employing the provisions of section 44A of the Banking Act found that by the time the said section came into force on 1st May, 2007 her loan was non-performing; that HFG was obligated in law to give a notice to the borrower of non-performance of the loan and calculate sums due to the appellant under that section. The court found that HFG could not do that because it had not kept proper books or records in respect of Nyaguthii’s account. The judge further found that from the records availed to court the court could not determine how much was owed by the by the lady to HFG by 1st May, 2007 when Section 44A of the Banking Act came into force.

“The appellant (Housing finance F) was not entitled to do that. Once the loan became non-performing, if indeed, it did, the appellant should have followed and complied with the provisions of the Banking Act,” Said Court of Appeal Justices Asike Makhandia, Patrick Kiage and Sankale ole Kantai ruled.

Nyaguthii borrowed a loan of Sh3 million from the bank in 1998 and charged her two properties. She repaid part of the amount and being unable to meet her obligations, she requested the bank to sell one of the properties. The house was sold for Sh3.5 million and taken as part of the repayment.

The court also found that by the time the suit property was sold in 2011, Nyaguthii had already repaid a total sum of Shs.8,400,000 and that when the suit property was sold HFG took Shs.9,600,000 from her account and had been holding a sum of Shs.6,300,000 and that by the time Section 44A of the said Act came into force the Nyaguthii had paid the loan three times over. The court therefore found that the she had more than repaid what was due to HFG.

But the bank persisted and sold the second house for Sh16 million. She moved to court arguing that the property was undervalued because it was valued at Sh32 million.

Nyaguthii through her lawyer Titus Koceyo accused the bank of imposing high interest rates on the loan making it difficult for her to repay the amount.

She said she moved to the USA, and while away, her family was harassed by officers of the bank who placed notices on the property advertising it for sale, yet she maintained that she had overpaid the loan.

Koceyo told the court that by 2010 she had paid Sh8.4 million, but the mortgage lender was still demanding an additional Sh7.3 million. She held that HF, at the time of filing her suit, had placed the total amount to be repaid at Sh18 million.

High Court judge Eric Ogola ruled that the bank levied irregular charges on the loan and that it was only legally allowed to demand a maximum of Sh6 million going by the in duplum rule. According to the rule, arrears interest ceases to accrue once the sum of the unpaid (accrued) interest equals the amount of capital outstanding at the time.

The rule provides that banks can only recover a maximum of double the principal amount loaned to customers.

The judge ordered Housing finance to refund Nyaguthii the Sh16 million it sold her land for with 26 per cent interest.

“It is clear that HFCK had treated her as a cash cow, which it milked to the extent of even denying the calf milk.” said Justice Ogola

He added that, “It can never be justified in any society that one borrows Sh3m and pays Sh18 million.”

This is not an isolated case and there have been similar complaints from HFG customers and other lenders as well. The rule is also going to catch banking institutions flat footed. Banks/Microfinance are also notorious with calculation of interests.

This story also proves that if there’s a legal claim and you keep at it, no matter how long it would take, the just thing will be done, Nyaguthii had to wait for 22 years. HFG shouldn’t have appealed this in the fist instance. Now they have court of appeal, plus the HC, costs to pay too.

The leasing of medical equipment under the Managed Equipment Services (MES) project was not tailored to suit  specific county needs as would have been the case if a more consultative needs-assessment process had been followed, a new report has revealed.

A senate Ad hoc committee established to investigate the facts surrounding the leasing of the medical equipment, in the then 119 benefitting hospitals countrywide, has also noted that there were wide inter and intra-county disparities in the status of implementation of the project across the counties.

For example, during its visit to Isiolo county, the committee found that there was a large disparity in the standard of implementation of the MES project between Isiolo County Referral Hospital and Garbatulla Sub-County Hospital.

“Whereas all the equipment in Isiolo County Referral Hospital was operational and in good working order, none of the equipment supplied to Garbatulla SDH was functional save for a CSSD machine,” the report reads in part.

In Elgeyo Marakwet, the Committee chaired by Isiolo Senator Fatuma Dullo found that the theatre and radiology equipment supplied to Chebiemit and Kamwosor Sub-County Hospitals, only the mobile X-Ray machine at Chebiemit SCH and the CSSD machine at Kamwosor SCH were reported functional.

“The committee observes that in order to accommodate the equipment supplied under the MES project, County Governments were constrained to incur costly and unforeseen expenditure in infrastructural development and recruitment/training of specialised personnel,” it adds.

These costs, according to the nine-member panel had not been factored into county budgets or CIDPs.

Criminal enterprise

As such, the senators’ said counties were forced to reallocate funds from other votes to accommodate the project.

The committee also established that had the MES Project been implemented in a stepwise and progressive manner that factored in the need to address these challenges, more impact would have been realised from the MES Project.

For instance, despite having functional X-Ray and theatre equipment prior to devolution, Laikipia county was still supplied with new X-Ray and theatre equipment.

While describing the project as a criminal enterprise shrouded in secrecy, the committee said some counties did not receive uniform equipment under the project.

Cartels

The government in 2015 contracted six private firms to supply, install and train medics on different sets of medical equipment for seven years.

For long the health ministry has had faceless cartels where scandals blow up and the end is never seen. This damning report gives us a glimpse of the big boys in the kitchen of one of the biggest heists in the health ministry.

One name that features prominently in the list of the accused persons in the criminal enterprise is Dr. Shadrack Mwiti. In the Sh63B MES scandal, documents seen by Kenya Insights indicate that he was meant to walk away with close to Sh10B.

Its not the first time Dr. Mwiti finds himself in the headlines, in 2006 he was in a similar scandal with the health ministry and sources indicate he’s a regular figure in the supplies.

Dr. Mwiti initially traded as Dol International.

This was before three Court of Appeal judges reversed a Sh712 million award offered to him by the High Court for alleged breach of contract.

CANCELLATION OF CONTRACT

Judges, Alnashir Visram, GBM Kariuki and Jamila Mohammed reversed a decision by Justice Joseph Mutava directing the government to pay Dol International Ltd the lump sum as damages for cancellation of a contract.

Dol International was awarded a tender in 2006 to supply the government with X-ray machines, X-ray film envelopes and sutures at a cost of Sh180 million.

However, the government cancelled the contract and refused to pay for the equipment already supplied over alleged fraud and corruption. This saw the company move to court in 2009.

The suspension of the tender was triggered by the Ethics and Anti-Corruption Commission after complaints that the contract was invalid having been obtained fraudulently.

EACC said after investigations it concluded that Dol International director Shadrack Mwiti had manipulated the tendering process and connived with Health ministry officials to secure the contract.

Mr Mwiti and the ministry officials were charged with fraud and corruption relating to the contract but the case was thrown out by the anti-corruption court for lack of evidence.

In February, 2013, Justice Mutava awarded Dol International Sh712 million as damages for huge losses incurred by the company. He also ruled that there was no evidence to show the tender was secured through fraudulent means.

He further observed that the claims of fraud and illegality by EACC were competently determined by the Public Procurement Oversight Appeals Board (PPOA) and parliament and consequently cleared the company of any wrongdoing.

But EACC appealed the decision faulting Justice Mutava of refusing to consider evidence adduced by witnesses to the effect that the contract was tainted with fraud.

EACC also accused the trial judge of ignoring the unchallenged evidence to the effect that neither Mr Mwiti nor his company was registered to deal with pharmaceuticals.

The anti-graft commission’s position was that the tender, having been obtained by fraudulent means, was invalid and that Dol International was not entitled to any damages.

On May 19 2016 appellate judges allowed the EACC appeal and dismissed Justice Mutava’s ruling.

With full knowledge of being on the EACC blacklist, Dr. Mwiti laid a plan to circumnavigate the system using two companies Debra Ltd(Kenya) and Esteem Industries(India) in a well orchestrated scheme using his networks.

The MoH awarded Esteem Industries Inc., a company registered in India, the tender to supply theatre and CSSD equipment under Lot 2 of the MES Project (Tender No. MOH/001/2014/2015).

On 6. February, 2015 the MoH and Esteem Industries Inc. (India) executed a contract for the supply of Lot 2 theatre equipment at an initial contract cost of Kshs. 8,890,825,305.30. Under the contract, which was amended and restated on 20th July, 2016, a total of ninety-four (94) hospitals, two (2) hospitals from each of the 47 counties, were selected to benefit from theatre and CSSD equipment. After the amendment, the project cost shot up to Sh10.4B.

Committee in trying to figure out the relationship between Esteem and Debra which are basically Mwiti’s brainchild, found out that Debra Ltd a CR 12 dated 11th October, 2019, issued by Registrar of Companies listed the directors of Debra Limited as Shedrack Mwiti and Steven Muriuki however, according to Dr. Mwiti, Mr. Muriuki exited the company sometime in 2013 or 2014 as a director. Sources talking to Kenya Insights indicate that his wife Simaton has since taken over as a Co-Director.

Investigations found out that before sealing of the deal in 6th February 2015, Mwiti said that Esteem had issued him with an irrevocable power of attorney. Meaning it could not reverse the authority for Mwiti to act on their behalf in regards to the contract.

Committee found the authorizing letter unconvincing as it was signed by unnamed person Mbito J. At this point it had not been mentioned that Debra Ltd would be the subcontractor in the Lot 2. This was Mwiti going after two birds with one stone, ensuring he wins the contract using Esteem and later Debra. Having negotiated for Esteem, that disqualified Debra from getting in later, but that didn’t stop the game.

Mwiti also told the committee that he had received invitation from Esteem to sign the contract in Statehouse on 6th February 2015. But since he was the same person playing both roles, committee didn’t find any proof that he received invitation from Esteem as alleged.

The report also unearthed the games played, in respect to the payments for Lot 2 Equipment, the Committee found out that the MOH has been money into an account that is not the account declared in the contract since as per the testimony of the contractor, payments in relation to Lot 2 Contract are deposited into Equity Bank account number 0180164319999 in the name of Esteem Industries Inc. Mwiti has been receiving money into his account which was not cited in the contract neither tabled evidence to show change of accounts.

Committee found out that Mwiti has been getting paid all along as the contractor. Because he operates the account that MoH pays the Lot 2 equipment and with irrevocable power of attorney, it concluded that Mwiti is both the contractor and the subcontractor.

Given the shoddy nature of the deal, the report concluded that Esteem and Dr. Mwiti colluded to circumvent the public procurement process by assigning the rights and obligations under the contract to a party who would otherwise not have won the contract.

That Esteem and Dr. Mwiti engaged in a fraudulent practice in contravention of section 41 of the PPDA that resulted in the MOH being deprived of the benefits of free and open competition. That the PS contravened section 197 (1) (l) of the Public Finance Act, 2012 that requires the accounting officer to keep proper records by failing to keep records regarding the account details in to which money in respect to the contract for Lot 2 was to be paid.

In 2016, an interim audit report by the Auditor General investigating MOH explicitly mentions that irregular payments were made to 3/5 MES providers: Belco Sri Ltd., Mindray Med. Kenya & Esteem Industries Inc.

In respect to whether the equipment under Lot 2 was delivered, is functional and represents value for money, the committee observed that there instanced where the contractor was paid for equipment not delivered. February 3rd 2016 Mwiti received the first quarterly payment in full despite having not delivered to 26 hospitals as per the agreement.

MOH was found to be negligent when it accepted unconscionable contractual provisions that resulted in MOH paying for equipment despite the fact that the equipment delivered could not be used due to lack of the necessary infrastructure or health care professional s necessary to ensure utility of the equipment.

Report also indicates that the taxpayer was shortchanged as the cost of the project in relation to Lot 2 may have been inflated given the differences in the amount of equipment actually delivered to the health facilities.

It also observed that the contractual provisions in Lot 2 were skewed against the government and in the favor of Mwiti since the MoH, having drafted the specifications of the equipment, was aware that some of the equipment was to be delivered to areas of the country that lacked sufficient power or water to operate them but still had equipment supplied to those areas knowing full well that there was a high likelihood that the equipment would lay idle and as a result Kenya would lose money.

Investigations revealed that the lifecycle model of the equipment may have been doctored to increase the cost of the contract to the detriment of the Kenya public since if the equipment was still serviceable it is not justifiable to seek to replace the equipment during its functional lifespan.

During a visit to Isiolo CRH by the investigating committee, it was observed that some of the equipment supplied under Lot 2 was labelled ‘Esteem’ while others were simply labelled ‘Estem’. When the matter was brought to the attention of the contractor and subcontractor, the contractor submitted that the branding difference may have resulted from inadvertent inscription before shipment whereas the subcontractor Debra Limited disowned the equipment altogether and disputed its source. The Committee therefore found that the contradictions arising from the equipment delivered under Lot 2 were suggestive of the fact that counterfeit equipment was supplied under the contract.

Investigations further reveal that that prices of equipment supplied under Lot 2 were grossly exaggerated. For example, according to MoH records, a stitching removal set which typically comprises of a suture tray, a pair of scissors and a pair of tongs was supplied to counties at the unconscionable cost of Kshs.398,849.00. That is more than 80 times the average cost of similar equipment in the market at Kshs. 5,000.00 per set.

According to the MoH the cost of an autoclave is valued at USD 79,244.70 or (Kshs. 8,003,714.7 using a conversion rate of 101). Dr. Mwiti informed the committee that the total cost of the equipment under Lot 2 would be 7 million under outright purchase terms, while under MES the cost of the equipment is only 6 million. The contractor further informed the committee that the equipment has not undergone software updates. The committee therefore observed that the MoH relied on an exaggerated price list for the MES equipment that may have resulted in the over pricing of the contract.

Fact that the equipment delivered under Lot 2 was inscribed ‘Estem’ instead of ‘Esteem’ the committee was convinced that it was is suggestive of the fact that counterfeit equipment was supplied under the contract. Because the contractor had knowledge of the equipment inscribed ‘Estem’ and that Dr. Mwiti  was trying to mislead the Committee. The Committee further found that either the contractor or the subcontractor wilfully furnished the Committee with information which is false or misleading in contravention of the law.

Committee was left disturbed with the status of the equipment delivered under Lot 2 in regard to safety as questionable since the equipment was not vetted or inspected as required under the law either by KEBS or Pharmacy and Poisons Board who failed their mandate.

Questions hang on MOH for negligently and in contravention of Article 201 of the Constitution that requires that public money be used in a prudent manner, proceeded to vary the Lot 2 contracts  to include additional facilities while being aware that facilities would be shortchanged in terms of the time for which they are to have utility of the equipment, how Dr. Mwiti convinced for restructuring of the contract.

Committe concluded that the cost levied per county in respect to the variation of the contract relating to Lot 2 was unjustifiable since according to the contract the variation only amounted to a 17.7% increase in the cost of the project.

Conclusions

The Committee established that the irrevocable power of attorney issued to Dr. Mwiti by Esteem is an indication of the fact that the contract under Lot 2 was actually novated to Dr. Mwiti and by extension Debra Limited in contravention of the contractual requirement for novation.

The Committee further established that this ‘novation’ has had implications on the implementation of the contract resulting in equipment that should have been disposed of, being left in the hospitals despite the fact that the contract required the equipment to be changed at end of its useful lifespan. Further, the Committee established that equipment supplied under Lot 2 still remains non-functional due to both lack of the infrastructure necessary and specialists or subspecialist needed to ensure the optimal use of the equipment. This clearly indicates that there is no value for money.

As a result, the committee concluded that EACC investigate the circumstances surrounding the implementation of the contract relating to Lot 2 and particularly the circumstances that led to Dr. Mwiti, CEO/ Director Debra Limited having an irrevocable power of attorney relating to Lot 2 and operating the account in to which the payment in relation to Lot 2 is made; and the cost of the equipment supplied under Lot 2.

EACC and DCI to investigate the circumstances under which KEBS and PPB failed to carry out their statutory obligations to ensure the standards and safety of medical products imported under MES and in particular establish how Esteem Industries Inc. received pre-verification of certificates on various dates.

EACC and DCI to investigate the circumstances under which the contract for Lot 2 equipment was varied without requests from the counties as required by Regulation 9 (d) of the Public Procurement and Disposal Regulations, 2006 (now regulation 34 (d) of the Public Procurement and Asset Disposal Regulations, 2020).

Anti-Counterfeit Authority to inspect equipment delivered under Lot 2 and in particular equipment delivered to Garbatulla, Isiolo and Meru labelled ‘Estem’ instead of ‘ Esteem’.

EACC investigate the circumstances under which the counties paid more than 100% for variation of the MES contracts despite the fact that the variation for Lot 2 was within the 25% threshold envisaged under the law.

EACC investigate the circumstances under which the cost of the equipment under Lot 2 was inflated including the circumstances that led to replacement of equipment under Lot 2 even when the equipment is still serviceable and take necessary action on the persons found culpable.

Competition Authority investigate the relationship between Esteem and Debra and in particular the circumstances under which Dr. Mwiti was became a co-contractor of Esteem in relation to Lot 2.

Investigations should even go deeper to determine if Esteem Industries even exists and if it’s the real one Dr. Mwiti is associating with, the website gives scanty information which is suspicious.

Dr. Mwiti unsuccessfully vied for Imenti South Parliamentary dear and likely to go again.

Sources speaking to Kenya Insights intimates that Dr. Mwiti who also happens to be a close ally to the DP Ruto has been rapidly expanding his estate since 2013. He’s currently putting up a petrol station and a hotel along Kiambu Road. He has also bought a lot of property in Meru. Hotels, buildings etc.

Dr. Mwiti is also the father-in-law to fake gold scammer Jared Otieno who’s married to his daughter Ann Kendi. The two lovebirds who caused a stir with show stopping dowry payment in Meru years ago and a multi million wedding ceremonies.

The Kenya Revenue Authority (KRA) is set to collect Ksh 1.1 Billion from Oxygene 8 East Africa Limited for taxes not remitted . This comes after a Tax appeals tribunal ruled in favor of the KRA.

KRA says that an investigative Audit based on Oxygen 8’s Withholding Tax records revealed that digital company with U.K roots had not remitted taxes of Ksh 1,185,596,692 between July 2015 – February 2019.

The Tax Appeals Tribunal dissmissed Oxygene’s appeal on the grounds that the company had admitted to owing taxes but had not offered a payment plan to the Authority.

How it happened

Slender grain

Stop at Sagana

Cost of production

Quest for yields

Blending is not illegal

Artificial aroma

Value chain

Kenya has a deep penetration of mobile money usage with a big part of population using mobile devices in transactions. A recent study showed that between March and August alone, over Sh500Bn had been transacted through various mobile money platforms.

The trend has also seen the emergence and growth of digital micro lenders. Many Kenyans have resorted to using these mobile loan applications and eventually ran into more problems than they burgeoned for.

Digital loans represent just under 9 percent of the total observed market for loans by value and are the third largest source of credit by value after non-digital commercial bank loans and loans from SACCOs/MFIs.

Dozens of unregulated microlenders — many backed by Silicon Valley Venture capital firms — have invaded Kenya’s credit market in response to the growth in demand for quick loans.

Their proliferation has saddled borrowers with high interest rates, which rise up to 520 per cent when annualised, leading to mounting defaults and an ever-ballooning number of defaulters who have been adversely listed with credit reference bureaus (CRBs).

The lenders have been accused of operating unlawfully but with no strict regulations in the system, their terrorism on naive customers have persisted.

Over 400,000 Kenyans with negative listing in the Credit Reference Bureau (CRB) only owe lenders less than KSh 200, latest data has shown.

This is according to a survey conducted by Transunion that also brings to the fore that the dreaded CRB has over 2.7 million people who have been blacklisted as loan defaulters.

Other studies show that 16.6 per cent of digital borrowers take up one loan to pay another, ensnaring them in a vicious cycle. Further, digital borrowers asking for low amounts (such as Sh200) incur high costs to the point where when paying the principal and interest, they are likely in a worse off position than they were before the loan Just to illustrate the levels of exploitation in this case.

Technology is efficient but ruthless, while Banks wear “thinking” cap when dealing with genuine defaults and be lenient when caused by “act of God”, looking at options of restructuring to make repayment viable! Digital lenders have been high on their galloping horse in the name of self-regulation, squeezing the financial life out of middle and low-income earners in the country and punishing them severely for contravening with their terms and conditions.

According to investigations done by UK’s Financial Times, Branch International, one of the biggest digital micro lenders in Kenya and with other offices in India, Mexico, Nigeria and Tanzania, has been flagged as those engaging in unethical debt collection strategies that had caused more harm than good. There have been instances of suicide.

The aggressive nature with which online lending firms deploy to collect what they advanced has become so alarming that no less than the CBK wants new laws to stop cyber shaming by these cloud-based facilities.

It is death by suicide that jolted Kenya’s top financial regulator and sparked one of the most compelling moral conundrums for the fintech-fuelled digital lending craze in the country.

The shocking revelation by the Central Bank of Kenya (CBK) in February this year that a middle-aged man took his life after failing to withstand harassment and public shaming by an unnamed digital lending application, ignited debate on the radical evolution of the many platforms that disburse loans via mobile phones.

“In November last year, a lady came to the Central Bank to explain to us that her husband had committed suicide after getting involved with one of these lenders,” she said.

“What this lender did is that when her husband was unable to pay the debt through the contact list of her husband, [the lender] started sending messages to all of them, including his mother, his grandmother and his aunt,” she said.

CBK Deputy Governor Sheila M’Mbijjewe revealed the incident, which was reported to the regulator by the distressed family of the victim.

More Kenyans have come out publicly to tell of their harrowing experiences in the hands of digital lenders.

Many have likened the apps to modern day loan sharks, which can wreck people’s lives in case of default.

Loan sharks are criminals who charge extortionist interest rates and use callous methods to force people to pay the money back.

Those who have come forward said people behind the lending app repeatedly called or sent text messages to their contact list including employers, business partners, spouses, relatives and friends about their inability to return the money, causing them embarrassment and emotional stress.

Upon downloading, mobile apps require access to contact information, photos, files and documents saved in the borrower’s phone.

Once those have been submitted, the online loan application can proceed.

If a borrower fails to pay on time, all of his or her phone contacts receive a collection text message or call stating the borrower’s full name and outstanding balance, affected borrowers said.

And this is what Financial Times revealed about the Branch, in an instance, a lady working at a salon in Kawangware and owes Branch Sh2,000 received a call from a debt collection agent which came with threats of blacklisting her on CRB should she fail to pay by the end of the day. A few moments later, the same agent called her boyfriend informing him to remind his girlfriend to pay the debt she owes them.

This is a classic show that the app having accessed your personal data and studied your social circle, can pick contacts at will and apart from bombarding your close relations with debt shaming calls, who knows what else a rogue agent can do with once personal details at their own disposal? The thought of all the possibilities is cringing.

While Branch insist that they don’t engage aggressive tactics in loan recoveries, victims of uncouth, rough behaviors says otherwise, talking to Financial Times, Victor Anzel, 29, talks of his experience with Skywave, a debt collection agency contracted by Branch, the mechanic gives a glimpse of his encounter with the no nonsense debt collectors.

“They said: ‘We will come, we will come and get you, no matter how far you are and how hidden you think you are’,” said Anzel.

“We will come and auction your stuff, we will track you through your boss, we have your details,” the Skywave agents said, according to Mr Anzel in the interview. He owed them Sh20,000 and the extreme levels they were going to debt shame him was beyond ordinary.

While Branch vehemently denies engaging orthodox methods in loan recovery, former employees talking to Financial Time say otherwise.

A former employee of Nimble Group Kenya, another debt collection agency used by Branch, they get to do whatever they can do with the personal data of borrowers including their family’s, friends and co-workers. With the data they easily retrieve from the apps, they don’t hesitate to debt shame.

“If I have a phone number that has borrowed [from] Branch, Tala and Opesa, the [debt agency’s] system has three accounts linked to the same phone or ID number,” the former Nimble employee told FT. “Collection is challenging, so sometimes, because you really want the commission, you have to figure out a way to get a customer to pay.”

Whole Branch stamps on denial, their debt collectors are doing the extreme to make the work done and maybe that’s why they’re not bothered much as long as they have their money back.

Branch is able to track down family members, since borrowers are often registered on several apps, enabling agents to retrieve contact information from lenders that did share borrowers’ address books.

It is also revealed in the report that Branch can’t play naive as they’re fully aware of the aggressive behavior by Nimble that had them scale down their salaries in 2018. But that didn’t put the show to an end, Kenyans continue to be terrorized by the same goons.

Regulators and consumer lobbies have raised the red flag about customer data protection by the credit-only lenders, the high interest rates or transaction fees that they charge borrowers, multiple borrowing from different lenders, non-disclosure of pricing terms and their lack of dispute resolution mechanisms.

The unregulated credit-only institutions are fast growing partly due to people’s desperation for cash, healthcare or school fees. Borrowers in most cases enter into the arrangements under duress.

With their exorbitant interest rates and conditions, microcredit from the online lenders has plunged many borrowers into a debt trap.

Responsibility of regulators to shield such inhuman actions shouldn’t have taken long. “People have suffered,” the central bank governor, Patrick Njoroge, told the FT.

In July, CBK moved in to propose regulation of monthly interest rates charged by the digital mobile lenders and borrowers’ non-performing loans in the proposed law before Parliament.

EACC has recommended that Mr. Steven Maina Githaiga, the Managing Director of Tana and Athi River Development Authority (TARDA), be suspended with immediate effect until investigations into his conduct are concluded.

The Commission commenced investigations into allegations that Mr. Githaiga falsified his date of birth on his National Identity Card in order to continue being in employment past the retirement age.

“Considering the applicable law, Mr. Githaiga’s conduct constitutes serious ethical breaches contrary to the integrity and ethical requirements governing the conduct of state and public officers as laid out in various anti-corruption laws.” Says EACC.

Kenya Insights exposed and wrote extensively on Githaiga’s gross misconduct and you can read the stories;

1. Steven Githaiga The TARDA Fraud MD Who Changed His Birth Dates To Serve Longer, Employed Whole Family and Friends In The Parastatal.
2. Abuse of Office: Steven Githaiga, MD TARDA Who Has Employed His Entire Family And Friends Into The Parastatal.
3. A Detailed Expose How TARDA MD Steven Githaiga Faked His Birth Dates To Gain 5 Years In Parliament, Looted And Continue To Loot The Parastatal.
4. Steven Githaiga A USIU Lecturer Without Any Legit Academic Credential And The Sham TARDA MD With Faked Documents.
5. #GithaigaMustGo Looting And Fraud TARDA MD Brags He Steals With Ruto, Protected By Uhuru’s Cousin In, CS Kiunjuri That He’s Untouchable

At the same time, EACC has advised the CS Ministry of Energy and Petroleum to suspend Eng. James Rege, the Chairperson of the Kenya Electricity Transmission Company (KETRACO) from office until his case is determined.

Eng. Rege, who is also the former MP for Karachuonyo, is facing corruption charges relating to procurement of telemedicine equipment purchased by the Karachuonyo CDF.

“Section 62(1) of ACECA requires any public officer facing an offence under the Act, such as in the instant case, to be suspended from office until the case is determined.” Says EACC.

Still staying with corruption, EACC has communicated to the Chairperson of the Council of Governors advising against victimizing the Nation Media Group and/or any other service provider as it offends the Constitution and relevant laws that govern acquisition of goods and services by Public Entities.

“The directive of CoG in effect is a breach of Article 10 and Article 227 (1, 3 and 21) of the Constitution. The Commission warns that any Accounting Officer or other Public Officer implementing such unlawful instructions will be personally liable.” Warned EACC.

Kenyans are now accustomed to corruption cases that never seem to end, each and everyday the headlines are splashed with prints of billions lost. Billion has even lost its value in Kenyans faces who’ve been numbed by corruption.

A parliamentary investigation has concluded that the Sh63 billion leasing of medical equipment for counties was a “criminal enterprise” designed to enrich a few individuals but fell short of naming those responsible.

Senators recommended all public officers found culpable of illegalities in the Managed Equipment Service (MES) procurement, which they said was done “in the furtherance of the adverse commercial interests” at the expense of Kenyans be prosecuted and barred from holding public office.

The report by the Senate ad-hoc Committee said that, although the programme had a noble goal to help the public access quality healthcare, the persons involved “from start to finish implemented the project in a manner that violated the very constitution and the sacred principles it was originally conceived under.”

According to the report tabled in the House Tuesday, the project signed at State House Nairobi in 2015 had a pre-determined outcome as the suppliers of the multi-million equipment were well known by Ministry of Health officials even before tenders were advertised.

The Ministry of Health went on a buying spree despite a needs assessment confirming that counties lacked adequate capacity to absorb the equipment.

Some of the equipment was either overpriced, substandard, delivered late, or not delivered at all and the committee recommends that private firms as well as individuals found culpable of illegal acts in procurement should be barred from doing business with both levels of government.

“As a matter of fact, the committee has established that the MES project was a criminal enterprise shrouded in opaque procurement processes and that the Ministry of Health relied on a faulty tool to justify a pre-determined outcome in relation to the award of tenders that likely resulted to impudent use of public Finance Management Act that forbids wasteful expenditure,” reads the report.

“The MES project is the only project where conditional grants meant for county governments and appropriated under the County Allocation of Revenue Acts are unconstitutionally paid directly to the Ministry of Health instead of being deposited in the respective County Revenue Funds contrary to Article 207 of the Constitution,” the report further reads.

To amend this, the Committee recommends that money meant for the project should be deposited to the County Revenue Fund as required by the Constitution.

The tenders of the project were awarded to Shenzhen Mindary Bio Medical electronics Co.Ltd, Esteem Industries,M/S Sysmex Europe, GMBH, Bellco S.R.L, Philips Medical Systems Nederland BV, GE East Africa Services Limited.

Behind the tendering lay a heap of controversies and consultants dragged into the mud.

IMK Advocates

IKM Advocates were brought in to provide legal advice on the optimal MES procurement approach (PPP vs. PPDA). IKM would then recommend a PPDA that would ultimately cost more than the original PPP.

The law firm headed by CS Paul Muite and managing partner Mr James Kamau told the parliamentary committee that MoH appointed their firm for the provision of legal transaction advisory services from a panel of prequalified law firms with the approval of the Office of the Attorney General and Department of Justice (OAG & DOJ). As per their testimony, their services were lawfully singlesourced under section 32 of the Public Procurement and Disposal Act, 2005 (now repealed) which was the applicable law at the time.

In retaliation, the committee observed in a Special Audit of the MoH Accounts for the FY 2015/2016, the Auditor General had raised queries regarding the unprocedural manner in which the MoH single advisory services from IKM Advocates under the MES Project. With regard to the direct procurement of IKM Advocates for MES legal transaction advisory services, the Committee observed that the MoH failed to satisfy the legal requirements set out in section 74 of the PPDA Act 2005 (now repealed) by failing to demonstrate that IKM Advocates were the only persons capable of providing legal transaction advisory services under the MES Project, and that there lacked reasonable alternatives.

The Committee observed that the direct procurement of IKM Advocates contravened section 74 (3) of the PPDA 2005 (now repealed), as the procurement of the MES equipment was not so urgent as to render competitive procurement methods for legal advisory services impractical.

IKM Advocates admitted to having had ‘informal’ engagements with the MoH in respect of the MES Project prior to the execution of their service level agreement or approval of the AG. According to IKM, these engagements were aimed at understanding the MES project and the services that they were required to provide.

According to IKM Advocates, their initial scope of work entailed the following; advising on the optimal procurement structure for the MES Project; drafting, negotiating, amending and finalizing the MES Contract including all related schedules; drafting, negotiating, amending and finalizing the intergovernmental agreement to be concluded between MoH and each County government, including all related schedules.

According to IKM Advocates, their role in the procurement processes in the MES Project was confined to drafting the template MES Contract whic h was attached to the tender documents. The firm submitted that the MoH conducted the entire tendering process, and that they were not in any way involved in the identification, evaluation or selection of the MES bidders. Further, IKM Advocates submitted that they had not had any contact with any of the successful bidders prior to the tenders being awarded.

According to IKM Advocates, the final commercial close MES contracts were signed d contracturing a signing ceremony at State House on 6th February 2015 with the approval of the Attorney General (OAG) & Department of Justice(OAJ). According to their testimony, they were not made aware of any objections raised by the OAG & DOJ in respect of the contracts.

IKM Advocates, received a total of KShs. 48,881,063.90 (excluding taxes) from the MoH. The cost was cumulative and included payment for services rendered to the MoH during their informal engagements.

However, on 23rd April, 2015, the OAG & DOJ granted approval for the extension of the mandate of IKM Advocates for additional scope services such as;

-providing guidance to the contractors on preparation of their technical schedules and collating and contractualization of the same upon receipt and approval by MoH;

-review of and negotiating further mark-ups and comments to the MES Contracts submitted by the contractors so as to arrive at Financial Close MES Contracts;

-review of contractor term sheets and financial solutions and negotiation on the same and finalization as part of the Financial Close MES Contracts;

IKM Advocates testified that their extended mandate was funded as a ‘donation’ by the five MES contractors on a pro-rata basis, as follows:

• Shenzen Mindray Biomedical Electronics Co (China): USD 75,000.00 (equivalent to KShs. 7,575,000.00 at KShs. 101 to the USD);
• Esteem Industries Inc. (India): USD 50,000.00 (equivalent to KShs. 5,050,000.00 at KSHs. 101 to the USD);
• Bellco SRL(Italy): USD 50,000.00 (equivalent to KShs. 5,050,000.00 at KSHs. 101 to the USD);
• Philips Medical Systems Nederland BV USD 170,000.00 (equivalent to KShs. 17,170,000.00 at KSHs. 101 to the USD);
• GE East Africa Services Ltd USD 600,000.00 (equivalent to KShs. 60,600,000.00 at KSHs. 101 to the USD);

Unprocedural Engagement of IKM Advocates by the MoH

The committee observed that Contrary to the provisions of AGs’ circular dated 3rd May, 2010 (Ref.AG/1/2010) which required all client ministries to consult and seek a pproval of the AG before retaining the services of private advocates, the MoH irregularly engaged the services of IKM Advocates prior to the approval of the AG, or the execution of a service level agreement.

Services rendered by IKM Advocates during this ‘ informal’ engagement period were highly consequential and included a legal opinion that presumably informed the decision by the MoH to vary the legal framework of the entire project from a PPP to a procurement model; and, draft contracts that were attached to the MES tender documents. The MoH paid IKM Advocates KShs. 48,881,063.90 (excluding tax) being the cumulative cost for services rendered. Contrary to the law, according to submissions by IKM Advocates, the payment included the cost of services rendere d during its ‘informal’ engagement with the ‘MoH’.

Conflict of Interest

The Committee observed that while IKM Advocates denied having had any relationship or contact with the successful bidders, by their own admission, GE and IKM Advocates had had a existing client advocate relationship from 2010 at the time of its engagement as legal transaction advisors to the MES Project. The Committee further observed that according to the testimony of IKM Advocates, at the time of their engagement, the MoH was aware that they were on GEs’ panel of lawyers. However, neither the firm, nor the MoH declared this conflict of interest to the OAG & DOJ.

A conflict of interest between the two entities was subsequently demonstrated by the fact that IKM Advocates sub sequently went on to draft Government Letters of Support for GE East Africa Services Ltd (and Philips Medical Systems Nederland B.V.) that were manifestly different from the other MES contractors.

IKM Advocates further exhibited bias in favour of GE by pursuing the issuance of an enforceability opinion from the OAG & DOJ in the exclusive interests of the GE contract.

Further to the above, the Committee finds that despite having participated in the preparation and drafting of the tender documents which exp ressly limited the eligibility of bidders to original equipment manufacturers, IKM Advocates omitted to advise the MoH that GE were not in fact original equipment manufacturers and that they therefore did not qualify to participate in the tender.

Based on the foregoing, the Committee came to the irresistible conclusion that, in fact, the very coming of IKM Advocates into the MES Project may have been solicited or otherwise influenced by GE.

Unethical Conduct by IKM Advocates

The Committee observed that IKM Advocates acted unethically by accepting ‘donations’ amounting to USD 945,000.00 (KShs. 95,445,000 at KShs. 101 to the USD) from parties that they were supposed to be acting against i.e. the MES Contractors.

Further to this, the Committee observed that the aforementioned ‘donations’ collected by IKM Advocates from the five MES contractors was almost double the KShs. 48,881,063.90 it had received from the MoH on whose behalf it was supposed to have been acting.

The Committee noted that according to their own testimony, and as per their terms of reference, IKM Advocates played a role in “ … drafting, negotiating, amending and finalizing the intergovernmental agreement to be concluded between MoH and each County government, incl uding all related schedules”.

In the face of the findings of irregularities in the conduct of the IKM Advocates, the committee has made the following recommendations:

1. The EACC and other investigatory and prosecution agencies are also urged to investigate the process of procuring the legal consultants entire conceptualization and implementation process.
2. Further, the EACC is urged to investigat who advised the MoH in the e the circumstances under which contractors to the MES project made donations that went towards legal fees to IKM Advocates and to report its findings to the Senate within 60 days; and, further, to investigate how the contractors raised money to IKM Advocates who were MOH Advocates in the transaction and whom was the money billed.
3. The committee further urged EACC to investigate and establish whether the consultancy fees were billed against the counties.

Cummulatively, IKM Advocates received Sh144,326,063 from the scandalous deal.

Council of Governors are playing a similar card in streamlining the media to sing their songs. With full knowledge that media houses depend on ads to keep running, the council has resolved to withdraw all their adverts from Nation Media Group following publication of a story that they deem was damaging to their reputation.

“There has been deliberate effort to malign governors  and portray them as corrupt, inept and to run their counties especially by the NMG as evidenced on Daily Nation newspaper headline of 8th September 2020 captioned “eight governors on graft hit list.” Reads part of the statement seem by Kenya Insights.

The council insists that the reports lack merits and intentions only known to NMG.

In resolution, the governors said “henceforth, no county government shall advertise with NMG merchandise until the situation is rectified.”

“I therefore urge all county governments to immediately cease engaging with NMG merchandise until further notice.” CoG Chairman Oparanya said.

He went further to send warning to other media houses, “any other media house that will carry salacious stories about governors without verifying and therefore misinform the public and portray the governors in negative light without any truth will face similar treatment.” Warned Oparanya.

This simply amounts to controlling the media and curtailing the freedom of the press. Counties are the biggest ad revenue contributors to the media houses and they’re now using that as a leverage to bargain for favorable media coverage.

Audit reports have shown counties as rotten with scandals running down coffers amounting to billions. It’s not a secret that a good number of governors are under EACC probe with a good number arrested and charged already.

So what the CoG is saying is simple, don’t report anything negative about the governors or risk losing our money. This is soft porn dictatorship. Will the media bow to the blackmailing by the CoG?

The CoG are now using GoK tactics of threatening withdrawal of advertising revenues from media houses that carry stories they don’t like. This shouldn’t be allowed. The money does not belong to them but the public- which has the right to be informed about Governor thieveries. If governors don’t want oversight then they shouldn’t want the public’s money too.

This is also an opportunity for independent blogs like Kenya Insights to tell the stories that the governors want hidden from the public. For us we’re ready and will not hesitate to blast a scandal in any county that we receive, investigate and find credible.

Tharaka Nithi Governor Muthimi Njuki has been released on a cash bail of Ksh 6m and barred from accessing the County Government offices.

Muthomi was released by Chief Magistrate Douglas Ogoti after pleading not guilty to graft charges.

He is charged alongside 21 other suspects with conspiracy to commit an offence of corruption of over Ksh 34 million.

Other charges include fraudulent practice in procurement practice, conflict of interest, abuse of office, willful failure to comply with laws and applicable procedures and guidelines relating to procurement.

According to the DPP, Westomaxx Investments Limited, a company that had submitted fraudulent documents was awarded the tender at a cost of Ksh 34,998,500.00.

The other suspects Fridah Muthoni Murungi (Chief Officer Environment and Natural Resources), Floridah Kiende Nyigwah (Acting Director Procurement), Murithi Njue (Finance Officer) and Kagoji Mburia were also released on a cash bail of Ksh 6m.

Kenneth Ngai, Sheila Wambui and Gitonga Nyange were released on a cash bail of Ksh 3m each while Mbugwa Mwnagi, Muthoni Mugweru and Muriithi Gitonga were released on a cash bail of Ksh 2m each.

Others; Mwenda Munene, Mutugi Nkonge, Nkatha Micheni, Mwiandi Muriithi, Kariithi Maati and Miano Mugweru were released on a cash bail of Ksh 1m each.

Ogiti further ordered the Governor to surrender his passport as well as copies of his ID card and warned him against communicating with witnesses.

Revelations that Busia county spent Sh37.5 million on a maternity project has raised eyebrows in the county with questions being raised on the manner in which the county is executing its duties in the management of public affairs.

The maternity project, according to documents presented before the senate committee was to cost Sh44.4 million. It is suspected those behind the project with the contractor increased its cost value to a whopping Sh81.3 million. The first firm is said to have differed on the percentage to pay as kickback abandoning the project. The deal saw the county retender the construction of the project, awarding it to a friendly company.

Beleaguered county governor Sospeter Ojaamong has seen projects stall, multi-million shillings imprest payments go down the drain, as tender awards to firms owned by senior county managers’ relatives and girlfriends is the norm. In the maternity project that involved a newborn unit at Busia County Referral Hospital, Sydcas Construction Limited, was awarded according to documents.

It was to be a one- year project from June 19 2014 to June 19 2015. But as of June 30 2017 with no progress on the ground to show, the county had paid Sh31.58 million. The work had stopped at 40pc the construction level. According to sources, deputy governor Moses Mulomi, also in charge of health docket pushed for the payment despite Sydcas Construction Limited inability to complete the work as per the agreed signed contract.

Why the firm that had failed to honour the contract obligations was allowed to remeasure of the works, terminate contract and be paid for work done and certified as amounting to Sh31,533, 680 has left many guessing. In this case, the firm was to refund any money paid. To the surprise of many, the county went ahead and contracted Opet Enterprises Ltd at Sh50.53 million to complete the construction works.

The public accounts committee led by Kisii senator Sam Ongeri expressed concern in its initial report is as to why the county did not sue the initial contractor for failing to meet the terms of the contract. Murang’a senator Irungu Kang’ata, a committee member is bitter that the move cost the county Sh81 million for a Sh44 million project.

Opet Enterprises directors are close to Ojamoong. Another project that has stalled is an accident and emergency unit at Busia Referral Hospital. Sh52.73 million had been used on the white elephant project that is now an eyesore.

The contract, according to documents signed by parties involved, was one year from June 6, 2014 to June 6, 2015. According to Auditor General Report, physical verification two and half years after expiry of the planned completion date shows the work stalled at 70 per cent level of completion. The county has failed to to recover imprest advanced to county officers amounting to Sh1.88 million.-WZ.

Betting powerhouse SportPesa has been sucking revenues out of its lucrative Kenyan market by paying billions of shillings to a software development company it owns in the UK – an arrangement that has significantly reduced its tax bills.

An investigation by Finance Uncovered and the Daily Nation has found that the British company, SPS Sportsoft, has been providing software services to SportPesa’s Kenyan operation, Pevans East Africa, which some experts believe is a staggering mark-up of more than 400 per cent since 2017.

According to its annual statements, SPS billed Pevans £42 million (Sh5.5 billion) for “IT and services” over two years alone.

Yet its UK costs were so low that its total pre-tax profits in that time were £33 million (Sh4.3 billion), a profit margin of 77per cent.

The arrangement could have reduced SportPesa’s profitability in Kenya, where the firm would be taxed at 30 per cent, and shifted the revenues to the UK, where corporation tax is just 19 per cent.

At the same time, SPS has also relied on the provisions of a 43-year old ‘double taxation’ treaty between the UK and Kenya to massively reduce its British tax bill.

It has enabled SportPesa to build a profits reserve in the UK of £22 million (Sh2.8 billion), according to its 2018 accounts – its most recent filing – a nest egg that could be used to invest in its business or to pay dividends to the firm’s shareholders.

SportPesa said it had a “revenue share” arrangement between its UK and Kenyan companies and that it was standard practice for the online betting industry. The company said it abided by all legal and accounting principles.

But tax experts have raised questions about the pricing arrangement.

An official at the Kenya Revenue Authority (KRA) said after reviewing SPS Sportsoft’s financial statements, there appeared to be clear “overcharging”.

SportPesa’s business activities are fully compliant with all tax and legal frameworks in the countries and regions in which we operate.”

A SportPesa spokesperson said: “It is factually incorrect to suggest that Pevans East Africa has been overcharged by SPS Sportsoft. SPS Sportsoft’s software development and operational costs are in line with industry norms.”

“SportPesa’s business activities are fully compliant with all tax and legal frameworks in the countries and regions in which we operate.”

SportPesa lost its Kenya betting licence last July before it announced it was withdrawing from the country last September in response to what it called “the hostile taxation and operating environment in the country”.

Since being founded by Bulgarian investors in 2014, SportPesa has recorded phenomenal growth by tapping into a craze for online betting among Kenyans and the ease of micro-payments through mobile money services.

Having established a dominant position in Kenya, in 2017 it signalled its global ambitions by signing a major shirt sponsorship deal with English Premier League club Everton FC.

It also opened a new European headquarters in the iconic Liver Building on Liverpool’s waterfront. To facilitate its UK operations, SportPesa created a new corporate structure with the main entity being SPS Sportsoft, which now employs 70 people.

SPS is owned by SportPesa Global Holdings Ltd, another UK company, which collects all the profits recorded in the UK, and which in turn is largely owned by the same shareholders as Pevans.

From Africa to Europe

The SportPesa bosses decided that SPS would provide software services to Pevans, allowing it to transfer money from Africa to Europe. The funding for this European set-up would come almost entirely from Kenyan gamblers.

But tax experts who have reviewed the companies’ accounts believe there are concerns about the level of profits being recorded in the UK. Determining precisely what SPS does to earn its revenues is key.

According to SPS’s website, the company is a “growing global technology and entertainment group focused on sport and entertainment news”.

Its annual accounts say SPS “provides IT and services related to the procurement of associated IT” for customers. These were exclusively its own sister companies, principally Pevans East Africa in Kenya.

In the 21 months to December 2018, 97 per cent of its £43.5 million (Sh5.7 billion) revenue was derived from Pevans.

After Finance Uncovered posed a series of questions to SportPesa, it engaged one of the world’s biggest corporate advisory firms, FTI Consulting, to help provide answers. Finance Uncovered was told: “Gaming software platforms are typically provided on a software as a service (SaaS) basis.

“Competitive platform provision from established, reliable global providers is in revenue share terms and varies in the ranges between 15 per cent and 50 per cent revenue share contribution. “This revenue share is in line with industry best practice within the lowest possible limits to ensure compliance with the transfer pricing principles in both the UK and Kenya.”

This suggests that whenever punters in Kenya place a bet, they access a software driven gaming platform, which SportPesa says has, at least in part, been developed or is overseen by SPS in the UK.

As a reward for this service, a significant percentage of that bet could be allocated to the British company.

SportPesa declined to say how and where the gaming platform was provided in the hugely successful period before it created the UK company in 2017.

The issue of ‘transfer pricing’ is crucial in the fight to ensure multinational companies pay fair levels of tax.

Many multinationals have in the past been able to legally manipulate the prices they charge their own companies in different countries to shift profits out of higher tax jurisdictions.

When they do this, companies are meant to set a “comparable” or realistic price for intra-group trading abiding by a so-called “arm’s length principle”.

Finance Uncovered asked SportPesa to provide more details of its internal charging mechanism. But it declined to comment.

If SPS had developed its own proprietary software, it would be possible to see this recorded as an intellectual property (IP) asset on its balance sheet.

But its filed accounts for 2017 and 2018 do not show any such asset. This suggests it is buying software from elsewhere before possibly managing or adapting it in some way and then reselling it to Pevans in Kenya for an extraordinary mark-up.

Finance Uncovered also approached some of the world’s leading accountancy and consulting companies, including KPMG and Deloitte, for expert insight into how such transfer pricing mechanisms might operate in the online betting industry.

None were willing to help.

A SportPesa spokesman said: “Payments to SPS Sportsoft by its sister companies are governed by transfer pricing policies, which have been reviewed by the relevant tax authorities.”

A betting executive with experience in both the UK and African markets said there was some sense in SportPesa’s explanation.

He said: “Most betting operators I know use a platform built by somebody else, and will pay them a licence fee for doing so. Licence fees are done on a revenue share basis, and most deals I have seen would be in the 20-30 per cent revenue share range.”

But asked whether one company in a betting group would normally source software at low cost on behalf of another company in the same group and then charge a 400 per cent mark-up on it, the executive said such practice was questionable.

Fair tax campaigner Richard Murphy, visiting professor of accounting at Sheffield University Management School, reviewed SPS’s financial statements for this article. He said: “Software as a service requires substantial upfront investment of effort and risk, for which a developer would expect a return of maybe 20-25 per cent. But it doesn’t look like that’s the case here because the UK software company started up after the Kenyan operation began.

“This does not look like a software developer or even owner in that case; it looks more like a software reseller at an extraordinary mark-up of 400 per cent or so.

More cheaply

“That is way beyond the normal boundaries of possibility for software as a service. It poses the simple question as to why this software could not have been bought vastly more cheaply by the operating companies in Kenya? “

Tommaso Faccio, who spent eight years as a transfer pricing adviser at Ernst & Young and then Deloitte in the UK, also reviewed the SPS accounts.

He said: “If SPS has developed its own unique software product in the UK or acquired it from a third party with a significant investment, then I would agree that a 15 per cent revenue share agreement could be appropriate. But as the company does not have any intangible assets such as IP recorded in its 2018 accounts, it could be simply buying software services from someone else and reselling it. In that case, a ‘cost-plus’ deal, with a 15-20 per cent mark-up on its UK costs, makes much more sense. Otherwise, why would the Kenyan company pay tens of millions of pounds a year to SPS as revenue share when it could just buy the software services directly?”

The analysis of the SPS accounts also revealed a further twist.

Despite recording £33 million (Sh4.3 billion) in pre-tax profits in the UK since 2017, the company has paid just £658,000 (Sh85.5 million) in corporation tax to the British exchequer, Her Majesty’s Revenue and Customs.

Although its tax bill from HMRC was £6.4 million (Sh858 million) for the period, it was able to offset almost all of that by making use of the 1977 Double Taxation Treaty between the UK and Kenya.

Such treaties are common and were designed to help companies legally avoid paying taxes on the same revenue streams in different countries. In SportPesa’s case, every time Pevans in Kenya pays SPS in the UK, KRA charges a 15 per cent withholding tax.

Pevans then pays that to KRA, and SPS is then able to present a ‘tax paid’ certificate to HMRC.

The amount of withholding tax paid is deducted from the HMRC bill. In 2018, the bill from HMRC was £2.9 million (Sh377 million). SPS then presented certificates from Kenya showing £3.1 million (Sh403 million) paid in withholding tax. That meant SPS actually received a small tax credit from HMRC.

It also meant SPS’s post-tax profits were £11.9 million (Sh1.5 billion), almost all of which was then transferred to SportPesa’s UK holding company in the form of dividends.

A SportPesa spokesman said: “No director or shareholder of SportPesa or its affiliate companies has to date received dividends in their individual capacity from SPS Sportsoft or from SportPesa Global Holdings. Inter-company dividends declared and paid by SPS Sportsoft have been re-invested into various sections of the business to drive growth.”

On tax, they said: “SportPesa’s business activities are fully compliant with all tax and legal frameworks in the countries and regions in which we operate. SportPesa paid USD63 million in taxes to the KRA in 2018 – which was equivalent to 32 per cent of its revenues that year. SportPesa, in the same year, was awarded the Top Taxpayer and Compliance Award by the KRA.” They did not provide a breakdown of what taxes make up these headline tax amounts.

Mr Jason Braganza, a Kenyan development economist and tax programme director with the pro-bono legal charity International Lawyers Project, said SportPesa was benefiting from a double taxation treaty written in 1977, well before the rise of the digital economy and the more complex transactions it poses.

He said: “It is in need of reviewing and updating to conform to the international standards. “Online transactions and the treatment of digital services for digital economy activity provide significant loopholes for multinational companies.

“It is a timely reminder for developing countries to review and renegotiate their tax treaties with developed countries.”

A KRA spokesperson said due to ongoing court disputes with SportPesa on separate matters, they could not comment.

A spokesperson for the HMRC said they did not comment on individual companies.

The 2019 financial statements for SPS and SportPesa Global are due to be released publicly in the UK at the end of this year.

Financials for Pevans have never been released because the company is under no obligation in Kenya to do so. It declined to share them with the Daily Nation and Finance Uncovered.

 * Lionel Faull is chief reporter for Finance Uncovered. This article was developed with the support of the Money Trail Project and first published on Nation Africa.

Revelations that Busia county spent Sh37.5 million on a maternity project has raised eyebrows in the county with questions being raised on the manner in which the county is executing its duties in the management of public affairs.

The maternity project, according to documents presented before the senate committee was to cost Sh44.4 million. It is suspected those behind the project with the contractor increased its cost value to a whopping Sh81.3 million. The first firm is said to have differed on the percentage to pay as kickback abandoning the project. The deal saw the county retender the construction of the project, awarding it to a friendly company.

Beleaguered county governor Sospeter Ojaamong has seen projects stall, multi-million shillings imprest payments go down the drain, as tender awards to firms owned by senior county managers’ relatives and girlfriends is the norm. In the maternity project that involved a newborn unit at Busia County Referral Hospital, Sydcas Construction Limited, was awarded according to documents.

It was to be a one- year project from June 19 2014 to June 19 2015. But as of June 30 2017 with no progress on the ground to show, the county had paid Sh31.58 million. The work had stopped at 40pc the construction level. According to sources, deputy governor Moses Mulomi, also in charge of health docket pushed for the payment despite Sydcas Construction Limited inability to complete the work as per the agreed signed contract.

Why the firm that had failed to honour the contract obligations was allowed to remeasure of the works, terminate contract and be paid for work done and certified as amounting to Sh31,533, 680 has left many guessing. In this case, the firm was to refund any money paid. To the surprise of many, the county went ahead and contracted Opet Enterprises Ltd at Sh50.53 million to complete the construction works.

The public accounts committee led by Kisii senator Sam Ongeri expressed concern in its initial report is as to why the county did not sue the initial contractor for failing to meet the terms of the contract. Murang’a senator Irungu Kang’ata, a committee member is bitter that the move cost the county Sh81 million for a Sh44 million project.

Opet Enterprises directors are close to Ojamoong. Another project that has stalled is an accident and emergency unit at Busia Referral Hospital. Sh52.73 million had been used on the white elephant project that is now an eyesore.

The contract, according to documents signed by parties involved, was one year from June 6, 2014 to June 6, 2015. According to Auditor General Report, physical verification two and half years after expiry of the planned completion date shows the work stalled at 70 per cent level of completion. The county has failed to to recover imprest advanced to county officers amounting to Sh1.88 million.-WZ.

Lawyers surprised

Nairobi Governor Mike Sonko is set to take plea, again, in his corruption case after the Director of Public Prosecutions Noordin Haji sought to amend charges against him.

In the new charge sheet, Governor Sonko is to take a plea on count two that has been amended to refer to abuse of office.

The DPP claims that the governor abused his office by demanding Sh10 million bribe from Web Tribe Ltd to facilitate payments to the company by the Nairobi County Government.

“Between on or about January 10, 2019, and January 19, 2019, in Nairobi City County within the Republic of Kenya, being the Governor of Nairobi County Government, in abuse of your office improperly conferred a benefit to yourself by demanding Ksh.10,000,000 from Web Tribe Limited through ROG Security Limited as an inducement to facilitate payments to Web Tribe Ltd by Nairobi City County Government,” read the amended charge sheet.

Sonko was to take plea on Monday but his lawyers objected, saying that they had been ambushed and needed more time to look at the charge sheet.

The court obliged the lawyers’ request and deferred plea-taking to Monday, September 13, 2020.

Chris Obure and Robert Bodo Ouko are set to go under murder trial on Monday. While the plea taking was set for Friday, it failed to take off following an objection from the DPP.

When the suspects appeared at the High Court, the prosecution side led by State Counsel Gikui Gichuhi said the suspects could not answer the plea as their mental capacity to take the murder charge was yet to be ascertained.

Justice James Wakiaga, in his Friday ruling, directed that the two suspects be taken for mental assessment at the Mathare Mental Hospital in Nairobi during this period.

When they were produced at a magistrate court in Kibera on Friday, principal magistrate Derrick Kuto heard that detectives had concluded investigations into the fatal shooting that happened on August 22 at Galana residential suites apartment in Kilimani.

State prosecutor Karimi Kajuju told court that the detectives had pieced up the case and were ready to proceed with the murder case.

During the investigations, police cybercrime unit has been reviewing and analysing multiple surveillance footages of two buildings in Kilimani estate.

Some of the video footages relate to offices of a private company known as Glo-Jet, situated at Senteu Plaza, where the firearm used in the shooting was recovered by police officers.

Other footages are related to Galana residential suites, the scene of crime where the victim is said to have been shot by his friend Ouko after having dinner alongside friends and relatives.

Investigators were also focusing on the ballistic examination of the firearm used in the killing and obtaining its records from the central firearm bureau.

The suspects have been in remand since August 23 when they presented themselves to the authorities, while police have been recording statements of key witnesses of the incident.

While making the miscellaneous application to hold the suspects in custody for a longer period, the investigating officer Bashir Boya in a sworn affidavit made a revelation that gives the whole case a new twist, he revealed that the firearm used in committing the said killing belongs to Chris Obure, who is not a licensed gun holder.

In what is suspected to be a card play by Obure, CCTV footage from his office was leaked exclusively to Citizen TV that showed the movements of Bodo before and after the shooting. An accompanying Twitter hashtag further went to bomb timelines with tweets claiming Obure’s innocence. It loudly said that Bodo had stolen the gun from his boss’s office.

Sources privy to the investigations intimate to Kenya Insights that Obure is being treated as a suspect given his business relations with the deceased and detectives have been piecing up evidence to ascertain their links. Omwenga who was partly a car dealer is also said to have been involved in scamming activities with Obure and the two had clashed over one deal that was sealed in March worth over Sh300M according to media reports.

Robert Obure, the prime suspect who shot Omwenga and told police that it was accidental is a personal assistant and bodyguard to Chris Obure. Detectives have been patching statements and evidences to drive at the motive of the murder. The key questions have been, who would’ve wanted Omwenga dead and why? That’s why the investigations on Obure have been extended to his past criminal records which include misuse of firearm, assault and scamming people.

Detectives believe that their was a scaffle before the fatal shooting and that Bodo is suspected to have been acting on the Boss’s commands.

In a turn of events, the released CCTV footage appears to place Bodo at the crime scenes and attempts to exonerate Obure. The detectives are not concentrating on the shooting particularly but the circumstances surrounding the murder and that’s why Obure is at pains to expunge himself. While he didn’t pull the trigger, detectives believe he had a major hand in the execution including planning.

Obure in his defense has said he wasn’t party to the murder and was unaware that his gun had been taken from the office.

OMWENGA MURDER CASE
Obure, Bodo to remain in police custody until Monday next week
CCTV footage shows Bodo collecting the gun from Obure’s office
CCTV captured Bodo returning the gun after Omwenga’s shooting
Obure, Bodo linked to the murder of Kevin Omwenga #FridayNight pic.twitter.com/z4YMfLWPbE

— Citizen TV Kenya (@citizentvkenya) September 4, 2020

The CCTV footage paints a picture of premeditated murder, Ouko is seen in Obure’s office taking the gun at 6:25am 21st August and returning it later in the night at 11:54pm after committing the crime.

Picking up the gun in the morning clearly shows it was meant to serve a purpose. It was either to guard his boss as part of his services or to commit a crime in this case the murder. Events of the day don’t spot the two together and no direct phone communication which is unusual for Obure and his assistant, in his statement, Obure said he spent the day holding meetings at a hotel in Upper Hill. Other accounts also claim that Omwenga and Obure had an altercation in a hotel in the same area.

Ouko who’s seen taking instructions from an end on a walkie talkie appears to know his way around the office, on instructions, gets the key to the gun’s safe from Obure’s desk, picks up the gun and leaves office before anyone came in. What happens after this in the office is not shown and the subject of detectives who’ve been studying the evidences.

Did Ouko steal the gun from his boss as alleged? Or he was baited? It is unconvincing that with the full knowledge that the office is fully fitted with motion detectors and CCTV, Ouko would’ve gone in to steal, he had the entrance credentials. He appears as someone working on instructions to pick up the gun for a mission. He knew he was being captured on camera. While he’s not a licensed firearm holder, his perfection in handling the gun tells he’s used to it.

It beats logic that Ouko could ‘steal’ the gun and return it fully aware that the cameras were capturing all his moves. It can also be theorized that this could’ve been a master stroke to place Ouko in the scenes, send him to collect gun, return, get him on tape for the drama later which would go to affirm the assumption of premeditated crime.

While it’s a task nailing Obure to the crime scene he’s being roped in as an accessory of murder since his weapon was involved. It’s also being assumed that being his bodyguard, Ouko was working on his orders and that’s why his business relations and communications with Omwenga have been of scrutiny. A conspiracy also alludes that the main intent wasn’t murder but to scare Omwenga into submission, the gun was to threaten him and that’s how Ouko claimed he shot him accidentally.

The CCTV footage whose purpose seem to only have been intended to exonerate Obure and nail Ouko can’t be used entirely to prosecute the case without inputting the circumstances surrounding the death. Such evidences are meant to sway public’s perception and distract investigations, it’s obvious the DCI have watched all the tapes.

Different witnesses have been interrogated and it’s only if their statements corroborate that one’s innocence will be pronounced. As it stands, the DCI from their investigations believe both the suspects were involved in the murder according to evidences gathered.

Big question that investigators have to prove is whether Ouko acted alone in the murder and why or did he take orders from Obure and if so will he testify against his boss because as it looks, the boss is pushing hard to remove himself at all costs including throwing under the boss his bodyguard.

The two will stand murder trial and take plea on Monday.