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Scandal payouts open 'floodgates' to demands: watchdog

23 May 2014, 22:48

Nairobi - Payments made by the Kenyan government in the wake of a multi-million-dollar corruption scandal have opened the "floodgates" to further demands, threatening the country's economy, a leading anti-graft watchdog warned on Friday.

Transparency International Kenya said the payments would put Kenya's struggling economy "under strain" and called on the government to launch a full public enquiry to clarify the situation.

The payments relate to a murky and highly complex corruption scandal that was revealed in Kenya in the early 2000s, when it emerged that the government had set up a vast network of phantom companies and inflated invoices to embezzle money meant for security services.

Known as the "Anglo-Leasing scandal" after a British firm that was hired at hugely inflated costs to provide a new passport printing system, the overall money involved in the scandal has been estimated at $640 million (470 million euros) spread across 18 different contracts, although analysts say it could be far higher.

At least $200 million (146 million euros) was reportedly paid out before the scandal was made public. Payments apparently stopped in 2004.

Other contracts, many for services that were never delivered, were supposed to purchase naval ships, security vehicles and forensic laboratories.

It remains unclear how much of the money went to legitimate companies and how much was embezzled, and the Kenyan government remains endebted to several companies with which it had signed contracts.

Earlier this month, the government made fresh payments of almost $16 million (12 million euros) following demands from European courts, partly to clear the way for Kenya to float international sovereign bonds which it hopes will boost its economy.

But since that payment, further demands have emerged, so far amounting to $34 million (25 million euros).

"The payments... can put the country's economy under strain," said Samuel Kimeu, head of Transparency International Kenya.

Kenya has been forced to delay plans to offer its first Eurobonds, worth some $1.5 billion (1.1 billion euros), because it cannot do so while debts remain unpaid.

Launching a public inquiry "is important as a first step in closing the floodgates of claims that the payment has opened," Kimeu added.

The government has defended the payments, saying previous administrations had left them no choice by saddling them with contract obligations that were still accruing interest.

"By making this payment, the president is not legitimising what he and many Kenyans believe to have been a series of fraudulent transactions," said presidential spokesman Manoah Esipisu, adding that the government had "exhausted all judicial options to forestall payment".




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