CBK hires US firm to probe fraudsters at Imperial Bank
- FTI Consulting will audit Imperial Bank’s books, processes and governance system to unravel the “unsafe and unsound business conditions to transact business” that led to the closure of the bank last week.
- FTI Consulting is the firm that conducted the forensic audit into the $7.2 billion Ponzi scheme by billionaire financier Allen Stanford, who was convicted in 2012 and sentenced to 110 years in jail for defrauding investors.
The Central Bank of Kenya has hired an American consulting firm that was involved in unmasking the perpetrators of a multibillion-dollar Ponzi scheme to conduct a forensic audit at Imperial Bank – the lender that went into receivership last week.
FTI Consulting will audit the bank’s books, processes and governance system to unravel the “unsafe and unsound business conditions to transact business” that led to the closure of the mid-tier lender last Tuesday.
The bank had Sh58 billion in customer deposits at the time of its closure.
The Business Daily on Monday learnt that forensic accountants from the Washington DC-based business advisory firm are already in Kenya combing through Imperial Bank’s books.
They are working with Kenya Depositors Insurance Company (KDIC) officials who took over management of the bank last week.
FTI Consulting, listed on the New York Stock Exchange, declined to divulge details of the assignment nor even talk about the timelines and extent of the audit.
“Unfortunately, we are not able to comment on the specifics of your enquiry,” the company said in an email response to the Business Daily. The firm has a dedicated forensic and litigation division, specialising in forensic accounting, risk and investigations as well as dispute advisory.
“We employ investigative skills, establish document and database controls, prepare analytical models, perform forensic accounting, present expert testimony and prepare written reports,” the FTI says in its 2014 annual report.
FTI Consulting is the firm that conducted the forensic audit into the $7.2 billion Ponzi scheme by billionaire financier Allen Stanford, who was convicted in 2012 and sentenced to 110 years in jail for defrauding investors.
Last year, American Apparel called in FTI to investigate allegations of financial improprieties and personal misconduct by the chief executive.
The financial malpractices at Imperial Bank burst to the public limelight following the death of its co-founder and long-serving group managing director Abdulmalek Janmohamed on September 15, 2015 — who is alleged to have been running a parallel bank within the lender.
Mr Janmohamed – now seen as the face of the fraud at Imperial – had been with Imperial Bank since its inception in 1993 and owned a five per cent stake in the firm.
FTI has now been tasked with the arduous task of investigating the extent of the fraud to inform the next course of action – whether the bank requires additional capital to resume operations or liquidation.
The Business Daily learnt that the American firm was initially called in by Imperial Bank directors to investigate allegations of massive fraud at the bank.
It was on the basis of FTI Consulting’s preliminary report that the CBK decided to close Imperial Bank and broaden its mandate to carry out a comprehensive forensic audit into the lender that is owned by the wealthy Popat family.
The hiring of FTI Consulting continues a trend where Kenya turns to foreign auditors to unravel complex financial fraud.
The Capital Markets Authority in 2012 appointed South African firm Webber Wentzel to carry out a forensic audit to unearth details of secret offshore accounts operated by directors of CMC Motors.
In 2003, then President Mwai Kibaki hired global risk consulting firm Kroll Associates to assist in tracing and profiling public assets stolen or stashed abroad during former president Daniel arap Moi’s tenure.
Imperial Bank was closed on October 13, 2015 — the day it was to list a Sh2 billion bond at a fixed rate of 15 per cent on the Nairobi bourse. The Capital Markets Authority – which approved the issue and pocketed an approval fee of Sh2 million in fees – suspended the listing of the bond indefinitely even as it refused to take responsibility for the debacle.
Imperial Bank’s closure took the banking sector by surprise, going by the lender’s published results showing its net profit more than doubled over the past four years to Sh2.01 billion last year from Sh885 million in December 2010.
The bank’s annualised net interest margin was at nine per cent, above the industry average of eight per cent, while its liquidity ratio was at 41 per cent, twice the 20 per cent regulatory minimum by June 2015.
Its loans-to-deposits ratio – a key indicator of a bank’s health – stood at 72 per cent while its non-performing loans ratio was comfortable at six per cent in the half year period. The bank had 28 branches in Kenya and six outlets in Uganda.
FTI Consulting investigators will now have to go through these numbers with a fine-tooth comb to establish their authenticity.
FTI Consulting says in its latest annual report that it has capacity to undertake ‘fraud and forensic accounting investigations, computer forensics and electronics evidence, specialised fact-finding.’
The company generated $1.76 billion (Sh180 billion) in revenue and made a net profit of $58.8 million in the year ended December 2014. It has an office in South Africa – the sole hub for the continent.
The bank was first established as a private finance and securities company in October 1992 under the name Imperial Finance and Securities Company Ltd, and later changed its name to Imperial Bank in 1995. It converted into a fully-fledged commercial bank in January 1996.