Despite government promises of a crackdown, long-running corruption scandals still appear to be costing Kenya dear, reports Xan Rice in Nairobi

Thursday, May 17, 2007
Guardian Unlimited

Kenya's president, Mwai Kibaki (r), who was elected on an anti-corruption
ticket. Photograph: Pius Utomi Ekepi/AFP/Getty Images

Kenya may be legally bound to repay tens of millions of pounds of debt incurred when politicians signed security-related contracts with non-existent companies.
The so-called Anglo-Leasing deals, named after the most notorious of the contracts agreed with a fictitious British-registered firm, were struck between 1997 and 2004. Goods and services were either grossly overpriced or simply never delivered, allowing government officials and businessmen to steal huge sums of taxpayers' money.
After details of 18 deals worth 56bn Kenyan shillings (£420m) were released early last year by John Githongo, Kenya's former anti-corruption chief who fled to the UK after receiving death threats, the government in Nairobi promised to halt the contracts and punish those responsible for the fraud.
So far not a single politician or businessman has been charged, and anti-corruption organisations now accuse the government of extending the cover-up by refusing to admit that more money will be lost. They say that because Kenya issued paper guarantees of future payment when the contracts were signed, the country will still have to pay. The corrupt deals began under the presidency of Daniel Arap Moi and continued after President Mwai Kibaki was elected on an anti-corruption platform in late 2002.
Typically, they involved a purchase of hardware such as military helicopters or hi-tech security systems from a company that was little more than a postal address. A second "ghost company" was then contracted to finance the deal at lucrative interest rates - and given certificates known as promissory notes, on which the Kenyan government promised to repay the money at specified dates.
In one such deal in May 2003, the Kibaki government awarded a £34m contract for the supply of a new police telecommunications network. Geneva-registered Midland Finance and Securities Ltd was engaged to finance the deal. A report published last year by Kenya's auditor general found that Midland Finance and Securities Ltd and their supposed to be the contractor did not exist.
When the current finance minister, Amos Kimunya, was asked about the contract in parliament two weeks ago, he said that the project had never started. Furthermore, he said, there was no need for a refund as no payments had been made to Midland and no guarantees of future payment made.
An opposition MP then produced copies of 36 promissory notes worth £46m, representing the original loan plus interest, repayable in quarterly instalments into Midland's Swiss bank account.
Mars Group Kenya, an anti-corruption NGO in based Nairobi, also obtained an extract from Kenya's external debt register purporting to show that £46m in capital repayments had been made to Midland by June 30 2005.
Mr Kimunya did not dispute the authenticity of the promissory notes, but repeated his claim that he had all the original debt certificates relating the Anglo-Leasing deals in his safe at the Treasury and that all had been cancelled.
Mars Group and 26 other civil society groups are now demanding proof of this, as they believe the notes are "irrevocable", as the auditor general said in his report. Kenya's attorney general, Amos Wako, also wrote a legal opinion stating that the credit agreement in the Midland case was "legally binding" on the government.
Mwalimu Mati, the director of Mars Group, said that from looking at the debt register it appeared as though some of the fake companies had cashed in their promissory notes with legitimate financial institutions that would soon demand payment from Kenya.
"In just the Midland deal we have already lost millions of dollars to a fictitious company. Now we need to know how much more will be lost. Could it be that the government knows it would be a disaster to admit in an election year that it cannot do anything to stop massive payments on dodgy contracts, some of which were signed by its own ministers?"