The Goldenberg Scandal
The Goldenberg Scandal, which occurred in the early 1990’s, ranks as one of the most brazen and astounding corruption schemes ever conceived and perpetrated in the Republic of Kenya. At the heart of the scheme was a diabolical plan by Goldenberg International Limited to exploit a government export compensation scheme under The Local Manufacturers (Export Compensation) Act of 1974, which enabled exporters producing certain goods to be paid subsidies by the government, to offset import duties paid on inputs used to produce those goods. The purpose of the Act was to promote local production of goods for export by rewarding exporters for earning the country foreign exchange, which was in short supply and very much needed to prop up Kenya’s struggling economy at the time. At the time of the Goldenberg Scandal, the official rate of compensation was set at 20% but Goldenberg applied for it to be increased and managed to get approval to be compensated at 35%. To earn the subsidy, Goldenberg conducted an audacious fraud scheme by claiming to be producing and exporting large quantities of diamond jewelry and gold when, in fact, all they did was to run a well-oiled smuggling operation, or fake the exports altogether. In doing so, Goldenberg was paid billions of shillings in compensation by the government, while the country never received the expected foreign exchange. As scandals go, the sheer audacity of the architects of this fraud was simply mind-boggling.
Who did it involve?
The scandal involved a litany of interesting characters from both the private sector and government. The main protagonists were a young, ambitious, businessman by the name of Kamlesh Pattni, and a powerful, unscrupulous Director of Intelligence, the late James Kanyotu. Together, this unlikely duo perpetrated the fraud through two main companies under their control, Goldenberg International Limited and Exchange Bank Limited. The purported gold and diamond exports were conducted through Goldenberg, while the bulk of the stolen money was paid through Exchange Bank, a staggering Ksh 13.5 billion in estimate. The fraud would not have been possible without the involvement of certain actors in the government, including the Finance Ministry, Central Bank, and Mining Ministry. Certain individuals within these institutions were key in facilitating the grand heist. Notable parties who were mentioned in a Commission of Inquiry, set up years later to probe the scandal, included former Vice President, the late Prof. George Saitoti; former Central Bank Governor, Eric Kotut; his deputy at the time, the late Eliphas Riungu; former Commissioner of Mines, Collins Owayo; and former PS in the Finance Ministry, the late Dr. Wilfred Koinange, among others. The Commission of Inquiry, set up by the late former President Kibaki, proposed the investigation of various other individuals suspected to have been beneficiaries of the scam, the most prominent of whom was the former late President Moi and some members of his family. Unsurprisingly, as has become the norm in high profile cases in Kenya, no one has ever been jailed for their role in the Goldenberg Scandal, despite years of investigation and stalled prosecutions. Tellingly, the chief architect of the Goldenberg Scandal, Kamlesh Pattni, was recently featured in a documentary by Al-Jazeera, titled The Gold Mafia, implicating him as a key figure operating a similar gold smuggling operation out of Zimbabwe.
Effects of the scandal
The Goldenberg Scandal occurred at a time when Kenya was experiencing severe economic hardship due to austerity measures and dwindling foreign exchange reserves. Macroeconomic pressures, from rising oil prices and a global recession, only compounded matters further. The scandal was the last thing that Kenya needed, and its effects were so severe that it effectively brought the country’s economy to its knees. The full extent of the heist has never been accurately quantified, but estimates suggest the country lost between US$ 600 million – 1.5 billion in payments to companies and individuals for fictitious gold and diamond exports. The cost to the country was equivalent to more than 10% of the annual gross domestic product.
Who exposed the scandal?
A fraud on the scale of the Goldenberg heist could hardly go unnoticed. And it didn’t take long before one brave and conscientious individual blew the whistle on the scam that shocked the nation. David Sadera Munyakei (1968 – 2006) worked as a clerk at the Central Bank of Kenya when he unearthed the gold export scam. He noticed irregularities in the processing of export compensation claims for supposed gold and diamond exports by Goldenberg, and when he raised queries, was advised to continue authorizing the payments. Undeterred, he made a decision to risk everything by leaking incriminating documents on the fraud to two opposition Members of Parliament, lawyer Paul Muite and Prof. Anyang Nyong’o. The two proceeded to table the documents in Parliament, causing an uproar that reverberated across the whole country. For his courage, Munyakei was arrested under the Official Secrets Act. Though later released, his employer sacked him, and David would eventually relocate to Mombasa after testifying at the Commission of Inquiry into the scandal. He would die a broken man in 2006, from a pneumonia infection. Though a tragic figure, a positive outcome of his life was the pressure brought to bear on the government to enact laws protecting whistleblowers.
Reflections from the scandal
Though the Goldenberg Scandal would be succeeded by other big scandals involving the theft of public resources, such as the Anglo Leasing scandal, it still stands out as the first mega-scandal to be exposed publicly, as well as being one of the best documented. It also exposes the failure of our public institutions to hold senior government officials accountable for their acts of commission or omission. It is indeed a stain on our country and begs the question as to whether we deem integrity to be a key quality for holders of public office. Why has there never been any successful prosecution of high-ranking personalities in Kenya? Why do we have a class of untouchables in this country whose source of wealth can be linked to corruption? What does that say about us? The ghosts of the Goldenberg Scandal will not be exorcised so easily and will continue to haunt us for some time to come. We must continue to seek justice, and we must demand restitution from the beneficiaries of the crime. We owe David Munyakei that much.