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Charles Abugre introduces ‘the web of secrecy, collusions and the players that drive and sustain the world of illicit money flows’, with reference to the ongoing case of Kenyan public officials Chris Okemo and Samuel Gichuru and multinational corporation Alcatel-CIT.

I am attracted to write about dirty money because of two outstanding feature stories I recently read. The first is the cover story in the Nairobi Law Monthly (NLM) magazine Vol.2 Issue 7, July 2007 entitled ‘On the trail of Kenya’s lords of dirty cash’ written by Michael Rigby. This is the most revealing account yet, of the web of illicit money flowing across the world, written from a country perspective. Kudos, Mr Rigby. The second is an article entitled ‘La Dolce Viagra’ in the July 2011 issue of Vanity Fair. Yes, Vanity Fair. This is a stunning but pleasurable exposé written by Evgenia Peretz and Federica Rampini about Silvio Berlusconi the 73 year old Italian Prime Minister’s nights of ‘bunga bunga’ parties in his basement disco, and the web of corruption, abuse of power and wealth concealment that goes with the impunity of power even in a so-called democratic developed country. Papi Silvio as he is popularly known by his army of young lovers is standing trial once more, this time for allegedly sexually abusing a minor (a 17 year old Moroccan belly dancer, Ruby Rubacuori (aka Ruby Heart Stealer). How will Papi Silvio get out of this one? The plot thickens.

These articles tell a tantalising story of how greedy, corrupt and unethical politicians in positions of power and influence use their influence to make laws work for them, to loot the state in consort with crooked rent-seeking business people (mostly men) in local and multinational companies who often have close business relationships with the most important politicians to launder their loot abroad into havens of secrecy, utilising a web of secrecy services globally. They are aided in this dirty business by banks (big and small) eager and happy to serve their ‘high net-worth individual clients’ (wealthy people) by colluding, sheltering, channelling and cleaning up the dirty money in off-shore jurisdictions specifically designed to aid and benefit from secrecy.

Accountants, in particular the large global ones, help in this process by devising and using accounting rules that make it impossible to reveal the extent of the looting, so as to conceal the wealth and profits that are then transferred abroad. The lawyers kick in by devising legal entities (fictitious companies, Trust entities etc) and legal rules designed to conceal the real human persons behind the dirty transactions and to keep them out of jail. The media help by focusing only on the juicy role of local politicians, ignoring the web of actors behind the laundering of money. And of course if you are Papi Silvio you simply use your media empire to go after any persons or institutions threatening your interest. If you are not Papi Silvio you strike up cosy relationships with the owners of the media or put them on notice of a destructive legal suit should they dare to challenge you.

In this four-part blog I will try to draw from the ongoing Kenyan case covered by the NLM to show that this is the tip of the iceberg as far as dirty money flows are concerned. The term increasingly used is ‘illicit capital flows’. I will introduce the web of secrecy, collusions and the players that drive and sustain the world of illicit money flows. In Part 2, I will detail the role of these players and the conditions that allow them to thrive. In Part 3, I will demonstrate the scale and implications of this dirty money world, and in that you will find that, objectionable as Mr Okemo and Gichuru’s alleged behaviours are, they are far from being lords. They are but midgets in the game. Moreover we will discover, surprisingly, that corruption and bribery of politicians – significant and nasty as this may be – are simply not the main ways by which capital moves illicitly out of our economies. The main culprits are corporations and the main channels are banks and international trade in goods and services. In Part 4, I will argue that complex as this web may seem, it can be broken up. Implementation of the 2010 Kenyan Constitution is a unique opportunity for Kenyans to take action, but above all, to tackle this effectively requires regional and international approach. Tackling this menace is first and foremost political, without which no technical solution works. This is why active civil society is so crucial.



The Nairobi Law Monthly (NLM) article tells a story of two Kenyan public officials, Chris Okemo (former finance minister and energy minister) and Samuel Gichuru (former managing director of a state electricity company), who are about to be hauled to a little island, Jersey, to stand trial for allegedly receiving bribes between 1999-2002, from an international company (Alcatel-CIT) and laundering this money into bank accounts they hold on the island.

A word about Jersey is important to put the story in context. Jersey is a British crown dependency like Guernsey and the Isle of Man. Together with seven British overseas territories (call them surviving colonies), such as the Cayman Islands, Gibraltar, the British Virgin Islands, Bermuda, Montserrat and Turks & Caicos, these islands are some of the world’s most notorious financial secrecy jurisdictions and tax havens. A 2009 study by Christian Aid and the Tax Justice Network (the Financial Secrecy Index, 2009) ranked the US state of Delaware as the biggest provider of International Financial Secrecy, the City of London ranked fifth, Jersey, eleventh, and Guernsey, the thirteenth out of 60 countries. They thrive on offering secrecy services or opaqueness, in particular the concealment of the identities of beneficiaries of companies registered there and the actual owners of bank accounts. They are also tax havens. This means that their main attraction to companies to register there is low or zero taxes. The combination of secrecy and low/zero tax services provides a fatal attraction for companies to launder profits away from where they make them (to avoid and evade taxes there) and for those who want to conceal the sources of their wealth and profits from public scrutiny.

The architect of the extradition request for Gichuru and Okemo is the United States of America, which is acting under what is called the Foreign Corrupt Practices Act (FCPA) of 1977. This law requires the US government to go after any bribery activity abroad that brings injury to the United States or involves companies listed in the United States.


What precipitated this particular action was that Alcatel, a US registered company, felt compelled by the evidence against it in a Florida Court in December 2010, to initiate a plea bargain in order to reduce its fine and reputational damage. In this plea bargain Alcatel admitted to having bribed foreign officials in a number of countries including Kenya. It claimed to have paid a US$20m bribe to the executives of a cellphone company, Kencell to secure a contract to support this cellphone company to roll out its network. Kencell at the time was a joint venture of two companies: It was owned 60 per cent by a company registered on the Kenyan Stock Exchange market (therefore a Kenyan Company), Sameer Investments owned by a local business magnate Naushad Merali, and 40 per cent by the French conglomerate, Vivendi. The contract negotiations with Alcatel were in fact, according to the NLM, article conducted by Vivendi who informed Alcatel that they would win the contract on the condition that they, Alcatel, agree to pay a bribe of $20m to an ‘intermediary’.

The NLM article suggests that that this bribe may have been paid to facilitate the award of a second mobile network license, Mobitelea, which at some point in time was a shareholder of Safaricom (Kenya’s flag-ship mobile telephone company) whose majority shareholder is Britain’s Vodafone. The real persons behind Mobetelia remain wrapped in secrecy and the company was not even known to the Kenyan parliament for three years after it acquired shares in Safaricom. Mobitelea paid US$5m in cash to take a 5 per cent stake in Safaricom. What we do know is that Safaricom utilised the ‘advice’ of Mobitelea when it was entering the market, a case being investigated somewhat, by the Kenyan and British authorities, which means that it is more than likely that Safaricom know who are behind Mobitelea.


The legal web of concealment of the real persons behind Mobitelea is itself fascinating. Mobitelea was registered in the other British crown dependency, Guernsey, as a “shell” company. Like Jersey, Guernsey is a secrecy jurisdiction as well as a tax haven. Mobitelea was registered in Guernsey as owned by two other Guernsey-registered nominee companies, Mercantor Nominee Ltd and Mercantor Trustees Ltd. The directors of these companies are also companies: Anson Ltd and Cabot Ltd who are registered in Anguilla and Antigua, which are also tax havens and secrecy jurisdictions. Note the web of companies owned by companies, which are in turn owned by companies or trusts all registered in a secrecy jurisdiction. Secrecy is the key driver of dirty money. Many of the major offshore secrecy jurisdictions are British.


Before we proceed with the story, we need to explain some of the terminology used repeatedly throughout the article in order to aid understanding.

‘Shell companies’ are trusts formed to hold the wealth/assets of their clients in off-shore financial centres (OFC). An OFC hosts a functional financial services centre with branches or subsidiaries of major international banks. Banks prefer to call these centres International Financial Centres (IFCs). They tend to offer a range of secrecy services for their non-resident clients and may provide massive tax incentives. In the latter case, they will also be called tax havens. Tax havens do not require banks to publicly disclose accounts of their clients and it is exceedingly hard for small countries to obtain tax information from tax havens. Most of the big international banks are registered in these OFCs to facilitate business for their clients. It is reported that at least 270 of the world’s biggest banks have a presence in the Cayman Islands alone and may exist in different forms in more than one OFC.

In OFCs, ‘shell entities’ hold offshore accounts for their clients. Bankers anywhere open accounts in the name of off-shore entities which often impede monitoring and tracing of client activities that can facilitate illicit activities. ‘Offshore’ refers both to geographic spaces that specialise in providing financial services to non-resident clients and to conceptual spaces i.e. the idea of designing rules and regulations aimed at benefitting non-resident asset holders.

Most OFCs are ‘secrecy jurisdictions’. This term refers to countries or territories that satisfy two characteristics: (i) they create regulations for the primary benefit of non-residents, (ii) they create regulations preventing the identification of those who use them.

These regulations are designed to undermine the legislation or regulation of other jurisdictions. For example, regulations promoting secrecy will undermine the requirement for transparency held dear by other countries.

A ‘trust’ is one such ‘Shell entity’ and is formed whenever a person (the settlor) gives legal ownership of an asset (the trust property) to another person (the trustee) on condition that they apply the income and gains arising from that asset for the benefit of a third person (the beneficiary). Trusts can be established verbally but typically take written form. Trustees are frequently professional people or firms charging fees. In secrecy jurisdictions, the settler, the trustee and the beneficiary may all be other shell companies.

Nominee (trust) accounts are accounts in which the owners may be companies or other entities (such as trusts) rather than natural persons and which disguise the real beneficiaries or donors. These anonymous trust accounts are the bread and butter of the offshore secrecy jurisdictions such as Jersey.

Banks may also open special name or numbered accounts. These are code names rather the names of natural persons. The purpose is to conceal the true identity of the beneficiary persons.


How did Alcatel pay the bribe and how were the monies transferred abroad? To accommodate the bribery, Alcatel simply inflated the contract price by US$20m. To pay it out, the ‘intermediary’ (read, the fake company fronting for the corrupt politicians and other beneficiaries of the bribe) formed a company called ‘Company T’. You cannot tell which natural human beings own it or benefit from it. Instead Company T was represented in the financial transactions by a Mauritius-based shell company. A ‘shell company’ is one which is used for a business transaction but which doesn’t have significant assets.

A related term is a ‘special purpose vehicle’, which is a company or trust, or partnership or any form of legal entity set up for a particular purpose in the course of completing a transaction, or series of transactions, typically with the principal or sole intent of obtaining a tax advantage. Some of the money was paid directly to Company T, through a German bank in Mauritius, the Deutsche Bank. The payment to the Mauritius agent was paid into one of Britain’s biggest banks, HSBC. There was a third payment, which the ‘intermediaries’ directed to be paid to yet another company, ‘Company Z’, to an account in Dubai. It turns out that Company Z is an offshore holding company of Sameer Investments, the same Kenyan Company owned by Merali, that held the majority share in Kencell in partnership with Vivendi, and which awarded the contract to Alcatel in the first place. I may be thick in the head but is it far-fetched to suggest that the payment to Company Z may have been a kickback to Sameer Investments, possibly for arranging the bribery deal successfully?


I ask myself, if Okemo and Gichuru are in the dock (and perhaps rightly so), what happens to Merali of Sameer Investments or the directors of Vivendi who in the story appear to be complicit in facilitating and channelling the bribes and may even have benefitted financially? What about HSBC and Deutsche Bank who received, channelled and cleaned the illicit money? How about the banks in Jersey and Guernsey who harboured the corrupt money, benefitted from client fees and provided the legal web of secrecy upon which the entire sorry story is based?

The NLM article goes to much length to show how the Kenyan politicians abused their power, not only by demanding and allegedly receiving bribes but also by prevailing on parliament to pass laws that were friendly to secrecy and money laundering, by. for example, removing clauses that required that financial institutions name the natural human individual beneficiaries of companies transacting business with them rather than hiding behind nominee accounts. Okemo and Gichuru could not have succeeded in moving their allegedly corruptly acquired loot to Jersey but for the welcoming conditions provided by Jersey.

That Jersey is seeking to prosecute its clients who merely utilise the services they provide is rich irony! Who is prosecuting the British crown dependent territory of Jersey? They probably could not have moved the money without the participation of the banks. The NLM article says ‘the British, in spite of their zeal to go after Okemo and Gichuru have been seen to be reluctant to investigate a local firm and the matter has been in a lull’. Shouldn’t Britain be prosecuting HSBC in the manner that the Americans prosecuted? Or at least name and shame it as the US General Accounting Office did in the case of Citibank’s handling of General Auguste Pinochet’s loot.

The truth is, according to Christian Aid, a charitable organisation of the protestant churches of Britain and Ireland, that the United Kingdom has a poor record of acting effectively to curb or return illicit money brought into its land. Very little has been heard, in terms of prosecution or repatriation of the estimated US$1.3bn that the late General Abacha (of Nigeria) channelled through the 23 London Banks, including Barclays. Okemo and Gichuru may be greedy and bad, if they are guilty. But they will, by no means be the greediest and the baddest of them all, let alone the most criminal.

But Jersey is not doing this by choice is it? Jersey is doing the minimum necessary to save its own scalp. It is compelled to action by the United States lest it is blacklisted for promoting money laundering and by the OECD bilateral information exchange agreement compelling it to provide tax and savings related information to its member countries upon request. We shall explain this bilateral information exchange later.


Before we turn our attention to drawing from the specific issue of Okemo and Gichuru versus the British crown dependent territory of the Island of Jersey to demonstrate how the world of dirty money works generally, let’s give some time to the curious case of Mauritius, the African island state embroiled in the case. Mauritius is a small island of not more than 1.3 million people, lying in the Indian Ocean in Southern Africa. By most measures, Mauritius is one of Africa’s better governed and successful countries. It is one of Africa’s most diversified economies, having started off as a sugar plantation literally fed by slave labour. It scores highly in all manner of social wellbeing indicators, including education, life expectancy and per capita income where it compares favourably with the best in the developing world. Its system of social protection compares with any other and as a result, desperate poverty, destitution and hunger are low. Stunningly, like Switzerland, Mauritius has no standing army and yet it is as peaceful as any. Corruption is perceived by citizens and experts alike to be relatively low across the board and in both public and private sectors. Mauritius’ banking sector is one of the most sophisticated, with most people holding their money held in bank deposits rather than as currency.

However, Mauritius is an African leader in a different type of corruption. It provides the conditions favourable for the laundering of money, wealth and profits. In this process it facilitates not just corruption but massive tax evasion and avoidance. Money laundering is the process of ‘cleaning’ illicitly gained money to give it the appearance of originating from a legitimate source. Profit laundering is the process whereby companies use mechanisms such as transfer pricing, mis-invoicing, licensing and others, to conceal and transfer profits from a high tax-paying jurisdiction to one in which taxes are low or non-existent. How does Mauritius do this?

Mauritius provides offshore secrecy services. A secrecy jurisdiction, as defined earlier must satisfy two conditions (i) It designs its financial regulations partly to benefit nonresidents; (ii) it puts regulations in place to ensure that the identities of those who use these regulations are concealed.

Mauritius followed the path of other islands to make itself attractive to attract global banks and earn fees and other benefits from facilitating the easy incorporation of companies and offering secrecy and low tax services as an attraction to non-residents. It designed its regulations to attract secrecy service providers. These are banks, lawyers, accountants, trust companies and others who make money by assisting clients to access the services of the secrecy jurisdiction. Richard Murphy of the Tax Justice Network calls the combined result of secrecy jurisdictions and the secrecy services providers is the ‘secrecy world’. Mauritius is a vibrant secrecy world. This world promotes money laundering.

For money laundering to occur, 3 steps are needed: (i) an entry point where the illicit money enters the legitimate financial system (ii) a series of opaque layers where money moves through the international financial system across borders, (iii) the integration of the illicit money into the legitimate economy once its origins have been effectively concealed.

Let’s take the Okemo and Gichuru case to demonstrate how the regulations in Mauritius facilitated or at least favoured the illicit transfer of corruptly acquired Kenyan money into banks domiciled in its territory. Recall that two payments were made into accounts in Mauritius; one directly to Company T into as bank account held in Deutche Bank, Mauritius. This means that Mauritius permitted Company T to hold a bank account without having to reveal who the beneficiaries of Company T are. A second part was paid to an agent company registered in Mauritius and acting for the alleged bribery perpetrators into an account held by a high street British bank, HSBC. This company, as we observed is a ‘shell’ company, a fictional entity more or less existing for no other worthwhile reason than to facilitate scummy transactions. These types of companies abound in offshore secrecy jurisdictions. Mauritius, like other offshore secrecy jurisdictions, provides a place for illicit money to hide and be later cleaned up and integrated into the legitimate financial system.

Mauritius found itself also embroiled with tax matters involving another of the companies remotely linked to the web of illicit finance discussed above. I am talking about Vodafone and the Indian government’s pursuit of the company for capital gains taxes. The story dates back to 2007 and is told by a publication of Christian Aid as follows: Mauritius and India have a Double Taxation Avoidance agreement. One of the implications of this agreement is that if a company considers itself resident in Mauritius (meaning it pays taxes in Mauritius) and if this company does not have permanent establishment in India, then if such a company owns shares in an Indian company, the sale of these shares will not attract capital gains tax in India. This allows companies registered as Mauritian companies to avoid paying capital gains taxes of between 10 per cent and 40 per cent in India which will be payable under Indian law. This means that Indian companies or other companies can register in Mauritius as tax residents simply by paying a small fee and receiving a certificate. To obtain this certificate, such a company merely needs to ensure that at least two directors are Mauritian, that they maintain a bank account in Mauritius and appoint an auditor.

Here is where Vodafone comes in. Vodafone acquires an Indian telephone company Hutchison Essar Ltd (HEL) which was owned by a Hong Kong based company, Hutchison for US$11bn. Vodafone and Hutchison then incorporate companies in Mauritius and the Cayman Islands to hold the shares of HEL and to conduct the transaction. By so doing, they both sought to avoid capital gains tax estimated by lawyers to be in the region of US$2bn. Vodafone argued that the transaction was between two offshore entities and was outside India’s jurisdiction, it was by a non-resident, with another non-resident in respect of the transfer of a shares of a company which was also non-resident. India on the other hand, argued that as the assets were in India, the deal was liable to capital gains tax and in any case according to Indian law the buyer had the obligation to deduct and withhold capital gains tax.

This story of the exploitation of offshore tax havens jurisdictions by companies to avoid tax is a microcosm of the bigger picture of illicit flows. The exploitation of Mauritius’ offshore status is not only by international companies, but also crucially by Indian companies and rich individuals who set up shell companies such as the one owned by Sameer Investments, basically to shift money out of India (and this case, Kenya) and to take advantage of the Double Taxation Avoidance Act, avoid paying taxes or to clean out dirty money.

Bizarrely, these same players then return these monies to India as foreign investors in order to benefit from tax concessions. This is called ‘round-tripping’. This is why the tiny palm beach island of Mauritius is the biggest foreign investor in India. It accounts for nearly 50 per cent of all FDI (foreign direct investment) inflows into India. FDI inflows from Mauritius to India amounted to US$20bn cumulatively between 2000-2007. This is Indians, concealing money in Mauritius and taking it back as investors and doubly cheating both the Indian poor and those who pay their fair share of taxes. Maybe if we look carefully into the data we might find a significant volume of Mauritian FDI coming into Kenya. Who knows whether some of it isn’t the alleged bribery monies round-tripping.


I intend to draw out in greater detail the role of the key players that drive, sustain and thrive on illicit capital flows. In the concluding part I merely want to draw out briefly, some of the dynamics underpinning the world of dirty money flows.

It comes down to the motivation of people in politics and their ethics. If all you care for is being rich and powerful, even when the people you are supposed to be serving languish in poverty and suffering you will identify with Papi Silvio who, when confronted with a bribery case proclaimed that ‘If I, in taking care of everyone’s interests, also take care of my own, you can’t talk about a conflict of interest.’

If all that matters is to manipulate political institutions and law to serve your greedy interest, then you could also do no better than Papi Silvio. Confronted by a group of ‘Clean hands’ prosecutors determined to nail him for fraud and tax evasion and unearth the hundreds of millions of dollars he stashed away in tax havens and offshore secrecy jurisdictions, Papi Silvio, responded by putting his legal team in charge of re-writing the laws, installed a number as the head of the Justice Commission, made his own personal tax lawyer the minister of economy and finance, and made his three henchmen in legal trouble parliamentarians so they would enjoy immunity.

Not surprisingly, parliament decriminalised the type of accounting he was accused of using to channel bribes; tax evaders suddenly had amnesty. Faced with a charge of bribing a judge, Papi Silvio had a new law passed granting immunity from prosecution to Italy’s highest ranking leaders. There is lot more juice in Vanity Fair’s ‘Dolce Viagra’ story if you are interested – including of course the story of the string of sexy babes. I am sure that Papi Silvio’s behaviour resonates with the experiences of our countries, some of which have been highlighted in the NLM article on how Kenya’s parliament was leaned upon to make laws favourable to the concealment of wealth.

The point is this, whether it is in poor or rich countries, integrity in public service is necessary to minimise bribery and dirty money. Institutions and rules help but individuals bear moral responsibility. So Okemo and Gichuru have personal moral responsibility that no legal argument can make good. But of course institutions help and public scrutiny is essential. We shall revert to this issue in the concluding part of this article.

The mantra that ‘the private sector is the engine for growth’ is not true of all who operate in the private sector. There are those who making profit by adding value to goods and services, and then consume, reinvest and pay tax on these profits. These are the engine for growth and transformation. There are criminal elements in the private sector and there are those who merely become wealthy through unproductive rent-seeking activities such as speculative activities, corrupt activities, and aggressive tax avoidance behaviour. This lot are prone to colluding with equally rent-seeking politicians to break or exploit loopholes in the law. These are the ones that aggressively seek channels to conceal wealth generated from activities that are illegal or bordering on the illegal. They turn to invest heavily in mutually corrupting relationships with the biggest political actors in the country and warrant the term, ‘politically exposed persons’. These strong personally and mutually corrupting relations are necessary for dirty money to be accumulated, concealed and transferred. The Oremo and Gichiru case demonstrate this clearly. The key here is transparency in all dealings. This requires rules, but more importantly a vigilant society.

Democracy is impossible without transparency and with it, accountability. To permit jurisdictions to thrive by depriving other jurisdictions of their share of wealth and revenues simply by enacting and enforcing laws designed to undermine their regulations and deny them a legitimate share of revenues is morally reprehensible. This is the reality of tax havens and secrecy jurisdictions, without which the movement of dirty money across boundaries would be severely constrained. A democratic society must not permit this. This can be defeated by collective rage of citizens, effective campaigning and simple rule changes.

These professions need not thrive from doing harm to the poorest people but the system is too lucrative for self-regulation. Given their influence, formal regulation is unlikely to succeed without organised citizen pressure and a strong and effective judiciary. We shall return to this.

Secrecy damages society. There is no doubt about that. Yet there is not enough outrage about the fact that the law in Kenya (and many other places) permits companies to register and make money without having to identify who are the persons behind them. This is the one rule in the registration of companies laws that must changed and changed urgently if the fight against corruption to be meaningful. The media should be screaming ‘murder’ if they are interested in democracy and they should look beyond the reprehensible behaviour of individual politicians and public servants to the system that perpetuates the harbouring and movement of dirty money or clean money illicitly.

Whilst this first part has concentrated on technicalities, we need to keep in mind the implications of the illicit money. It thrives on inequality and perpetuates inequality; it enriches a few and keeps the majority in desperate poverty and without jobs; IT KILLS.

* Charles Abugre is the regional director for Africa, United Nations Millennium Campaign.
* This article first appeared on Charles Abugre’s blog, Righting tomorrow.