Kenya's scandal bank shut

KENYA'S banking scandal claimed its first victim yesterday when the government closed a local bank involved in a multi-million pound fraud which devalued the currency.

Acting on the results of a special audit conducted at the request of the World Bank and the International Monetary Fund, Musalia Mudavadi, the Minister of Finance, ordered the closure of the Exchange Bank, accusing its management of engaging in speculative activities and not keeping its records in order or up to date. Mr Mudavadi said: 'Its management has engaged in speculative activities inconsistent with banking rules and which prejudice the interest of depositors and the general public.'

This bland technical language obscures a scam that robbed the Kenyan government of tens of millions of pounds. More details of the audit are expected to emerge in the next few days, revealing the activities of three local banks: Post Bank Credit, Pan African and Delphis.

The Exchange Bank was set up by Goldenberg International Ltd, a Kenyan company, which was given millions of pounds by the government to export gold and diamonds. Despite documentation from the Department of Mines and Geology and the Kenyan customs, there is little doubt that at least pounds 50m-worth of diamonds and gold allegedly exported by Goldenberg did not exist.

The agreement which gave Goldenberg a monopoly for gold and diamond exports and a 35 per cent export bonus from the government was agreed by the vice-president and former finance minister, George Saitoti. When international banks asked the Central Bank about Goldenberg's deposits of foreign exchange, Goldenberg set up the Exchange Bank to handle its foreign exchange activities.

A spokesman for the opposition party Ford said in Nairobi that the closure of the Exchange Bank was a sop to the IMF team visiting Nairobi, and the government should recover the money lost and prosecute those responsible.