Equity Bank surrenders staff to KRA over fraud

The Kenya Revenue Authority is investigating a tax evasion ring believed to run into billions of shillings.

The rip-off, involving key authorised collecting agents who collude with KRA staff, came to light late last year but investigations had been slowed down by a series of cover-ups.

Yesterday, Equity Bank confirmed that two of its staff and some KRA officials are to be prosecuted over their role in a case where Sh124 million in import duty was lost, confirming the seriousness of the vice that may have left a big hole in Treasury coffers.

It is understood that KRA and Equity employees colluded to manipulate the Simba system to fake clearance when actually no tax was paid.

Equity Bank has surrendered two of its staff members to the to the KRA/Banking Fraud Investigation Unit police for prosecution. The move follows revelations the Kenya Revenue Authority may have lost billions of shillings in a tax fraud that has sucked in Equity Bank.

KRA is investigating a tax evasion ring, which it busted late last year but its investigation has been slowed down by a series of cover-ups. In a rare admission, Equity Bank yesterday revealed that two of its staff members and some KRA employees are to be prosecuted over their role in a case in Namanga where KRA lost over Sh120 million in import duty.

Equity Bank said in a statement: "Equity has zero tolerance to bribery, corruption and facilitation payments across the business and will continue to co-operate with the police and the legal process as the issue continues to unfold."

Documents seen by The Standard showed that some KRA employees colluded with their counterparts in Equity Bank to manipulate the tax collector's Simba system to show that customers had paid their tax obligations when in reality they had not. The goods were then cleared and released from the ports of entry, with the ring sharing the loot.

KRA said that its probe would cover the Kenya Commercial Bank and the National Bank of Kenya, the two other big banks authorised to collect revenue on its behalf apart from Equity Bank. The new tax scandal, which is set to rock Times Towers, comes at a time when the authority is conducting a lifestyle audit on its key staff in an effort to root out rogue employees diverting tax money to their pockets.

"This office has been investigating allegations that the subject agent banks have been facilitating manipulation of the Simba system to the effect that Customs entries that have not been paid for are reflected as having been paid for... The irregular payment information is then relied upon by the DPC (Document Processing Centre) to pass the entries and the goods are then released," one of the internal KRA memos read in part.

The memo to the KRA Commissioner General John Njiraini was written by the Commissioner for Investigations and Enforcement. Reached for comment, the taxman confirmed that the investigations were ongoing but refused to divulge any details, instead promising to share once the exercise was complete.

"The Kenya Revenue Authority wishes to confirm that we are undertaking a probe closely linked to your query. At this juncture, we would not wish to publicly discuss the case, as such a move will be prejudicial to the ongoing process," said KRA spokesperson Grace Wandera. The Standard had sought to know how much money was involved in the KRA investigation.

According to our sources, up to Sh68 billion may be the subject of investigation by the taxman over a three-year period involving the tax collecting agents. Yesterday, a brief by Equity Bank's head of security Gerald Munyiri detailed the actions the bank had taken since it discovered that two of its employees were involved.

"A reconciliation jointly done by the Kenya Revenue Authority (KRA) and our operations indicates a total of 2,926 transactions worth Sh123,581,030 involving 916 taxpayers were established to have been initiated in Simba 2005 without corresponding transactions in Equity Bank's systems," said Munyiri of the Namanga case.

He said based on this information, the security department at the bank initiated internal investigations. "We also conducted computer forensic analysis of the computers at Namanga Branch, from which we established that during the period in question, only two staff members were accessing KRA IP address," he said. KRA police and the cybercrime team have agreed to fast-track the investigation, get the beneficiaries, recover the money and prosecute the criminals.

Further, a forensic audit by the bank showed that the traders had presented fake bank slips, which were forged with the complicity of the two suspects and collusion of KRA staff members, to post false entries that showed taxes had been remitted while in actual fact none had been paid.

Equity Bank said the taxpayers, their agents, bank staff at Namanga and KRA officers who cleared the goods as well as those who failed to carry out the daily reconciliation, perpetuated the fraud. "The taxpayers have not met their tax obligations for the goods they cleared and hence KRA has obligation to demand the same from them. The agents used fake bank slips to clear goods from KRA purporting to have paid cash at the bank," said Munyiri.

However, a highly placed source at KRA claimed that junior staff at the agent were being set up to carry the cross and let the managers off-the-hook. "The loss relates to transactions whose value has been estimated at Sh68 billion and it could even be bigger when the investigations are complete. It is now common knowledge among the staff being investigated that the figure is around that amount," said the source.