NYS scam: Banks fined Sh721m warned against insurance claims

Director of Public Prosecutions (DPP) Noordin Haji has warned five banks against seeking insurance compensation for the Sh721 million fine that was imposed on the lenders for failing to report suspicious transactions linked with the theft of funds at the National Youth Service (NYS).

Mr Haji told the lenders that they risk prosecution should they demand reimbursements from insurance firms to cover the millions paid to the office of DPP and Central Bank of Kenya (CBK) for facilitating the fraud.

The five banks, Standard Chartered Kenya #ticker:SCBK, Equity #ticker:EQTY, Diamond Trust #ticker:DTB, Co-operative Bank #ticker:COOP, and KCB Group #ticker:KCB, opted to pay the DPP a total of Sh385 million to save its executives from criminal prosecution over NYS dealings.

The DPP reckons that the prosecution deal could be terminated if the banks seek compensation for the payouts, which also includes the Sh392.5 million fine that CBK imposed on the five lenders for breach of banking regulations while handling the NYS cash.

The five top commercial banks were to face criminal prosecution for facilitating the NYS scam after they received about Sh3.5 billion believed to have been stolen from the State agency. The banking sector regulator said that the banks had failed to report large transactions or to undertake proper due diligence on customers. It also accused them of approving large transactions without proper documents.

“The bank shall not seek or accept directly or indirectly reimbursement or indemnification from any source with regard to the payment or any other payment under agreement entered into with the Central Bank of Kenya or any other national agency in relation to the offences,” says the plea bargain agreement between the banks and the DPP. “The bank and the ODPP agree that this settlement is appropriate given the facts, nature and circumstances of this case and that it is public interest to defer the prosecutions.”

Under the deal, the agreement also requires the bank to implement various anti-money laundering measures, which include taking disciplinary action against all staff members who were involved or implicated in the scandal. “The bank shall institute an internal disciplinary mechanism related to the offences and shall report to the ODPP within the term the action taken against the staff if found culpable,” says the agreement between the DPP and the lenders.

Under the agreement, the banks were compelled to provide information that would help State agencies nab persons suspected to have siphoned cash from the NYS. The ODPP said that it would today reveal what each of the five banks had paid to avoid prosecution.

StanChart had last Thursday disclosed that it had paid Sh100 million to the DPP under the plea bargain deal. “In December 2019, Standard Chartered Bank Kenya (SCBK) agreed a settlement of this matter with the DPP,” Standard Chartered Plc, which owns 73.8 percent of its local affiliate, said in disclosures to the London Stock Exchange. Standard Chartered Bank Kenya had in December 2018 announced the exit of chief executive Lamin Manjang, who was at the helm when the bank received Sh1.6 billion from the NYS. He was replaced by Kariuki Ngari.

CBK had earlier revealed the penalties it had slapped on each of the five banks. KCB was fined Sh149.5 million for handling Sh639 million from the NYS suspects, with the fine amounting to 23.3 percent of the illicit cash. Equity was ordered to pay Sh89.5 million for its role in aiding the transfer of Sh886 million, with the penalty representing 10.1 percent of the NYS inflows.

StanChart paid Sh77.5 million despite receiving the largest sum of Sh1.6 billion. DTB was fined Sh56 million or 34.5 percent of the Sh162 million it received, with the lender having the largest disgorgement rate among the five institutions.

Co-op Bank paid the smallest fine of Sh20 million, representing 7.6 percent of the Sh263 million NYS deposits it received.