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Cablegate: Charterhouse Bank Winding Down

VZCZCXYZ0009
PP RUEHWEB

DE RUEHNR #1185 0731114
ZNR UUUUU ZZH
P 141114Z MAR 07
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC PRIORITY 8240
INFO RUEHXR/RWANDA COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAWJA/DEPT OF JUSTICE WASHDC

UNCLAS NAIROBI 001185

SIPDIS

SENSITIVE

DEPT FOR AF/E, AF/EPS, INL/C/CP, EB/ESC/TFS
JUSTICE FOR AFMLS, OIA, AND OPDAT
TREASURY FOR FINCEN
TREASURY FOR VIRGINIA BRANDON

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV KCRM KE
SUBJECT: Charterhouse Bank Winding Down

Ref: Nairobi 1026

Sensitive-but-unclassified. For USG use only.

1. (SBU) Summary: The Appeals Court rejected Charterhouse Bank's
appeal of High Court rulings supporting the Central Bank of Kenya
(CBK), which will next advise the Minister of Finance to finalize
his Ministry's refusal to renew Charterhouse's license.
Charterhouse Bank may still try to appeal to the Supreme Court, but
the bank seems unlikely to ever resume operations. End summary.

Court Rejects Charterhouse's Appeal
-----------------------------------
2. (U) In early December, the Ministry of Finance informed
Charterhouse Bank that it did not plan to renew the bank's license
in 2007, and asked for its statutory response. On March 9, the
Court of Appeal upheld the High Court's denial of Charterhouse
Bank's claim the Central Bank of Kenya's (CBK) appointment of a
statutory manager to run the bank was illegal, and demand that the
bank should be reopened under its own management.

Inadequate Charterhouse response
--------------------------------

3. (SBU) A CBK official told Econoff on March 12 that CBK had found
Charterhouse Bank's response to the notice on license non-renewal
and the evidence in the PriceWaterhouseCoopers audit completely
inadequate. Now that the Appeals Court had ruled in favor of the
CBK, the CBK will "soon" forward its determination to the Ministry
of Finance so the Ministry may send the final non-renewal notice to
Charterhouse Bank. He hoped the decision would be conveyed soon so
the statutory manager and the CBK could begin the process of winding
down Charterhouse and paying off the innocent depositors.

4. (SBU) A senior Kenya Revenue Authority (KRA) official informed
Econoffs in late February that KRA had negotiated a deal under which
Nakumatt Supermarkets, one of Charterhouse's major customers, would
pay a certain amount of the estimated taxes it had evaded through
Charterhouse Bank's juggling of accounts. Although KRA had accepted
that Nakumatt would not admit any guilt in the agreement, Nakumatt
pulled back, and resumed wrangling over the amount to be paid.
Thus, while Nakumatt is now paying its taxes, the back tax bill and
Nakumatt's potential legal vulnerability are still in contention.
Other Charterhouse customers who evaded taxes may be waiting for the
outcome before making their own deals.

Comment
-------
5. (SBU) It is risky in Kenya to declare any game is really over.
However, it appears former CBK Governor Andrew Mullei, his acting
replacement Jacinta Mwatela, their staff at CBK, and the
whistleblowers who collected the initial evidence, have won a
victory after three years of struggling against Charterhouse's
wealthy, politically influential, and ruthless owners and customers.
The CBK can claim most of the credit for pursuing the investigation
and withstanding Charterhouse's many law suits, since KRA, the Kenya
Anti-Corruption Commission (KACC) and the Ministry of Finance
provided little support, and the media was often silent. Although
there is little sign yet that any criminal charges will be filed
against the bank's managers or customers, the fact that former
acting Governor Mwatela got the loudest round of cheers at the
Ambassador's International Woman's Day reception demonstrates that
Kenyans regard closing Charterhouse Bank as a notable
accomplishment.

RANNEBERGER

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