Grand Regency saga displays rot in Kenya’s elite

The sale of the Grand Regency Hotel by Kenya’s government is yet another sordid chapter in a corruption scandal that began 18 years ago and which has enmeshed Kenya’s ruling class in a morass of rot.

There is deafening chorus for the resignation of Finance Minister, Amos Kimunya after he admitted last week that his ministry had sold the 5- star Grand Regency Hotel for Kshs2.9 billion (about US$45 million). The hotel, owned by Kenya’s Central Bank, is said to be worth almost three times what the government got from its sale.

Mr Kimunya has been criticized for flouting privatization procedures regulating the sale of government assets. For instance, there were no advertisements for bids, meaning that the Minister used his discretion in the sale. But that’s not all about the murky affair.

The Grand Regency became government property last April in a deal with businessman, Kamlesh Pattni, who owed the government Kshs2.4 billion (approx US$37 million). In exchange, Mr Pattni was granted amnesty for corruption cases related to his company, Goldenberg International. Critics say that Mr Pattni was induced to give up the Grand Regency in order for the government to sell it to Libyan investors allied to President Mwai Kibaki.

Kenya’s Attorney General, Mr Amos Wako, said he was not consulted over the deal surrounding the transfer of the Grand Regency from Pattni, to the government then to the Libyans.

Meanwhile, the deal with Mr Pattni jeopardizes other corruption cases involving his accomplices. It potentially means that Goldenberg cases against Pattni’s co-accused will have to be dropped as well.

The buyer of the hotel is a company associated with Libyan leader, Muammar Gaddafi. In recent years, there has been growing investment by Libyan companies in the oil and construction sectors. The Libyans have also bought a parcel of land adjacent to the Grand Regency within the Nairobi town centre.

The sale of the Grand Regency hotel is the latest episode in the Goldenberg series of corruption scandals that stretch back 18 years.

Goldenberg refers to a series of monumental financial scandals involving hundreds of billions of shillings in the early 1990s. Initially, it began with the payments of export compensation (government subsidies) to Goldenberg International which processed gold and diamonds. Payment of subsidies went out of control and by the time they were stopped in 1993, the Kenyan government had lost hundreds of millions of dollars. As a consequence of Goldenberg, the Kenyan government could not build roads, supply medicines or provide adequate security to its people.

Goldenberg, according to testimony during the Goldenberg Commission of Inquiry (2004 – 2005) was co-owned by Mr Kamlesh Pattni and former President Daniel arap Moi. The country’s chief of intelligence at the time, the late James Kanyottu, was also involved.

The Grand Regency Hotel was built by the family of the late Mohamed Aslam, who controlled Pan African Bank. The bank was involved in the intricacies of Goldenberg, and Mr Aslam later died mysteriously. His family sold the Grand Regency to another of Mr Pattni’s companies, the Uhuru Highway Development Ltd.

in 1993 Pattni and his companies entered into several spot contracts with Central Bank of Kenya for delivery of US$ 210 Million. Consequently, Pattni and his company Goldenberg International received from Central Bank the sum of Kshs.13.5 billion for the delivery of the dollars. Although Mr. Pattni received the shilling value of the dollars through his companies, he failed to deliver the dollars to the Central Bank of Kenya.

Upon demand by Central Bank for payment, Mr. Pattni acknowledged the debt and even settled part of the claim; he was, however unable to pay the balance of the claim which, as between him and the Central Bank, was agreed to be Kshs. 2.5 Billion. His cheques for payment of this sum were dishonored except one for Kshs100 million.

The Central Bank pursued and secured the payment of the balance of Kshs2.4 Billion by registration of a legal charge over the Grand Regency Hotel. Under this legal charge, the Central Bank of Kenya had the option to realize its security and sell the Hotel in the event that Mr. Pattni defaulted in settling the acknowledged debt.

As it turned out, Mr. Pattni defaulted in settling the Central Bank’s claim and as expected the Bank sought to realize its security. However, Mr Pattni and his companies went to court and obtained a series of injunctions stopping the Central Bank from selling the Grand Regency.

The Kenya Anti-Corruption Commission together with the Central Bank of Kenya and Mr. Pattni engaged in negotiations on settling this claim out of court. After lengthy negotiations, an agreement was reached between the parties and on 9th April, 2008 a settlement was filed in court. In legal terms, the Central Bank of Kenya was free to sell the Grand Regency in order to recover its Shs2.4 billion claim against Pattni.

The 2004 Commission of Inquiry into Goldenberg concluded that Mr Pattni was the “Chief Architect” of Goldenberg. The Commission has since been accused of ignoring evidence in order to protect powerful personalities such as ex-President Moi and his cronies.