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Follow the Money: How to Make Dirty Cash Clean Without Omo

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The really bold drug barons will set up their own banks to avoid all the hassle of bribing the numerous people from the police to banking officials; dodging the tedious procedures and the obvious scrutiny from government bureaucrats.

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Nairobi, Kenya

Look to Windward Trading, Who Looted Half a Billion

Two events of momentous proportions took place in Kenya since the beginning of this year.

On January 30, sons of the slain drug lord Ibrahim Akasha, Baktash Akasha and Ibrahim Akasha, Indian drug suspect Vijaygiri Goswami and Gulam Hussien, a Pakistan, were extradited to the US to face charges of drug trafficking. Since 2014, the Akashas had been fighting not to be deported to the US.

In March 2015, the four were arrested with 98 packets of suspected heroin. The US then issued an Interpol “red notice” for their capture and request for extradition. The Manhattan District Attorney said of the quartet when they arrived in New York: “Kenya drug trafficking organization with global ambitions”.

On March 3, 2017, a meeting quietly took place at the Treasury Building in Nairobi between National Treasury Permanent Secretary Kamau Thugge and Senator Ian Gorst from Jersey Island. The two officials representing their respective countries were concluding an agreement that finally returned money that had been stashed in the tax haven island.

Jersey had just returned Ksh380 million ($3.8 million), part of Ksh500 million ($5 million) that had been stolen by two senior Kenyan state bureaucrats in 2011 and hidden in the island’s banks, known for their secrecy and lax tax laws.

A former chairman of the rich and influential parastatal, Kenya Power and Lighting Company (KLPC), Samuel Gichuru and a former minister of energy, Chris Okemo, had conspired to loot public money, which they then expatriated to the tax haven. As is normal with such conspiratorial and illicit transactions, Gichuru formed a ‘phantom’ company, Windward Trading Ltd, that was then used to siphon out the Ksh500 million.

In June 2011, Jersey’s Attorney General requested the extradition of the two, and the United Kingdom, under whose jurisdiction the island falls, issued an arrest warrant. In February 2016, the Royal Court of Jersey finally confiscated the stashed money after the company pleaded guilty to four charges of laundering corrupt money.

Even though the money has been repatriated, the extradition case is still going on and the remaining Ksh120 million was retained to cover transactional charges incurred by the Jersey government.

In a country like Kenya, where state corruption is rife, money stolen from the public coffers by powerful civil servants and those close to power, invariably ends up stashed in foreign offshore accounts

The case illustrates how illicitly acquired money is hidden, transferred and invested in foreign banks through a labyrinthine maze of electronic transfers. Identical mechanisms, including dummy companies, are also used by companies and individuals to hide income from tax authorities in the countries where it is earned and to transfer it to low-tax jurisdictions. Through such illicit financial flows (IFFs), Africa loses, according to the Tax Justice Network-Africa, the equivalent of $10 for every $1 it receives in aid.

In 2016, the Panama Papers, the world’s biggest data leak, provided a glimpse into the scale of the problem. Briefly, the Panama Papers refer to 11.5 million data files leaked from the Panama-based law firm, Mossack Fonseca, the world’s fourth largest offshore law firm. The leak named individuals who included presidents, influential politicians, powerful bureaucrats and companies that use the law firm as a registering agent to channel their — oftentimes illegally acquired — money to jurisdictions with secretive and lenient tax laws. The files traced 191 individuals and 25 companies to Kenya.

“IFF is a generic term,” says Jared Maranga of Tax Justice Network-Africa (TJN-A), a pan- Africa research and advocacy organisation based in Nairobi. Maranga is an investments and tax policy expert. He says the terminology depends on the form and nature of how the money is being moved. ‘Generally speaking, there are three ways in which IFFs are facilitated: through state corruption, bilateral and multilateral treaties and tax incentives.’

The Washington DC research and advocacy group Global Financial Integrity defines IFFs as illegal movements of money or capital from one country to another. This movement of money is what is classified as ‘illicit flow’ — especially when the money is illegally earned, transferred, or used.

The advocacy group says IFFs originate from three main sources: commercial engagements — through tax evasion, inflating and manipulation of prices of goods; criminal activities such as drug and human trafficking, illegal arms trade and smuggling of contraband; and corruption by influential and powerful state officials.

Importers whose aim is to dodge paying tax use underhand tactics such as inflating the price of goods to evade or undercut Custom duties, VAT or income tax. Crime syndicates launder their illicit profits by mixing them with legal money earned from legitimate business such as buying and selling of used cars, for example. Bureaucrats create fake companies to transfer dirty or stolen money to a bank account in a foreign country. Huge sums of cash are also ferried across the border by human traffickers with the aim of depositing the money in a foreign country.

In a country like Kenya, where state corruption is rife, money stolen from the public coffers by powerful civil servants and those close to power, invariably ends up stashed in foreign offshore accounts. As a way of ‘cleaning’ it, the cash is used to buy real estate in developed countries in Europe and the Americas or invested in legitimate businesses through buying shares in multinational companies. In 2004, a report by report by the international risk consultancy Kroll commissioned by the Mwai Kibaki administration identified over Ksh130 billion ($1.3 billion) that relatives and associates of former President Daniel arap Moi had hidden in nearly 30 countries using a web of shell companies, secret trusts and frontmen.

IFFs have also provided drug barons with devious ways of moving their money without being detected. If the drugs trade itself is a dangerous and risky business, laundering the proceeds, which run into billions of shillings, is even a riskier undertaking.

In Kenya, drug lords have over time used both traditional and innovative means to hide and move their cash without attracting undue attention. And in situations where they cannot avoid detection, they have employed the time-tested methods of arm-twisting, bribery and coercion.

All the Major Banks Have Been Involved in Hiding Drugs Money

According to a 2009 report by the Financial Transactions and Reports Analysis Centre of Canada, drug traffickers launder approximately $100 million per year through the Kenyan financial system. ‘I’ll tell you this as a matter of fact,’ says Anselm Mbogo, a retired forensic auditor and banking fraud investigator, who in the course of a three-decade career worked in nearly every big local and international bank in Kenya. ‘All the major banks in Kenya have at one time or the other been involved in hiding or moving drugs money.’ Today, as a forensic consultant, his clients include some of his former employers. ‘The banks are still susceptible to money laundering by the drug lords,’ he says. ‘[That’s] basically because the drug barons have perfected the art of circumventing the 2012 Central Bank of Kenya (CBK) laws on money laundering and because bankers, just like any other human beings. are vulnerable to bribery and corruption.’

In a move to curb money laundering the CBK decreed that no more than $10,000 (Ksh1 million) could be deposited in a single transaction. It also developed regulations requiring banks to know their customers and their customers’ sources of funds, and to report any suspicious transactions.

Drug barons are attracted to heavy cash retail businesses, which move money on a daily basis. Retail businesses such as supermarket chains, matatus, pubs, are easy targets for cleaning illegal money because customers pay in cash

Laundering by banking officials is neither new nor is it about to end. ‘Four years ago, HSBC, a banking institution based in London, got into big trouble after it was found to have facilitated drugs money from Mexico,’ says Mbogo. HSBC bank was accused by the US federal banking authority of clearing suspicious travellers’ cheques worth of billions of dollars.

A Dynamic Three-Stage Process

Money-laundering is a dynamic three-stage process. The three stages are usually referred to as placement, layering and integration. Placement involves introducing the dirty cash into the financial system, perhaps mingling it with ‘clean’ funds to create an aura of legitimacy. Layering involves attempts to distance the money from its illegal source through layers of financial transactions. Integration makes the money available to the criminal as proceeds of legitimate commerce such as purchase of shares in business or investment in luxury goods and real estate.

Because illicit money generated from the drug business has to be infused into the financial system, it involves an intricate web of people and movement to ensure no paper trail is left behind. First, the money is ‘broken up’ into different amounts, even in different currencies, then moved around different accounts, to effectively obscure the audit trail. Once this is successfully done, the owner can access his clean money.

‘A couple of years ago. if you recall, a new entrant into Nairobi politics, inadvertently boasted that he ran 200 bank accounts,’ says Mbogo. ‘Just ask yourself, why would a person need 200 accounts, never mind the only business he was known to be engaged in was running some matatus in the city?’

According to Mbogo’s banking fraud investigations in Kenya, secondhand car bazaars and real estate construction businesses are the closest we have to drug money being laundered. ‘Let’s put it this way, drug barons are attracted to heavy cash retail businesses, that move money on a daily basis,’ says Mbogo. ‘Retail businesses such as supermarket chains, investing in the running of matatus, running a pub business, are easy targets for cleaning illegal money because customers pay in cash; hence it is easy to create fake transactions and receipts, which are reported as business sales when depositing cash on a daily basis.’

A big time building materials hardware company does not have to receive “illegal” money directly from a drug baron. All it needs to do is ask the property developer, in this case the money launderer, to deposit the money into a certain account

Big time supermarkets chains deliver huge volumes of cash, sometimes 4-5 time a day to banks. ‘The banks, in all fairness, cannot suspect that some of this money could be from illicit drug profiteering. On a good day, the biggest supermarket chain in Kenya deposits anything between Ksh30 million and Ksh50 million,’ says Mbogo. ‘The same applies to the matatu industry and bar owners. They deposit money on a daily basis, oftentimes 2 to 3 times depending on the briskness of the business.’

Eliud Njoroge, one of the few hedge fund managers in the country, says supermarket stocks are a good investment for drug kingpins. ‘They will identify a popular and fast growing supermarket chain and buy into it by way of stocks, which are in hundreds of millions of shillings. The yearly dividends that accrue, will be clean money, never mind the dirty money that was injected into the business through buying its shares.’

The forensic auditor avers that the proliferation of car bazaars in Nairobi coincided with the increased drug trade in this part of the world, when the Indian Ocean littoral was identified as an important ‘unmanned’ route. In the secondhand car businesses, you can claim to be banking money every day from fake car sales. With the setting up of a legitimate motor car business as a front company, the drug money is infused into the financial system legally through the opening of multiple accounts that handle money accrued from sales.

The other popular way that illicit drug money has been injected into the financial system is through the property development projects. ‘Just like the proliferation of secondhand car marts, it is also not a coincidence that the boom in the real estate industry has taken place in the past couple of years,’ observes Mbogo.

Like a supermarket, real estate development is a heavy cash business that involves employing casual labourers who are paid daily, or sometimes weekly. It also involves the buying and hiring of expensive heavy machinery (not on a daily business though), and building materials on a daily basis. ‘The construction business is favoured by drug barons because it facilitates what we call trading in goods,’ says the forensic auditor.

‘A big time building materials hardware company does not have to receive “illegal” money directly from a drug baron. All it needs to do is ask the property developer, in this case the money launderer, to deposit the money into a certain account. Once that is done, he can then go to the hardware shop and be given all the materials he has paid for. There is no money exchange, but there is value for money, which leaves no paper trail.’

The introduction of mobile money 10 years ago was a blessing to the drug barons, says Mbogo. The barons today have maximised the use of M-Pesa, Safaricom’s mobile money transfer innovation that mainly targeted Kenyans who did not have banking facilitates. There are 60,000 plus M-Pesa agents countrywide, as opposed to 840 bank branches in the country.

Today, a simple e-mail sent from Swindon, southeast London by a Kenyan living in the UK, to a fellow Kenyan in Nairobi can facilitate the moving of millions of shillings without actual movement of the money itself

‘Just like trading in goods to exchange value for cash, customers who use M-Pesa exchange cash for virtual value that goes into their phone. This allows them to buy goods, transfer money and even receive credit. Drug barons nowadays are moving huge amounts of money through M-Pesa in multiple credit lines, which allows them to even withdraw the money in another country. ‘Mobile transactions are made through text messages and therefore are difficult to trace,’ says Mbogo.

Safaricom, the company that runs the M-Pesa banking facility, recently said since 2016, Kenyans have been moving on average Ksh16 billion ($160 million) a day. The maximum amount one can transfer in a single transaction is Ksh140,000 ($1,400). ‘Let’s assume a drug lord operates or has access to upward of 10 mobile phone lines. He is capable of moving Ksh140,000 in all these credit lines, every day, every week, every month, several times over. In a year, he will have moved a humungous amount of money, running into hundreds of millions of shillings, without raising an eyebrow from the concerned authorities,’ explains Mbogo.

And There’s Always Been Hawala

One of the oldest forms of sending and transferring money without moving the money itself, Hawala, an Indian concept used in many centuries, is still as attractive to drug barons as it is to people who either do not have bank accounts or want to avoid the banking system altogether. ‘Today, a simple e-mail sent from Swindon, southeast London by a Kenyan living in the UK, to a fellow Kenyan in Nairobi can facilitate the moving of millions of shillings without actual movement of the money itself.’ Mbogo says he once traced an e-mail correspondence between the UK and Nairobi’s River Road that talked of money transfer. ‘The system works on trust, there is no paper work, the e-mail is written in coded language, you’d have to be knowledgeable in the language to know what’s being talked about.’

The really bold drug barons will set up their own banks to avoid all the hassle of bribing the numerous people from the police to banking officials; dodging the tedious procedures and the obvious scrutiny from government bureaucrats. ‘In this county, we have had such banks, some OF whose operations have been suspended, but I can tell you as night follows day, the banks are still very much in operation,’ says Mbogo.

 


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Mr Kahura is a senior writer for The Elephant.

Politics

A Dictator’s Guide: How Museveni Wins Elections and Reproduces Power in Uganda

Caricatures aside, how do President Yoweri Museveni and the National Revolutionary Movement state reproduce power? It’s been 31 years.

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Recent weeks have seen increased global media attention to Uganda following the incidents surrounding the arrest of popular musician and legislator, Bobi Wine; emblematic events that have marked the shrinking democratic space in Uganda and the growing popular struggles for political change in the country.

The spotlight is also informed by wider trends across the continent over the past few years—particularly the unanticipated fall of veteran autocrats Muammar Gaddafi in Libya, Hosni Mubarak in Egypt, Yaya Jammeh in Gambia, and most recently Robert Mugabe in Zimbabwe—which led to speculation about whether Yoweri Museveni, in power in Uganda since 1986, might be the next to exit this shrinking club of Africa’s strongmen.

Yet the Museveni state, and the immense presidential power that is its defining characteristic, has received far less attention, thus obscuring some of the issues at hand. Comprehending its dynamics requires paying attention to at-least three turning points in the National Resistance Movement’s history, which resulted in a gradual weeding-out of Museveni’s contemporaries and potential opponents from the NRM, then the mobilisation of military conflict to shore up regime legitimacy, and the policing of urban spaces to contain the increasingly frequent signals of potential revolution. Together, these dynamics crystallised presidential power in Uganda, run down key state institutions, and set the stage for the recent tensions and likely many more to come.

The purge

From the late 1990s, there has been a gradual weeding out the old guard in the NRM, which through an informal “succession queue,” had posed an internal challenge to the continuity of Museveni’s rule. It all started amidst the heated debates in the late 1990s over the reform of the then decaying Movement system; debates that pitted a younger club of reformists against an older group. The resultant split led to the exit of many critical voices from the NRM’s ranks, and began to bolster Museveni’s grip on power in a manner that was unprecedented. It also opened the lid on official corruption and the abuse of public offices.

Over the years, the purge also got rid of many political and military elites—the so-called “historicals”—many of whom shared Museveni’s sense of entitlement to political office rooted in their contribution to the 1980-1985 liberation war, and some of whom probably had an eye on his seat.

By 2005 the purge was at its peak; that year the constitutional amendment that removed presidential term limits—passed after a bribe to every legislator—saw almost all insiders that were opposed to it, summarily dismissed. As many of them joined the ranks of the opposition, Museveni’s inner circle was left with mainly sycophants whose loyalty was more hinged on patronage than anything else. Questioning the president or harboring presidential ambitions within the NRM had become tantamount to a crime.

By 2011 the process was almost complete, with the dismissal of Vice President Gilbert Bukenya, whose growing popularity among rural farmers was interpreted as a nascent presidential bid, resulting in his firing.

One man remained standing, Museveni’s long-time friend Amama Mbabazi. His friendship with Museveni had long fueled rumors that he would succeed “the big man” at some point. In 2015, however, his attempt to run against Museveni in the ruling party primaries also earned him an expulsion from both the secretary general position of the ruling party as well as the prime ministerial office.

The departure of Mbabazi marked the end of any pretensions to a succession plan within the NRM. He was unpopular, with a record tainted by corruption scandals and complicity in Museveni’s authoritarianism, but his status as a “president-in-waiting” had given the NRM at least the semblance of an institution that could survive beyond Museveni’s tenure, which his firing effectively ended.

What is left now is perhaps only the “Muhoozi project,” a supposed plan by Museveni to have his son Muhoozi Kainerugaba succeed him. Lately it has been given credence by the son’s rapid rise to commanding positions in elite sections of the Ugandan military. But with an increasingly insecure Museveni heavily reliant on familial relationships and patronage networks, even the Muhoozi project appears very unlikely. What is clear, though, is that the over time, the presidency has essentially become Museveni’s property.

Exporting peace?

Fundamental to Museveni’s personalisation of power also has been the role of military conflict, both local and regional. First was the rebellion by Joseph Kony’s Lord’s Resistance Army in northern Uganda, which over its two-decade span enabled a continuation of the military ethos of the NRM. The war’s dynamics were indeed complex, and rooted in a longer history that predated even the NRM government, but undoubtedly it provided a ready excuse for the various shades of authoritarianism that came to define Museveni’s rule.

With war ongoing in the north, any challenge to Museveni’s rule was easily constructed as a threat to the peace already secured in the rest of the country, providing an absurd logic for clamping down on political opposition. More importantly, the emergency state born of it, frequently provided a justification for the president to side-step democratic institutions and processes, while at the same time rationalising the government’s disproportionate expenditure on the military. It also fed into Museveni’s self-perception as a “freedom fighter,” buttressed the personality cult around him, and empowered him to further undermine any checks on his power.

By the late 2000s the LRA war was coming to an end—but another war had taken over its function just in time. From the early 2000s, Uganda’s participation in a regional security project in the context of the War on Terror, particularly in the Somalian conflict, rehabilitated the regime’s international image and provided cover for the narrowing political space at home, as well as facilitating a further entrenchment of Museveni’s rule.

As post-9/11 Western foreign policy began to prioritise stability over political reform, Museveni increasingly postured as the regional peacemaker, endearing himself to donors while further sweeping the calls for democratic change at home under the carpet—and earning big from it.

It is easy to overlook the impact of these military engagements, but the point is that together they accentuated the role of the military in Ugandan politics and further entrenched Museveni’s power to degrees that perhaps even the NRM’s own roots in a guerrilla movement could never have reached.

Policing protest

The expulsion of powerful elites from the ruling circles and the politicisation of military conflict had just started to cement Musevenism, when a new threat emerged on the horizon. It involved not the usual antagonists—gun-toting rebels or ruling party elites—but ordinary protesters. And they were challenging the NRM on an unfamiliar battleground—not in the jungles, but on the streets: the 2011 “Walk-to-Work” protests, rejecting the rising fuel and food prices, were unprecedented.

But there is another reason the protests constituted a new threat. For long the NRM had mastered the art of winning elections. The majority constituencies were rural, and allegedly strongholds of the regime. The electoral commission itself was largely answerable to Museveni. With rural constituencies in one hand and the electoral body in the other, the NRM could safely ignore the minority opposition-dominated urban constituencies. Electoral defeat thus never constituted a threat to the NRM, at least at parliamentary and presidential levels.

But now the protesters had turned the tables, and were challenging the regime immediately after one of its landslide victories. The streets could not be rigged. In a moment, they had shifted the locus of Ugandan politics from the rural to the urban, and from institutional to informal spaces. And they were picking lessons from a strange source: North Africa. There, where Museveni’s old friend Gaddafi, among others, was facing a sudden exit under pressure from similar struggles. Things could quickly get out of hand. A strategic response was urgent.

The regime went into overdrive. The 2011 protests were snuffed out, and from then, the policing of urban spaces became central to the logic and working of the Museveni state. Draconian laws on public assembly and free speech came into effect, enacted by a rubber-stamp parliament that was already firmly in Museveni’s hands. Police partnered with criminal gangs, notably the Boda Boda 2010, to curb what was called “public disorder”—really the official name for peaceful protest. As police’s mandate expanded to include the pursuit of regime critics, its budget ballooned, and its chief, General Kale Kayihura, became the most powerful person after Museveni—before his recent dismissal.

For a while, the regime seemed triumphant. Organising and protest became virtually impossible, as urban areas came under 24/7 surveillance. Moreover, key state institutions—the parliament, electoral commission, judiciary, military and now the police—were all in the service of the NRM, and all voices of dissent had been effectively silenced. In time, the constitution would be amended again, by the NRM-dominated house, this time to remove the presidential age limit—the last obstacle to Museveni’s life presidency—followed by a new tax on social media, to curb “gossip.” Museveni was now truly invincible. Or so it seemed.

But the dreams of “walk-to-work”—the nightmare for the Museveni state—had never really disappeared, and behind the tightly-patrolled streets always lay the simmering quest for change. That is how we arrived at the present moment, with a popstar representing the widespread aspiration for better government, and a seemingly all-powerful president suddenly struggling for legitimacy. Whatever direction the current popular struggles ultimately take, what is certain is that they are learning well from history, and are a harbinger of many more to come.

This post is from a new partnership between Africa Is a Country and The Elephant. We will be publishing a series of posts from their site once a week.

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The Enduring Blind Spots of America’s Africa Policy

America should move way from making the military the face of its engagement with Africa and instead invest in deepening democracy as a principled approach rather than a convenient choice.

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The Enduring Blind Spots of America's Africa Policy
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While Donald Trump’s administration completely neglected America-Africa relations, the blind spots bedeviling America’s Africa policy preceded his 2016 election. Correcting the systemic flaws of the past 30 years will require a complete rethink after the controversial President’s departure.

To remedy America’s Africa policy, President Joseph Biden’s administration should pivot away from counterterrorism to supporting democratic governance as a principal rather than as mere convenience, and cooperate with China on climate change, peace, and security on the continent.

America’s Africa policy 

America’s post-Cold War Africa policy has had three distinct and discernible phases. The first phase was an expansionist outlook undergirded by humanitarian intervention. The second was nonintervention, a stance triggered by the experience of the first phase. The third is the use of “smart” military interventions using military allies.  

The turning point for the first phase was in 1989 when a victorious America pursued an expansive foreign policy approach predicated on humanitarian intervention. Somalia became the first African test case of this policy when, in 1992, America sent almost 30,000 troops to support Operation Restore Hope’s humanitarian mission which took place against the background of the collapse of the Somalia government in 1991.

On 3-4 October 1993, during the Battle of Mogadishu, 18 US servicemen were killed in a fight with warlords who controlled Mogadishu then, and the bodies of the marines dragged through the streets of Mogadishu. The media coverage increased pressure on the politicians and six months later America withdrew from Somalia — a case of the New World Order meeting the harsh reality of civil conflict.

The chastening experience resulted in America scaling back its involvement in internal conflicts in far-flung places. The result was the emergence of the second phase — non-engagement when Rwanda’s Genocide erupted in 1994 and almost a million people died in 100 days revealed the limitations of over-correcting the Somalia experience. This “non-interference” phase lasted until the twin Nairobi and Dar es Salaam US embassy bombings by Al Qaeda in 1998.

This gave way to the third phase with the realisation that the new threat to America was no longer primarily from state actors, but from transnational non-state actors using failing states as safe havens. The 2002 National Security Strategy states: “the events of September 11, 2001, taught us that weak states . . . can pose as a great danger to our national interests as strong states.”

Counterterrorism training and equipping of African militaries is the central plank of this new security policy. As a result, counterterrorism funding has skyrocketed as has America’s military footprint in Africa. As a result, Africa has become the theatre in which the Global forever War on Terror is fought.

The counterterrorism traps 

The reflexive reaction to the events of September 11 2001 spawned an interlocking web of covert and overt military and non-military operations. These efforts, initially deemed necessary and temporary, have since morphed into a self-sustaining system complete with agencies, institutions and a specialised lingo that pervades every realm of America’s engagement with Africa.

The United States Africa Command (Africom) is the vehicle of America’s engagement with the continent. Counterterrorism blurred the line between security, development, and humanitarian assistance with a host of implications including unrelenting militarisation which America’s policy establishment embraced uncritically as the sine qua non of America’s diplomacy, their obvious flaws notwithstanding. The securitisation of problems became self-fulfilling and self-sustaining.

The embrace of counterterrorism could not have come at a worse time for Africa’s efforts at democratization. In many African countries, political and military elites have now developed a predictable rule-based compact governing accession to power via elections rather than the coups of the past.

“Smart” African leaders exploited the securitised approach in two main ways: closing the political space and criminalising dissent as “terrorism” and as a source of free money. In Ethiopia, Yonatan Tesfaye, a former spokesman of the Semayawi (Blue) Party, was detained in December 2015 on charges under Article 4 of Ethiopia’s Anti-Terrorism Proclamation ((EATP), arguably one of the the country’s most severe pieces of legislation. But Ethiopia has received millions of dollars from the United States.

The Department of Defense hardly says anything in public but gives out plenty of money without asking questions about human rights and good governance. Being a counterterrorism hub has become insurance policy against any form of criticism regardless of state malfeasance.

Egypt is one such hub. According to the Congressional Research Service, for the 2021 financial year, the Trump Administration has requested a total of US$1.4 billion in bilateral assistance for Egypt, which Congress approved in 2018 and 2019. Nearly all US funding for Egypt comes from the Foreign Military Finance (FMF) account and is in turn used to purchase military equipment of US origin, spare parts, training, and maintenance from US firms.

Another country that is a counterterrorism hub in the Horn of Africa is Ethiopia. For the few months they were in charge, the Union of Islamic Courts (ICU) brought order and stability to the country.  Although they were linked to only a few of Mogadishu’s local courts, on 24 December 2006, Ethiopia’s military intervened in Somalia to contain the rise of Al Shabaab’s political and military influence.

The ouster of the ICU by Ethiopia aggravated the deep historical enmity between Somalia and Ethiopia, something Al Shabaab — initially the youth wing of the ICU — subsequently exploited through a mix of Somali nationalism, Islamist ideology, and Western anti-imperialism. Al Shabaab presented themselves as the vanguard against Ethiopia and other external aggressors, providing the group with an opportunity to translate their rhetoric into action.

Ethiopia’s intervention in Somalia could not have taken place without America’s blessing. The intervention took place three weeks after General John Abizaid, the commander of US forces from the Middle East to Afghanistan, met with the then Ethiopian Prime Minister Meles Zenawi.  The intervention generated a vicious self-sustaining loop. Ethiopians are in Somalia because of Al Shabaab, and Al Shabaab says they will continue fighting as long as foreign troops are inside Somalia.

America has rewarded Ethiopia handsomely for its role as the Horn of Africa’s policeman. In both Ethiopia’s and Egypt’s case, on the score of human rights and good governance, the net losers are the citizens.

Drone attacks 

In keeping with the War on Terror being for forever, and despite departing Somalia in 1993, America outsourced a massive chunk of the fight against Al Shabaab to Ethiopia primarily, and later, to AMISOM. America is still engaged in Somalia where it has approximately 800 troops, including special forces that help train Somalia’s army to fight against Al Shabaab.

America carried out its first drone strike in Somalia in 2011 during President Barack Obama’s tenure. Under the Trump administration, however, the US has dramatically increased the frequency of drone attacks and loosened the oversight required to approve strike targets in Somalia. In March 2017, President Trump secretly designated parts of Somalia “areas of active hostilities”, meaning that the high-level inter-agency vetting of proposed strikes and the need to demonstrate with near certainty that civilians would not be injured or killed no longer applied. Last year, the US acknowledged conducting 63 airstrikes in the country, and in late August last year, the US admitted that it had carried out 46 strikes in 2020.

A lack of transparency regarding civilian casualties and the absence of empirical evidence that the strikes lead to a reduction in terrorism in Somalia suggest that expanding to Kenya would be ill-advised. The US has only acknowledged having caused civilian casualties in Somalia three times. Between 2016 and 2019, AFRICOM failed to conduct a single interview with civilian witnesses of its airstrikes in Somalia.

Despite this level of engagement, defeating Al Shabaab remains a remote possibility.

Containing the Chinese takeover 

The Trump Administration did not have an Africa policy. The closest approximation of a policy during Trump’s tenure was stated in a speech delivered by John Bolton at a Conservative think tank decrying  China’s nefarious activities in Africa.  Even with a policy, where the counterterrorism framework views Africa as a problem to be solved by military means, the containing China policy views African countries as lacking the agency to act in their own interests. The problem with this argument is that it is patronising; Africans cannot decide what is right for them.

Over the last decades, while America was busy creating the interlocking counterterrorism infrastructure in Africa, China was building large-scale infrastructure across the continent. Where America sees Africa as a problem to be solved, China sees Africa as an opportunity to be seized.

Almost two years into the Trump administration, there were no US ambassadors deployed in 20 of Africa’s 54 countries even while America was maintaining a network of 29 military bases.  By comparison China, has 50 embassies spread across Africa.

For three consecutive years America’s administration has proposed deep and disproportionate cuts to diplomacy and development while China has doubled its foreign affairs budget since 2011. In 2018, China increased its funding for diplomacy by nearly 16 per cent and its funding for foreign aid by almost 7 per cent.

As a show of how engagement with Africa is low on the list of US priorities, Trump appointed a luxury handbag designer as America’s ambassador to South Africa on 14 November 2018. Kenya’s ambassador is a political appointee who, when he is not sparring with Kenyans on Twitter, is supporting a discredited coal mining project.

The US anti-China arguments emphasize that China does not believe in human rights and good governance, and that China’s funding of large infrastructure projects is essentially debt-trap diplomacy. The anti-China rhetoric coming from American officials is not driven by altruism but by the realisation that they have fallen behind China in Africa.

By the middle of this century Africa’s population is expected to double to roughly two billion. Nigeria will become the second most populous country globally by 2100, behind only India. The 24-country African Continental Free Trade Agreement (AfCFTA) entered into force on 30 May 2019. AfCFTA will ultimately bring together all 55 member states of the African Union covering a market of more than 1.2 billion people — including a growing middle class — and a combined gross domestic product (GDP) of more than US$3.4 trillion.

While Chinese infrastructure projects grab the headlines, China has moved into diversifying its engagement with Africa. The country has increased its investments in Africa by more than 520 per cent over the last 15 years, surpassing the US as the largest trading partner for Africa in 2009 and becoming the top exporter to 19 out of 48 countries in sub-Saharan Africa.

Some of the legacy Chinese investments have come at a steep environmental price and with an unsustainable debt. Kenya’s Standard Gauge Railway is bleeding money and is economically unviable.

A fresh start

Supporting democratic governance and learning to cooperate with China are two areas that will make America part of Africa’s future rather than its past.

America should pivot way from making the military the most visible face of its engagement with Africa and instead invest in deepening democracy as a principled approach rather than a convenient choice.

Despite the elegy about its retreat in Africa, democracy enjoys tremendous support. According to an Afro barometer poll, almost 70 per cent of Africans say democracy is their preferred form of government. Large majorities also reject alternative authoritarian regimes such as presidential dictatorships, military rule, and one-party governments. Democracy, while still fledgling, remains a positive trend; since 2015, there have been 34 peaceful transfers of power.

However, such positive metrics go hand in hand with a worrying inclination by presidents to change constitutions to extend their terms in office. Since 2015, leaders of 13 countries have evaded or overseen the weakening of term limit restrictions that had been in place. Democracy might be less sexy, but ignoring it is perilous. There are no apps or switches to flip to arrest this slide. It requires hard work that America is well equipped to support but has chosen not to in a range of countries in recent years There is a difference between interfering in the internal affairs of a country and complete abdication or (in some cases) supporting leaders who engage in activities that are inimical to deepening democracy.

The damage wrought by the Trump presidency and neo-liberal counterterrorism policies will take time to undo, but symbolic efforts can go a long way to bridging the gap.

America must also contend with China being an indispensable player in Africa and learn to cooperate rather than compete in order to achieve optimal outcomes.

China has 2,458 military and police personnel serving in eight missions around the globe, far more than the combined contribution of personnel by the other four permanent members of the UN Security Council, Russia, the US, France and Britain. China had more than 2,400 Chinese troops take part in seven UN peacekeeping missions across the continent — most notably in Mali and South Sudan. Of the 14 current UN peacekeeping missions, seven are in Africa, consuming two-thirds of the budget.

Climate change and conflict resolution provide opportunities for cooperation. Disproportionate reliance on rain-fed agriculture and low adaptation to the adverse impact of climate change make Africa vulnerable to the damaging effects of climate change, the consequences of which will transcend Africa. Through a combination of research, development, technological transfer and multilateral investment, America and China could stave off the impact of climate change in Africa.

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Hijacking Kenya’s Health Spending: Companies Linked to Powerful MP Received Suspicious Procurement Contracts

Two obscure companies linked to Kitui South MP Rachael Kaki Nyamai were paid at least KSh24.2 million to deliver medical supplies under single-source agreements at the time the MP was chair of the National Assembly’s Health Committee.

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Hijacking Kenya’s Health Spending: Companies Linked to Powerful MP Received Suspicious Procurement Contracts
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Two obscure companies linked to Kitui South MP Rachael Kaki Nyamai were paid at least KSh24.2 million to deliver medical supplies under single-source agreements at the time the MP was chair of the National Assembly’s Health Committee, an investigation by Africa Uncensored and The Elephant has uncovered.

One of the companies was also awarded a mysterious Ksh 4.3 billion agreement to supply 8 million bottles of hand sanitizer, according to the government’s procurement system.

The contracts were awarded in 2015 as authorities moved to contain the threat from the Ebola outbreak that was ravaging West Africa and threatening to spread across the continent as well as from flooding related to the El-Nino weather phenomenon.

The investigation found that between 2014 and 2016, the Ministry of Health handed out hundreds of questionable non-compete tenders related to impending disasters, with a total value of KSh176 billion including three no-bid contracts to two firms, Tira Southshore Holdings Limited and Ameken Minewest Company Limited, linked to Mrs Nyamai, whose committee oversaw the ministry’s funding – a clear conflict of interest.

Number of Suppliers Allocated BPAAlthough authorities have since scrutinized some of the suspicious contracts and misappropriated health funds, the investigation revealed a handful of contracts that were not made public, nor questioned by the health committee.

Mrs Nyamai declined to comment for the story.

Nyamai has been accused by fellow members of parliament of thwarting an investigation of a separate alleged fraud. In 2016, a leaked internal audit report accused the Ministry of Health — colloquially referred to for its location at Afya House — of misappropriating funds in excess of nearly $60 million during the 2015/2016 financial year. Media stories described unauthorized suppliers, fraudulent transactions, and duplicate payments, citing the leaked document.

Members of the National Assembly’s Health Committee threatened to investigate by bringing the suppliers in for questioning, and then accused Nyamai, the committee chairperson, of blocking their probe. Members of the committee signed a petition calling for the removal of Nyamai and her deputy, but the petition reportedly went missing. Nyamai now heads the National Assembly’s Committee on Lands.

Transactions for companies owned by Mrs Nyamai’s relatives were among 25,727 leaked procurement records reviewed by reporters from Africa Uncensored, Finance Uncovered, The Elephant, and OCCRP. The data includes transactions by eight government agencies between August 2014 and January 2018, and reveals both questionable contracts as well as problems that continue to plague the government’s accounting tool, IFMIS.

The Integrated Financial Management Information System was adopted to improve efficiency and accountability. Instead, it has been used to fast-track corruption.

Hand sanitizer was an important tool in fighting transmission of Ebola, according to a WHO health expert. In one transaction, the Ministry of Health paid Sh5.4 million for “the supply of Ebola reagents for hand sanitizer” to a company owned by a niece of the MP who chaired the parliamentary health committee. However, it’s unclear what Ebola reagents, which are meant for Ebola testing, have to do with hand sanitizer. Kenya’s Ministry of Health made 84 other transactions to various vendors during this period, earmarked specifically for Ebola-related spending. These included:

  • Public awareness campaigns and adverts paid to print, radio and tv media platforms, totalling at least KSh122 million.
  • Printed materials totalling at least KSh214 million for Ebola prevention and information posters, contact tracing forms, technical guideline and point-of-entry forms, brochures and decision charts, etc. Most of the payments were made to six obscure companies.
  • Ebola-related pharmaceutical and non-pharmaceutical supplies, including hand sanitizer
  • Ebola-related conferences, catering, and travel expenses
  • At least KSh15 millions paid to a single vendor for isolation beds

Hacking the System

Tira Southshore Holdings Limited and Ameken Minewest Company Limited, appear to have no history of dealing in hygiene or medical supplies. Yet they were awarded three blanket purchase agreements, which are usually reserved for trusted vendors who provide recurring supplies such as newspapers and tea, or services such as office cleaning.

“A blanket agreement is something which should be exceptional, in my view,” says former Auditor-General, Edward Ouko.

But the leaked data show more than 2,000 such agreements, marked as approved by the heads of procurement in various ministries. About KSh176 billion (about $1.7 billion) was committed under such contracts over 42 months.

“Any other method of procurement, there must be competition. And in this one there is no competition,” explained a procurement officer, who spoke generally about blanket purchase agreements on background. “You have avoided sourcing.”

The Ministry of Health did not respond to detailed questions, while Mrs Nyamai declined to comment on the contracts in question.

Procurement experts say blanket purchase agreements are used in Kenya to short-circuit the competitive process. A ministry’s head of procurement can request authority from the National Treasury to create blanket agreements for certain vendors. Those companies can then be asked by procurement employees to deliver supplies and services without competing for a tender.

Once in the system, these single-source contracts are prone to corruption, as orders and payments can simply be made without the detailed documentation required under standard procurements. With limited time and resources, government auditors say they struggle especially with reconciling purchases made under blanket agreements.

The agreements were almost always followed by standard purchase orders that indicated the same vendor and the same amount which is unusual and raises fears of duplication. Some of these transactions were generated days or weeks after the blanket agreements, many with missing or mismatched explanations. It’s unclear whether any of these actually constituted duplicate payments.

For example, the leaked data show two transactions for Ameken Minewest for Sh6.9 million each — a blanket purchase order for El Nino mitigation supplies and a standard order for the supply of chlorine tablets eight days later. Tira Southshore also had two transactions of Sh12 million each — a blanket purchase for the “supply of lab reagents for cholera,” and six days later a standard order for the supply of chlorine powder.

Auditors say both the amounts and the timing of such payments are suspicious because blanket agreements should be paid in installments.

“It could well be a duplicate, using the same information, to get through the process. Because you make a blanket [agreement], then the intention is to do duplicates, so that it can pass through the cash payee phase several times without delivering more,” said Ouko upon reviewing some of the transactions for Tira Southshore. This weakness makes the IFMIS system prone to abuse, he added.

In addition, a KSh4 billion contract for hand sanitizer between the Health Ministry’s Preventive and Promotive Health Department and Tira Southshore was approved as a blanket purchase agreement in April 2015. The following month, a standard purchase order was generated for the same amount but without a description of services — this transaction is marked in the system as incomplete. A third transaction — this one for 0 shillings — was generated 10 days later by the same procurement employee, using the original order description: “please supply hand sanitizers 5oomls as per contract Moh/dpphs/dsru/008/14-15-MTC/17/14-15(min.no.6).

Reporters were unable to confirm whether KSh4 billion was paid by the ministry. The leaked data doesn’t include payment disbursement details, and the MOH has not responded to requests for information.

“I can assure you there’s no 4 billion, not even 1 billion. Not even 10 million that I have ever done, that has ever gone through Tira’s account, through that bank account,” said the co-owner of the company, Abigael Mukeli. She insisted that Tira Southshore never had a contract to deliver hand sanitizer, but declined to answer specific questions. It is unclear how a company without a contract would appear as a vendor in IFMIS, alongside contract details.

It is possible that payments could end up in bank accounts other than the ones associated with the supplier. That is because IFMIS also allowed for the creation of duplicate suppliers, according to a 2016 audit of the procurement system. That audit found almost 50 cases of duplication of the same vendor.

“Presence of active duplicate supplier master records increases the possibility of potential duplicate payments, misuse of bank account information, [and] reconciliation issues,” the auditors warned.

They also found such blatant security vulnerabilities as ghost and duplicate login IDs, deactivated requirements for password resets, and remote access for some procurement employees.

Credit: Edin Pasovic/OCCRP

Credit: Edin Pasovic/OCCRP

IFMIS was promoted as a solution for a faster procurement process and more transparent management of public funds. But the way the system was installed and used in Kenya compromised its extolled safeguards, according to auditors.

“There is a human element in the system,” said Ouko. “So if the human element is also not working as expected then the system cannot be perfect.”

The former head of the internal audit unit at the health ministry, Bernard Muchere, confirmed in an interview that IFMIS can be manipulated.

Masking the Setup

Ms Mukeli, the co-owner of Tira Southshore and Ameken Minewest, is the niece of Mrs Nyamai, according to local sources and social media investigation, although she denied the relationship to reporters. According to her LinkedIn profile, Ms Mukeli works at Kenya Medical Supplies Agency, a medical logistics agency under the Ministry of Health, now embroiled in a COVID procurement scandal.

Ms Mukeli’s mother, who is the MP’s elder sister, co-owns Icpher Consultants Company Ltd., which shares a post office box with Tira Southshore and Mematira Holdings Limited, which was opened in 2018, is co-owned by Mrs Nyamai’s husband and daughter, and is currently the majority shareholder of Ameken Minewest. Documents also show that a company called Icpher Consultants was originally registered to the MP, who was listed as the beneficial owner.

Co-owner of Tira Southshore Holdings Limited, Abigael Mukeli, described the company to reporters as a health consulting firm. However Tira Southshore also holds an active exploration license for the industrial mining in a 27-square-kilometer area in Kitui County, including in the restricted South Kitui National Reserve. According to government records, the application for mining limestone in Mutomo sub-county — Nyamai’s hometown — was initiated in 2015 and granted in 2018.

Mukeli is also a minority owner of Ameken Minewest Company Limited, which also holds an active mining license in Mutomo sub-county of Kitui, in an area covering 135.5 square kilometers. Government records show that the application for the mining of limestone, magnesite, and manganese was initiated in 2015 and granted in 2018. Two weeks after the license was granted, Mematira Holdings Limited was incorporated, with Nyamai’s husband and daughter as directors. Today, Mematira Holdings is the majority shareholder of Ameken Minewest, which is now in the process of obtaining another mining license in Kitui County.

According to public documents, Ameken also dabbles in road works and the transport of liquefied petroleum gas. And it’s been named by the Directorate of Criminal Investigations in a fuel fraud scheme.

Yet another company, Wet Blue Proprietors Logistics Ltd., shares a phone number with Tira Southshore and another post office box with Icpher Consultants Company Ltd., according to a Kenya National Highway Authority list of pre-qualified vendors.

Family LinksMrs Nyamai and her husband co-own Wet Blue. The consulting company was opened in 2010, the same year that the lawmaker completed her PhD work in HIV/AIDS education in Denmark.

Wet Blue was licenced in 2014 as a dam contractor and supplier of water, sewerage, irrigation and electromechanical works. It’s also listed by KENHA as a vetted consultant for HIV/AIDS mitigation services, together with Icpher Consultants.

It is unclear why these companies are qualified to deliver all these services simultaneously.

“Shell companies receiving contracts in the public sector in Kenya have enabled corruption, fraud and tax evasion in the country. They are literally special purpose vehicles to conduct ‘heists’ and with no track record to deliver the public goods, works or services procured,” said Sheila Masinde, executive director of Transparency International-Kenya.

Both MOH and Ms Mukeli refused to confirm whether the ordered supplies were delivered.

Mrs Nyamai also co-owns Ameken Petroleum Limited together with Alfred Agoi Masadia and Allan Sila Kithome.

Mr Agoi is an ANC Party MP for Sabatia Constituency in Vihiga County, and was on the same Health Committee as Mrs Nyamai, a Jubilee Party legislator. Mr Sila is a philanthropist who is campaigning for the Kitui County senate seat in the 2022 election.

Juliet Atellah at The Elephant and Finance Uncovered in the UK contributed reporting.

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