Puzzle of Kenya underground economy

The findings of an investigative report by The Sentry on gold trading in the underworld of Uganda offers hints to the puzzle of the brisk gold trading in Nairobi's underworld. PHOTO | POOL    

By JAINDI KISERO More by this Author

When I look at new trends in economic crimes in Kenya, I am left with the feeling that we are gradually losing the future of our economy to the underworld.

The evidence may be anecdotal, but what can one say of the preponderance of frequent reports and cases of disputes between shadowy gold traders that seem to be operating both here and in Dubai?

Despite the fact we do not produce enough of the precious metal in commercial quantities, a month does not pass before we encounter a case where some shadowy gold dealer based in Dubai has suddenly popped out crying loudly about how he has been conned of gold worth billions of shillings by dealers and counterparties based in Nairobi.

In almost all cases, the name of a prominent public figure will crop up. The perception is that this underworld enjoys the patronage of powerful figures in government.

The pertinent question we often fail to ask these tricksters when they emerge from the underworld to seek public sympathy or rush to court to accuse their counterparts is the following: Where is this gold you are fighting over from?

Clearly, these disputes are increasingly looking like fights within Ali Baba’s cave.

The findings of an investigative report by the US-based entity- The Sentry- on gold trading in the underworld of Uganda offers hints to the puzzle of the brisk gold trading in Nairobi's underworld.

That investigation raised concerns that gold mined from conflict areas in eastern DRC was reaching international markets, including the supply chains of major US companies through Uganda and Dubai.

Is Nairobi part of the chain? The integrity of our financial systems and reputation with international correspondence banking systems are clearly at risk.

But perhaps the best evidence of the existence of an expansive underworld economy in Nairobi is to be found in the financial sector and in our national payments systems.

Last year, an investigation by the Financial Reporting Centre documented how Nigerian money remittance platforms had- without obtaining licences- managed to craft a complex web of operation between multiple jurisdictions, including the US, South Africa, Dubai and Honking- with Nairobi as the conduit of the whole system.

The investigation found that in less than 24 months, the web had moved a whopping $2.7 billion to foreign jurisdictions through banks in Nairobi, some of it to crypto exchanges in Mauritius.

From the revelations that came out during the crisis that befell both Dubai Bank and Imperial Bank both under liquidation, we learnt that most of our small banks only exist to service illicit flows.

We saw how these banks were under the capture of a cabal of elite and well-connected borrowers holding billions in credit facilities across several small banks.

We also saw how this cabal had pledged the same collateral to several banks across the banking system.

In the case of Charterhouse Bank, we saw a financial institution that was a cog in a nexus of institutions doing dodgy business, with the most important players being Nakumatt Supermarkets and the infamous Triton Oil Company.

Forex exchange bureaus are also part of the underground economy. Several years ago, in the wake of the Garissa University terror attack, the government suspended operations of several cash transfer businesses after investigations linked them with transactions with terrorism suspects.

Clearly, the laws and institutions for tracking operations of the underground economy are still not effective.

The writer is a former managing director of The East African.