Unpacking suspect Sh313bn web trail

money laundering
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I came across an intelligence report compiled by the Financial Reporting Centre (FRC)—Kenya’s première anti-money laundering agency—on companies linked to Nigerian nationals suspected of money laundering, card fraud and tax evasion.

 I must say the FRC has done a thorough job at tracing transactions and documenting thousands of very large transfers of dollars in a complex web of operations between several jurisdictions, including the US, South Africa, Dubai and Hong Kong, with  Nairobi as the conduit for the whole operation.

Whether or not crimes have been committee is not for me to say.  I only comment because the issues raised in the investigations touch on broad and pertinent policy questions on the integrity of our financial system and reputation with international correspondence banking systems.

 I think that avoiding to comment on the matter merely because there is a risk of prejudicing ongoing investigations would be like fiddling while Rome is on fire.

 The picture from movement and transfer of dollars across accounts is a revealing study on the capture of a nation’s financial system by technologically savvy nationals of another country. The statistics show that in less than 24 months, the web had moved a whopping $2.7 billion (Sh313 billion) through Nairobi.

Exchange-control laws

 Mark you, the whole purpose of the scheme was to create a network to help diaspora Nigerians break exchange-control laws and regulations the Central Bank of Nigeria has imposed.

 I’ll try to explain the anatomy of this complex operation as simply as I can so that as many readers of this column as possible can join this conversation .First, you must remember that this operation was running on an online and mobile-based IT platform developed by one of Nigeria’s biggest fin-techs.

Technically, the software is described as an ‘API-based card-issuing platform that allows you to instantly create and manage customised virtual cards’. In simpler terms, the service provider is able to set up an online merchant store and to install a system that issues virtual cards to customers instantly.

 You don’t need an office.  All you see is a card number, a cardholder’s name and the amount of money you are charging from the virtual card. The customer can do his business from his bedroom.

With the IT infrastructure in place, the Nigerian cowboys moved to the company’s registry in Nairobi where they opened a plethora of shell companies that they disguised as fin-techs offering merchant services. The purposes of business was stated as ‘treasury and liquidity management services to companies operating globally’.

Game of deception

I still don’t understand how the Office of the Registrar of Companies failed to see through this blatant game of deception. 

In the second stage of the operation, these shell companies opened hundreds of dollar accounts across a number of commercial banks in Nairobi after signing so-called ‘e- commerce agreements with the banks’. The alibi was that they needed multiple accounts to enable them facilitate card payments to sub-merchants. 

The software was also integrated with Mpesa, which allowed them to move billions locally through the network.  And I don’t understand how local commercial banks could not conduct even basic KYC procedures on these entities.

 The FRC report shows that only one bank saw through the game of deception. On detecting suspicious activities, this bank ordered those accounts closed after a few weeks.

Complex operation

The third leg of this complex operation was as follows: A similar set of shell companies with similar names were set up in Nigeria and Dubai to mirror the shell companies in Kenya. In reality, these were not merchants with any goods to sell but shells whose sole purpose was to receive money and to pay it out to related parties across jurisdictions.

Account holders transferred funds in Naira from Nigeria to bank accounts held by the companies in the network and the funds were then transferred through Swift to bank accounts in Kenya for onward transmission to intended beneficiaries in Nigeria, UK, the US, Zambia, Seychelles, Mauritius and Dubai.

I can’t wait to see how these investigations progress because the stakes are extremely high. Some of the companies under investigations are big boys with the backing of some of the largest private equity investors in the US.

The details show some large Lagos-based corporates used the platform to transfer dividends to their headquarters out of Nigeria. Why did they choose to use Nairobi as a conduit? The most advanced financial sector after South Africa, one of the most developed mobile banking market in the world, but most important—one of the few countries in Africa that doesn’t have foreign exchange controls.

If I were the Finance minister, I’d demand to see audited accounts and tax returns of all these firms. After all the profits they made were made here because Nairobi is where the conversion of dollars to Naira was happening. And considering that they were charging $50 for every transaction, these chaps pocketed billions. I have run out of space.

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