Investigators have exposed how proceeds worth Sh2.2 billion from illegal gold trading was kept out of the financial system and could have been used to finance criminal activities.
The probe reveals how exporters have been able to beat strict anti-money laundering laws after bypassing banks to pay for illegal shipments of gold.
The report by the Criminal Investigations Department (CID) submitted to a parliamentary committee probing the shadowy dealings said some money could be used to fund terrorism, arms trade and money laundering.
Investigators said they suspect the firms involved in the trade preferred handling huge sums of money in cash, and concealed some transactions.
The investigations have roped in the Kenya Revenue Authority (KRA) over an alleged Sh2.8 billion tax arrears by two gold exporters, and also exposed an illegal practice in which customs officials use illegal documents to certify the cash that’s coming into the country “because the official documents are out of stock”.
The procedures at the Ministry of Mining are also under scrutiny, and the investigators claim Commissioner for Mines and Geology, Moses Masibo, created loopholes that allowed illicit gold to be traded in the country.
Mr Masibo is on suspension over the controversial licencing of mining companies in Kwale County that were revoked by Cabinet Secretary Najib Balala.
The Director of Criminal Investigation, after weeks of investigating two firms that export gold from Kenya to Dubai, declared that he could “not rule out the possibility” that the colossal amounts of money were being used to fund “ terrorism, the purchase and smuggling of arms, or money laundering”.
Claims of illegal trade in gold are sensitive, as highlighted in 2011 when DRC President Joseph Kabila flew in for emergency talks with President Kibaki over huge consignments of stolen gold smuggled into Kenya from his country by a cartel.
KRA Assistant Commissioner Joseph Cheptarus was shot while preparing an investigative report on its movement. An officer close to the investigations told The Standard the players in the smuggling ring include “top boys” in Government.
The National Assembly’s Environment and Natural Resources Committee is probing the matter.
Two firms at the centre of the investigation, Skyhawk International Limited and Ushindi Exports Limited, trade in cash without involving banks or foreign exchange dealers. The money comes in through the Jomo Kenyatta International Airport in Nairobi in cash, it is declared at the customs using an “Improvised Custom Declaration Form.”
The declaration forms are “improvised” because “official forms are out of stock”, according to statements given to the detectives from the Customs officers at JKIA.
The millions of dollars come in via couriers on specific planes, and are transferred in tranches by a Cash-in-Transit company to the firm’s offices.
Only deposits of $10,000 (about Sh875,000) are reflected in their bank accounts but the cumulative deposits do not add up to the millions that enter the country.
But the directors of the two firms told investigators that they trade in cash because the local commercial banks are too broke and too slow to service their demands. Also because commercial banks charge high interest rates which eat into their profit margins.
“Most of the time, the local commercial banks do not have sufficient cash in US dollars, which the (companies) use to pay their clients because of the fluctuation of the shilling,” noted the confidential report of the CID.
KRA has also slapped two of the firms linked to the exports with a demand that they pay Sh2.8 billion in tax arrears.
The confidential report shows that Mr Masibo sent a letter to all licenced gold dealers allowing them room not to capture all details of their suppliers.
The law requires full details of the suppliers to be kept, but because some gold dealers had complained that the unlicenced small-time movers of the precious metal were reluctant to give details for fear of legal consequences, the commissioner stepped in. He allowed the licenced dealers to focus on the quantity and date of transaction.
In the report filed with the committee, the CID also revealed that for the first six months of this year, 1.9 tonnes of gold, whose source is unclear, was exported to Dubai.
The two firms declared $25.5 million (about Sh2.1 billion) as the value of the gold that was being exported, but when it came to declaring the proceeds from the sale of that very consignment, the value had gone down to $21.5 million (about Sh1.9 billion) – meaning that the companies made a loss of $4.3 million (Sh367 million).
“There is no way the two companies could have traded at a loss in this business. The only logical explanation is that the gold was stolen, smuggled, or bought (from the supplier) at a very low price to enable them make a profit,” the CID sleuths noted.