World Bank threatens Rift Valley Railway with sanctions after it unearths massive fraud

Top Rift Valley Railway (RVR) managers conspired to defraud lenders among them Kenya Revenue Authority (KRA) and International Finance Corporation (IFC) millions of shillings and left the company in a worse financial position, according to the World Bank.

In its latest ethics audit report World Bank found out that RVR executives bribed public officials, manipulated accounts and created convoluted ownership and operational structures with the aim of defrauding lenders, including IFC.

The acts were meant to conceal the company’s true financial position, which had deteriorated because of its inability to generate cash even as its liabilities mounted.

The World Bank’s Integrity Vice President’s (INT) office, which conducted the audit also found that RVR principals impeded the review through delays, failing to avail documents and asking employees not to co-operate with the bank’s staff.

“In the course of INT’s administrative inquiry and inspection, INT found evidence that it believes is sufficient to conclude that it is more likely than not that RVR Group and Messrs Karim Sadek, Hassan Massoud, Carlos Andrade, Bong Yoon, Sammy Gachuhi, Fabio Steffler engaged in corrupt, fraudulent, collusive and obstructive practices in the procurement, financing and import of 20 units GE B23-7 refurbished locomotives,” INT’s Operations Manager David Fielder concluded after the audit, according to a local business daily report.

World Bank is now threatening possible sanctions on the rail firm.

The RVR viability and health check was prompted by a $22 million (Sh2.2 billion) loan that the IFC – the World Bank Group’s private sector arm – extended to RVR in support of the company’s planned purchase of 20 locomotives for its flagging operations in 2014 and 2015.

The ethics audit report, whose contents were first leaked to Ugandan press shows that the World Bank has since written to RVR and those adversely named asking them to show cause why sanctions should not be imposed against them.

RVR managers have also been given an option of settling the matter with the World Bank.

Should World Bank go ahead with its sanctions, RVR and the individuals mentions would be barred from participating in any new World Bank-financed projects in the future.

When RVR applied for the $22 million IFC loan, it signed an agreement stating that the funds would be used to buy the 20 locomotives from US-based National Railway Equipment Company (NREC) in a straightforward transaction.

But the World Bank found that by the time the loan was disbursed on July 1, 2014, the executives had created an intricate web of companies that left RVR as a mere lessee of the locomotives having also prepaid some Sh832 million to NREC in its original status as a direct buyer.