Chapter 1: Inside Pattni’s wild world of sleaze

Born into a family of gold dealers in Mombasa, Pattni’s journey of sleaze began with a small jewelry business, Manorama Limited, run alongside his brother on Nairobi’s Dubois Road. However, ambition soon propelled him to Moi Avenue’s Mageso Chambers, where he founded Goldenberg International Limited and Exchange Bank Limited. These two companies would become the engines of a scandal that would shake the nation to its core.

Pattni, ever a master of manipulation, had closely studied Finance Minister Prof George Saitoti’s June 7, 1990, budget speech, which outlined ambitious proposals aimed at promoting Kenya's economic growth. Among the key strategies was the promotion of "industrial and other non-traditional exports," and the establishment of an Export Compensation Scheme. While this scheme was designed to encourage the re-exportation of minerals from other countries through Kenya, it became Pattni’s highway to the state coffers. Under the program, companies would be compensated for their efforts, provided they met the necessary paperwork requirements. Pattni saw an opportunity to capitalise on this initiative, positioning himself to benefit from the scheme while sidestepping scrutiny – with fake export paperwork, and power.

Initially, the export compensation proposal had come from other quarters. It was later claimed that Hezekiah Oyugi, the powerful Permanent Secretary in the Office of the President had pushed for a gold exports compensation scheme for approval by the Treasury. By then a nondescript company, Arum Limited was involved.  Moreso, the Justice Bosire inquiry was told that Assistant Minister of State in the Office of the President, John Keen, had written to the Treasury and suggested that gold exporters be granted a subsidy to compete favourably with smugglers.

When this turned into a policy, Pattni walked in and edged everyone out. But was he a solo actor? No. An unlikely ally in Pattni’s rise was James Kanyotu, the powerful Special Branch head, who became a director in Pattni’s ventures. Pattni would later tell a judicial commission appointed by the late President Mwai Kibaki to investigate the scam that the two had met at a Nairobi shop where they were introduced to each other by a mutual friend, a Mr Veljibhai Gami.

Registered on July 11, 1990, with a nominal capital of Kshs100,000, there is, up to date, no evidence that the company engaged in any mining of gold and diamonds, the two minerals it purported to be exporting. To avoid scrutiny by the hawk-eyed intelligence, Pattni – he had a British passport - gave Kanyotu some shareholding that gave the company the legitimacy he required. With Kanyotu on board, nobody could question the workings of Goldenberg International. On paper, the objects of the Goldenberg company were to “carry on the business of import and export in any or all types of minerals, gold, silver, diamonds, precious and semiprecious stones … in Kenya to all PTA countries, Europe, India and other parts of the world.”

In his quest for approval, Pattni walked into the Treasury accompanied by Kanyotu. They had a meeting with Prof Saitoti, by then recovering from a poisoning ordeal, and frightened not to step on anyone’s toes. Pattni and Kanyotu had incorporated a new company, Goldenberg International Limited, and wanted to be granted 35 per cent export compensation. They also made sure that he knew that they had been to State House to lobby for the same, according to the report of Inquiry into the saga.

When Prof Saitoti got the letter from his PS, Phillip Mbindyo, seeking his approval, he only wrote “Noted” and returned it.

During their meeting, Pattni presented his case for Goldenberg International, spinning a narrative that promised immense benefits to Kenya's economy. Saitoti, facing pressure to secure foreign currency and bolster Kenya's economic standing, signed off on the proposal. The approval granted Goldenberg compensation for the export of gold and diamonds, despite the glaring fact that these commodities were non-existent. This decision not only handed Pattni a lucrative contract but also gave his company a monopoly over the export of these imaginary minerals, marking the beginning of a scandal that would later shake the nation.

By then, Treasury had crafted economic schemes to lure businessmen into earning Kenya hard currency after the bilateral and multilateral donors imposed stringent rules on aid. Short of foreign currency, Kenya was desperate, and Pattni promised that his Goldenberg company could earn Kenya foreign currency through the export of gold and diamonds. In return, as per the compensation scheme, he was to be compensated for his efforts. Other schemes put in place included Pre-shipment Finance, Retention Accounts, Forex Certificates, Spot and Forward Contracts, and cheque kitting.

Pattni initially began on a modest scale, but things took a turn when he submitted his first nine export compensation forms to his bankers at First American Bank, where Kanyotu was a director. Upon review, both the bank and the Central Bank noticed a significant anomaly. The funds claimed to have been received from overseas appeared to have been deposited in cash, in various hard currencies, rather than the typical method of inter-bank transfers. While they could not immediately pinpoint the irregularity, what they failed to realise, or perhaps suspected, was that Goldenberg had been purchasing hard currencies on the local market. These currencies were then deposited into the First American Bank account, a move that allowed Pattni to falsely claim export compensation. This clever manipulation of the system would later play a crucial role in the fraudulent scheme that unfolded.

To get the compensation, which paid in cash, an exporter had to have the export forms stamped by the necessary authorities and confirmation that all the foreign exchange relating to the exports had been received and sold to the CBK. If in the paper it was indicated that gold exports worth $1,000 had been made, the government would pay the exporter $200, or 20 per cent of the remitted currency. The government had no way of verifying the volume of what was exported and relied on paper trails.  Pattni sought and was given a monopoly to export gold and diamonds – on the promise that he would earn the country $50 million.  Instead of the legal 20 per cent compensation, his company was granted 35 per cent, which was concealed in the budget as “customs refund”.

While Goldenberg breached all the exchange control regulations and the agreement it had signed with CBK to abide by the rules, he used his connections to get his compensation paid after the claim was processed by Customs and Excise. While CBK governor Eric Kotut was alerted to this by his Exchange Controller, T. K. Birech-Kuruna, nothing was done.

Pattni tried his luck with Citibank, which smoked him out before he finally settled for government-owned banks that were easier to corrupt. Although banking sector regulator was informed about the dubious transactions, it continued paying export compensation without verifying whether any exports had taken place. Pattni used his political connections to get his way.

Amid increasing scrutiny from the Central Bank, he took a drastic step to register his own lender, Exchange Bank,  in August 1991, with an initial capital of 40 million shillings, which was deposited at Transnational Bank Ltd, associated with President Moi. Initially, Pattni had ambitious plans for his bank, even considering naming it Republic National Bank. The bank’s ownership structure mirrored that of Goldenberg International, with Pattni and Kanyotu each holding a 25 percent stake, while a Mrs Daksha Rana, Bhailal Patel, and Rohit Damji were allocated the remaining shares. However, when the bank was officially formed, the names of Rana, Patel, and Damji mysteriously vanished from the records, leaving only Kanyotu and Pattni as the sole shareholders, each holding a single share valued at Sh1,000.

One of the key oversights in the registration process was Central Bank’s failure to verify whether Pattni’s bank actually had the promised capital. Despite this lack of due diligence, the bank was allowed to proceed, and officially began operations on June 4, 1992. Exchange Bank was authorised as a depository financial institution under the Exchange Control Act on July 30, 1992. With a bank to his name, Pattni could now manipulate the banking system to his advantage.  This oversight would later play a critical role in the expansion of Pattni's fraudulent activities.

On the political scene, President Moi was under siege from the opposition. The ruling party, Kanu, found itself desperate to secure another term and Pattni was one of the few traders who could bankroll the political system. State House doors were opened for him and soon, reckless economists and administrators found a window to loot the Treasury.

The clamour for multi-party politics was reaching a crescendo and Kanu was desperate for another term.

By registering his own bank, it now meant that he would not face any scrutiny.

It is now known that no foreign currency was received arising from the scheme, because there was neither gold nor diamond exports made under the scheme. There were only fake companies processing fake receipts! The Moi government ended up paying both the normal 20 per cent compensation and the enhanced 15 per cent compensation in exchange for nothing.

Goldenberg then started engaging in currency dealings. Money would be sent abroad and wired back to Kenya as proceeds of exports. The government would pay 35 per cent of this as compensation.

Pattni then got to know that some airlines, hotels and travel agents were allowed to provide cash exchange facilities for visitors in urgent cases. Goldenberg applied for a license from the Ministry of Tourism promising to make $50 million. They used this license to buy foreign currency from the public and sold it to Exchange Bank. Some of the money was sent overseas and deposited in Exchange Bank nostro accounts and later transferred back earning 35 per cent compensation.

Many years later, a judicial commission of inquiry and trial left no one in jail over the scandal. Officials accused of paying Sh5.8 billion to Pattni either died, or were set free. Their attempt to argue that they were ordered by President Moi to pay out the money was dismissed.

With the money, Pattni became a powerful player in the underworld. He took over the Grand Regency, entered politics and started a church as ‘Brother Paul.”  He also organised an elders delegation to visit President Muamar Gaddafi in Tripoli.

The 25 year-old who authored this grand scheme and walked away is back in the news.  He has expanded his tentacles world-wide.

Tomorrow: How Pattni captured Treasury