Revealed: How govt opened a new 'secret' escrow account

18Apr 2016
Our Reporter
The Guardian
Revealed: How govt opened a new 'secret' escrow account
  • The account was set up at Stanbic Bank Tanzania just days after a controversial $600 million loan to the government was sealed in March 2013

THE government authorised Stanbic Bank Tanzania to open and maintain an escrow account in US dollars for the 532-kilometre Mtwara natural gas pipeline project in the same week that the same bank enabled Tanzania to borrow $600 million in a private placement contract deal.

Stanbic Bank Tanzania

Details of the escrow account have remained shrouded in secrecy with senior government officials either declining to comment or openly dodging questions about why it was opened, who controls it and how much money was deposited.

According to findings by The Guardian, the account was established through a letter from the Bank of Tanzania (BoT), dated 8 March 2013 and signed by two senior officials in the central bank's department of foreign payments and settlement, S. Mwakalukwa and M. Kahamba.

An escrow account is a temporary pass-through account held by a third party during the process of a transaction between two parties.

The pipeline and accompanying gas processing plants, all financed by a $1.225 billion Chinese loan, were initially expected to be completed in 2014 but reportedly faced technical glitches.

The actual cost of the project has recently been an issue of controversy with some opposition members of parliament claiming it was inflated by over 100 per cent and at least $600 million was allegedly spent on paying kickbacks to some key government officials.

The state-run Tanzania Petroleum Development Corporation (TPDC) is on record as saying the pipeline itself was built at a cost of $875.715 million and the balance from the Chinese loan was used to construct the gas processing plants.

Sources close to the government told The Guardian that the opening of the escrow account at Stanbic Bank was officially approved by the Treasury through BoT just days after the fishy-looking $600m loan deal between the bank and the government was concluded.

It remains something of a mystery why the government opted to open the account with a privately-owned commercial bank and not directly with the central bank, as was the case with the Independent Power Tanzania Limited's (IPTL) Tegeta escrow account.

The Guardian also couldn’t independently verify whether there was any hidden motive behind the opening of the Stanbic escrow account. So far, there is no suggestion of wrongdoing in either bank transaction despite the secrecy involved.

But for the past month or so, The Guardian has tried unsuccessfully to get proper clarification from the Treasury, BoT and TPDC – all of them being key government institutions involved in the Stanbic Bank transactions.

Top officials with these institutions have not been willing to discuss the matter in detail.

When contacted for comment, TPDC managing director Dr James Mataragio acknowledged the existence of the escrow account, but said he could not immediately explain why it was opened or how much money has been deposited in it.

Mataragio last month asked for time for TPDC to work on inquiries from The Guardian about the escrow account.

STANBIC ‘MUM’ ON ESCROW ACCOUNT

Stanbic Bank Tanzania officials have also not responded to The Guardian's requests for comment on whether there are any links between the escrow account, the pipeline project, and the $600m loan disbursed to the government.

The bank is already at the centre of controversial revelations that a $6 million bribe was allegedly paid to senior government officials in connection with work on the same private placement contract deal in 2012 and 2013.

The bank had put forward a proposal which would mandate them to raise those funds for former president Jakaya Kikwete's government by way of a sovereign note private placement.

Investigations by Britain's Serious Fraud Office (SFO) have established that the Tanzanian government in November 2012 formally granted Stanbic Bank and Standard Bank the mandate to raise the $600m funds.

The London-based Standard Bank agreed to pay nearly $37 million and enter into a British financial regulator's first deferred prosecution agreement to end probes into bribery of government officials in Tanzania over the private placement.

According to SFO findings, Stanbic and Standard Bank had initially quoted a fee to the Tanzanian government of 1.4 percent of gross proceeds raised from the private placement, but matters did not progress until that went up to 2.4 percent.

Evidence gathered by SFO showed that the additional 1 per cent, worth $6 million, was paid to a "local partner," a Tanzanian company called EGMA, for supposed consultancy services.

EGMA's chairman and one of its three shareholders and directors was Harry Kitilya, the then commissioner general of the Tanzania Revenue Authority (TRA).

Standard Bank recently changed its name to ICBC Standard Bank Plc following the acquisition of a 60 per cent stake by China's ICBC.

The London-based bank agreed to pay the SFO a $16.8 million fine and about $500,000 to cover costs, disgorge $8.4 million of profit, and pay $7.05 million to the Tanzanian government.

It also agreed to pay $4.2 million to settle related civil charges by the US Securities and Exchange Commission.

The $600m loan transaction was completed in March 2013 to raise funds for the construction of the Mtwara-Dar es salaam natural gas pipeline under the government's five-year development plan.
In the same week that the loan transaction was being concluded, the government opened the escrow account at the same Stanbic Bank Tanzania.

Kitilya, along with two ex-Stanbic Bank Tanzania officials, have since been formally charged in a Dar es Salaam court over massive corruption allegations linked to the same $600m private placement deal.

Those charged with Kitilya were the bank’s former head of corporate and investment banking, Shose Sinare, and former head of legal affairs, Sioi Solomon. The Prevention and Combating of Corruption Bureau (PCCB) accused the trio of conspiracy to obtain money by false pretences, fraud, and money laundering.

They have denied the charges and the case is now awaiting a formal hearing date.