US embassy cable - 05NAIROBI1517

C O N F I D E N T I A L SECTION 01 OF 02 NAIROBI 001517 
 
SIPDIS 
 
LONDON AND PARIS FOR AFRICA WATCHERS 
STATE FOR AF/E, AF/EPS, EB/IFD 
TREASURY FOR ANNE ALIKONIS 
 
E.O. 12958: DECL: 04/13/2019 
TAGS: ECON, EFIN, KCOR, PINR, KE 
SUBJECT: KENYA: FINANCE MINISTER TALKS ABOUT CORRUPTION 
 
REF: NAIROBI 1425 
 
Classified By: ECON COUNSELOR JOHN HOOVER.  REASON 1.4(B) AND (D). 
 
1.  (C) Summary:  The kingpins of corruption who fleeced 
Kenya under the previous administration went about 
"business-as-usual" with officials in the current Kibaki 
government, acknowledged David Mwiraria, Kenya's Finance 
Minister, in a meeting with the Ambassador on March 6.   In 
this regard, the GOK is looking closely at 18 
security-related contracts thought to be tainted.  Six were 
completely fraudulent and have been cancelled, some of the 
remaining 12 will be renegotiated, and it is unclear which if 
any of the 18 will lead to prosecutions.  Of the 18, the 
contract to purchase a naval vessel appears above board, 
according to Mwiraria.  The Finance Minister is confident 
badly needed legislation on public procurement and 
privatization will pass shortly in Parliament.  End summary. 
 
2.  (SBU) The Ambassador, accompanied by Econ Counselor, met 
over lunch April 6 with Kenyan Finance Minister David 
Mwiraria.  The meeting came a day after the GOK, in a Kenya 
Coordination Group (KCG) meeting chaired by Mwiraria for the 
donor community, had provided a forceful defense of its 
record in fighting corruption (reftel). 
 
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Using All Tools to Fight Corruption 
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3.  (C) The Ambassador thanked Mwiraria for the information 
provided at the previous day's KCG meeting.  He noted the 
importance of establishing the right legal and institutional 
framework, and lauded the GOK's emphasis on this framework in 
the war on corruption.  At the same time, he noted the urgent 
need to "use all the tools at your disposal" in fighting 
graft, and cited the GOK's decision in 2003 to summarily 
suspend 50 judges suspected of corruption as the kind of 
political action that could be taken now to eliminate 
high-level corruption.  He also encouraged Mwiraria to go 
public with the names of the private sector "kingpins" who 
had successfully shifted their activities to the new 
administration when it came to power in 2003. 
 
4.  (C) Mwiraria responded by saying "one thing you say is 
very true:" the networks of corrupt businessmen who had 
operated so successfully under the previous Kenyan 
administration had re-established links to the new one and 
were "doing business as usual."  This, said Mwiraria, was the 
silver lining of the Anglo-Leasing scandals: they opened up 
the GOK's eyes to the extent of the problem, and action is 
now being taken.  Another structural problem confronting the 
GOK in rooting out corruption is the fact that below the 
ministerial and permanent secretary levels, the Kibaki 
administration inherited essentially the same government, and 
the same corrupt people and practices, as existed under the 
Moi government, when graft was rampant. 
 
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18 Suspect Deals Being Investigated; Some to be Renegotiated 
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5.  (C) The Ambassador sought clarity on the 18 
security-related procurement projects reportedly frozen in 
the wake of the Anglo-Leasing revelations.  He noted that the 
Finance Minister had in September promised donors that the 
GOK would undertake "forensic audits" of the suspect deals. 
Mwiraria revealed that the 18 have indeed been audited by the 
Comptroller and Auditor General.  Six of the 18 deals had 
been cancelled outright because "we were buying air", i.e. 
money was being paid, but no goods or services were being 
delivered.   In the case of the other 12, the audits in some 
cases revealed proper procedures had not been followed; in 
others that the procedures were followed, but that the price 
of goods and services had been inflated.  The audits have 
been forwarded to the Kenya Anti-Corruption Commission for 
further investigation, but it was unclear if any of these 
cases are among those reported to be ready for prosecution 
(reftel).  Mwiraria said the GOK in some cases will go back 
to the companies contracted to provide goods and services and 
seek to renegotiate prices. 
 
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Minister Says Frigate Deal is Clean 
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6.  (C) In this vein, the Ambassador urged Mwiraria to 
scrutinize the GOK's planned purchase of a frigate for the 
Kenya Navy, noting that the deal had the potential to blow up 
in the government's face if it is tainted.  The deal has been 
reported in the local press, and was on the list of 20 
suspect cases submitted by British High Commissioner Edward 
Clay to President Kibaki in January.  Many observers suspect 
it was brokered by the same network of corrupt businessmen 
behind the Anglo Leasing scandals.  Mwiraria responded by 
saying all the information thus far available to him 
indicates the deal is clean.  Kenya Department of Defense 
(KDOD) counterparts insist the deal followed proper 
procedures and isn't overpriced, and Mwiraria has seen the 
paperwork showing that five companies submitted bids, with 
some offering prices two or three times higher than the one 
offered by the Spanish shipyard which won the tender.  The 
Ambassador further noted that some view the ship as 
inappropriate for the Kenyan Navy's mission.  Mwiraria 
disputed this, saying that the Navy had as early as 1996 
begun to seek new ships to replace existing but obsolete 
ones. 
 
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Key Bills Likely to Pass 
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7.  (C) On the GOK's legislative agenda, Mwiraria noted the 
difficulties the administration faced in getting priority 
bills passed.  Just the previous day, he had been forced to 
withdraw an amendment to the Banking Act meant to liberalize 
the financial sector in the face of populist sentiment 
amongst MPs "who want to be able to blame me if interest 
rates go up."  On the procurement and privatization bills, 
passage of which are conditions for important upcoming budget 
support credits from the World Bank and the EU, Mwiraria was 
more sanguine, saying the draft bills had already been vetted 
once and now incorporated changes requested by concerned MPs. 
 He expects both measures to pass.  With the Privatization 
Bill in place, he noted, it will be possible to bypass the 
Cabinet and thus easier to quickly privatize burdensome 
parastatals such as the state-owned landline phone company, 
Telkom Kenya. 
 
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Comment 
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8.  (C)  The jury remains out on Mwiraria.  Some believe he 
is complicit in Anglo-Leasing and similar tainted deals. 
(Note: Mwiraria himself openly admits he signed the paperwork 
on Anglo-Leasing, but only after he was assured that the 
procurements were both proper and necessary.  End note).  The 
day before our meeting, however, KACC Director Aaron Ringera 
exonerated Mwiraria of any wrongdoing in the matter and said 
that if he'd been in Mwiraria's shoes at the time, he would 
have signed off on Anglo-Leasing too.  In private, he is 
refreshingly frank and open about the challenges and 
weaknesses faced by the GOK in combating corruption. 
Whether he is doing enough to address these challenges and 
weaknesses remains to be seen. 
BELLAMY