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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