After a four-month process of phasing out the old Sh1,000 currency notes, Central Bank of Kenya (CBK) Governor Patrick Njoroge on October 1, 2019 invited detectives to examine some 3,172 suspicious bank deposits.
This was not the news journalists expected from the no-nonsense CBK boss at his highly anticipated press briefing.
His earlier tough talk might have inadvertently invited Kenyans to a showdown that would see politicians and other powerful Kenyans who had hitherto succeeded in concealing their ill-gotten wealth smoked out before the September 30 deadline to exchange the old currency notes with the new ones.
Demonetisation — as the process of phasing out the close to Sh209 million pieces of the old currency notes in circulation at the time was known — was anticlimactic.
Then two years later, the story of one Margaret Wanja Muthui, a deputy director at the Kenya Rural Roads Authority (KeRRA), hit headlines rekindling memories of demonetisation.
Rather than try to sneak cartons of the condemned currency notes into the banks and end up in Dr Njoroge’s wanted list, Ms Muthui converted much of her old cash into brick and mortar, according to the Assets Recovery Agency (ARA).
ARA claims that she bought 35 apartments valued at Sh374.5 million between May and September 2019.
Most of the apartments were in Nairobi’s Kileleshwa and the rest were in Ruaka, Kiambu County.
Last month, ARA successfully persuaded the High Court to freeze these properties as well as some cash in several of her bank accounts.
Muthui is one of the individuals that ARA has frog-marched to court for allegedly trying to use real estate to launder dirty money.
Johnson Denge, a property valuer and manager at Ryden International, described Muthui’s case as a “remnant” of the money laundering in real estate that was commonplace before Kenya put in place anti-money laundering rules in 2016.
Money-laundering conceals the source of illegal proceeds so that the money can be used without its criminal source getting detected.
The use of copious amounts of cash in a transaction is the first red flag of a money-laundering scheme.
If it proved that Muthui wanted to conceal illicit cash, then her attempt couldn’t have been more ill-timed, coming at a time when the reign of cash was just waning and there was strict surveillance undergirded by new anti-money laundering rules.
There were also ruthless watchdogs such as the ARA and Financial Reporting Centre established in 2016.
Before 2016, cash transactions in real estate were common. This, experts say, might have seen a lot of dirty cash, including piracy cash, percolate into the housing sector and, in part, translate into the current glut in high-end houses.
“There was a bit of dirty money, especially proceeds of corruption and piracy getting into real estate,” said Denge.
It is not just kickbacks from state contracts – which is how ARA suspects Muthui got her money that had been channeled to property – illicit finances from drug trafficking, poaching, tax evasion and piracy had also been flowing freely into the real estate sector.
This drove up the property market, especially in Nairobi and its environs, luring millions of gullible Kenyans keen on not missing out from the property boom.
But with the supply of high-end houses far exceeding their demand, the property market would soon burst at the seams, leaving thousands of ordinary Kenyans who had staked their hard-earned cash in the housing boom in tears even as major developers spiritedly fought off the auctioneer’s hammer.
Real Estate has sifted through several cases in which the State has gone after what it suspected were proceeds of crime.
From the Anglo-leasing to National Youth Service (NYS) scandal to the crackdown on major drug trafficking and poaching syndicates, the suspects of ill-gotten cash had been pumping their dirty money into property as fast as they got the loot.
When in early 2015 the Directorate of Criminal Investigation (DCI) launched an investigation into some Sh791.4 million that had been fraudulently obtained from NYS by one of the key suspects Josephine Kabura, their trail led them to two houses in Kasarani and Ruiru in transactions that reeked of “complete schemes of money laundering,” according to court papers.
While the money was wired into the account of Kabura, the man the State believes was in charge of cleaning the money was one Samuel Mndanyi Wachenje.
On March 31, 2015, Kabura deposited some Sh40 million in cash into the account of one Sam Mwandime at Family Bank.
This money is reported to have gone into financing the purchase of two houses in Kasarani and Ruiru for Sh21 million and Sh40 million respectively.
Mwandime is then said to have registered the houses in his wife’s name.
Yet, Sam Mwandime did not exist; it was indeed Samuel Wachenje who had used two forged identity cards to open these accounts that would then be used to buy the properties in the name of Sam Mwandime.
Then there was the case of the Ngirita family, also implicated in the scandal.
The Ngiritas are said to have received Sh400 million between the three of them – daughter, mother, and father – from NYS for supplying cabbages, watermelon, potatoes, onions and green grams.
Justice Mumbi Ngugi in her ruling on August 26 last year was not amused.
“Perhaps there are gifted families in Kenya who are entrepreneurs extraordinaire, who can, in their individual capacities, with their business names creatively named Waluco, Njewanga Ngiwaco and JerryCathy, transact business with State entities in a brief two years’ period worth Sh400 million, out of which Sh133 million is paid in a single day,” said Ngugi.
After receiving the Sh133 million, they are said to have gone on a spending spree. Besides cars, they are also reported to have bought houses in Naivasha worth Sh22.5 million and a parcel of land in Nakuru East valued at Sh46 million.
Justice Mumbi found that the Ngiritas could not support the source of the funds they used to purchase the properties and ordered the assets to be recovered by the State.
The Anglo Leasing scandal, in which the State might have lost close to Sh70 billion through fictitious contracts, might also have contributed to the swelling of the property market with dirty money.
Forfeit property
Between October 2003 and 2007 when one Patrick Ochieno Abachi was working at the Ministry of Finance, investigations revealed that he was directly involved in authorising payments relating to what is commonly referred to as the Anglo Leasing security-type and related contracts.
The contracts comprise 18 deals entered into between the government of Kenya and various foreign companies, alleged to be fictitious, through which the government was to pay out billions of shillings.
These contracts were under investigation by ARA, which believes they were tainted with corruption as the accused could not explain the huge mismatch between the assets valued at Sh80.4 million and his gross salary of Sh53,900 as a chief accountant in the Ministry of Agriculture.
These assets were acquired between 2002 and 2007 and included several residential premises some of which were registered in the names of his wife, brother and close relatives.
A raid on his house in South C, Nairobi, also found Sh1.9 million in cash whose source, ARA says, Abachi could not explain.
The judge ordered the State to recover some of the properties.
On February 21, 2020, Justice Mumbi Ngugi ordered the State to forfeit properties belonging to one Joseph Wanjohi and his wife Jane Wambui after ARA alleged that they were bought with proceeds of crime.
ARA claims that Wanjohi bought these properties, including three pieces of land, using proceeds of illegitimate trade in wildlife trophies and narcotic drugs.
The properties were registered in a proxy company.
Wanjohi and his wife are also accused of trading in alcohol illegally, with the law enforcers finding alcoholic drinks valued at Sh7 million when they raided his houses in Muthaiga.
Then there was Thomas Njogu and his wife Teresia Njogu. Justice John Nyabuto Onyiego asked Njogu, a senior accountant in the Ministry of Interior, to surrender Sh1.6 million, a house in Thome Estate and land worth Sh26 million in Kajiado County.
This is after the State accused him of embezzlement of petty cash. He is said to have deposited Sh111.7 million into his bank account between January 2016 and August 31, 2017, amounts which ARA argued far exceeded his salary.
He is also said to have bought properties valued at Sh86 million.
These cases were only the tip of the iceberg, pointing to how real estate was for long an attraction for dirty cash.
From the case of a junior employee at the National Hospital Insurance Fund (NHIF) who built a Sh30 million house, to the Charterhouse Bank scandal in which a tycoon is said to have transacted close to $25 million (Sh2.5 billion), real estate has been a magnet for dirty cash.
Significant risk
Kenya’s strategic position at the crossroads of East and West, North and South, not only makes it a natural trade and financial hub, but it also makes it a prime target for criminals, money launderers, and terrorists, according to CBK boss Dr Njoroge.
James Mwangi, the chief executive of the Architectural Association of Kenya, while acknowledging there are several cases of money-laundering in real estate, said a more comprehensive study needs to be done to determine the magnitude of the rot in the real estate sector.
A report by The Sentry, an investigative policy team, fingered Kenyan authorities for being among those who have done little to address the significant risk of money-laundering in real estate.
“Persistent loopholes and gaps in anti-money laundering standards involving real estate provide illicit actors with various options for laundering money through real estate.”
Indeed, when CBK launched an all-out war against illegal financial flows – shutting down all the money remittance providers in 2015 before coming up with stringent anti-money laundering rules a year later – the real estate sector began to buckle.
The value of buildings approved for construction by the Nairobi County Government had been increasing steadily since 2012.
It peaked at Sh314 billion in December 2016 before dipping by more than a third – Sh104 billion – to settle at Sh210 billion by the end of 2018.
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