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A case for the legal profession’s involvement in governance - African Regional Forum newsletter article, December 2016

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A case for the legal profession’s involvement in governance

Evans Monari, Bowmans, Nairobi
evans.monari@bowmanslaw.com

This article is an amended version of an article first published by www.bowmanslaw.com.[1]

 

The Constitution of Kenya was promulgated in 2010 with the hope of a revolutionised and revamped socio-economic and political landscape for the country. The Constitution was promulgated at a time when the Kenyan citizenry demanded an alteration of the status quo of poor governance structures and lack of accountability for both public and private bodies. With wide ranging provisions on devolution of government functions and a bolstered bill of rights, the Constitution has introduced very pivotal and important provisions on governance.

Of note is the declaration in the Preamble that the Kenyan people, in adopting the Constitution, expressly exercised their sovereign right to determine the form of governance of Kenya. Furthermore, the Constitution in Article 10 sets out the principles of governance which binds all persons in Kenya, including both private and public bodies. Some of the key national values provided for include good governance, integrity, transparency and accountability. It is these national values that define Kenyan people. They are enduring beliefs and ideals of Kenyan culture concerning what is good or desirable, and what is not.

In addition, the Constitution further recognises that one of the primary objectives of devolution is to give the power of self-governance to the people and enhance the participation of the people in the exercise of the powers of the State and in the making of decisions affecting them.

Major corruption and fraud investigations in Kenya

Having cited the provisions of the Constitution, it is important to lay out the context through which its promulgation was necessitated.

Over the last three decades Kenya has witnessed fraud and corruption scandals from both private and public companies which have fleeced taxpayers and investors of billions of shillings. The institution mandated to investigate corruption claims is the Ethics and Anti-Corruption Commission (EACC), while the Office of the Director of Public Prosecutions (DPP) is tasked with prosecuting those who are recommended for prosecution by the EACC. Some of the corruption scandals that have left Kenyans appalled include:

  1. The Goldenberg scandal: estimated to have cost taxpayers US $600m in total. The scheme exploited the Export Compensation Scheme, intended to reform the economy and increase international trade and investment. Kamlesh Pattni, founder of Goldenberg International, sought and was given a monopoly to export gold and diamonds on his promise that he would earn the country US $50m. Instead of the legal 20 per cent compensation, his company was granted 35 per cent, which was concealed in the budget as a ‘customs refund’.[2]
  2. The Anglo-leasing scandal: over 20 government contracts were awarded in Kenya at inflated prices. A case in point is a transaction that involved Anglo Leasing Finance, which was awarded a tender for replacing the Kenyan passport printing system. The contract was awarded to the company at a price of EUR €30m against an original quote by a French firm of EUR €6m. The overpriced contracts cost the Kenyan government nearly US $1bn (KES 101bn).[3]
  3. The Tokyo Embassy Scam: arose after parliamentary investigations established that the Kenyan government, through the Ministry of Foreign Affairs, had rejected a free embassy house offered by the Japanese government. Instead, it was reported that ministry officials withheld around KES 1.6bn which was used to purchase another property in Tokyo at a lesser value.[4]
  4. The National Youth Service Scandal: a total amount of KES 1.9bn is predicted to have been lost through the falsification of records and the manipulation of payment systems at the Ministry of Devolution. In one instance, entries for payment in the IFMIS system are reported to have been manipulated by adding zeros onto 18 transactions suspected to have been falsified.[5]
  5. Triton Oil Scandal: an audit by Kenya Pipeline Company (KPC) revealed that stocks amounting to 126.4 million litres of diesel were irregularly and illegally released to Triton Petroleum Limited between November 2007 and November 2008. Triton was allowed to illegally withdraw oil amounting to KES 7.6bn by corrupt KPC officials.[6]
  6. Purple Saturn Scandal: involved the illegal divesting of East African Real Estate Holdings Limited (Rendeavour) of its beneficial and legal interest in Purple Saturn Company, a company which owned prime property in Ruiru, valued at approximately KES 5.3bn. Shares in Purple Saturn were incorporated as a Special Purpose Vehicle, and irregularly transferred to several Kenyans who intended to fleece its beneficial owner and CEO of the interest he had made through the investment of his finances into the purchase of the land.[7]
  7. The NSSF Tassia II Scheme Scandal: the National Social Security Fund (NSSF) board was accused of irregularly approving KES 5bn expenditure for infrastructure development at an area called Tassia II in Nairobi. The controversy brought about by this scandal saw the then-Cabinet Secretary for Labour resign and the then-Acting Chair and Managing Trustee suspended from his position. The main problem in this issue was a corporate governance situation, as the Cabinet Secretary and the Acting Chair and Managing Trustee went ahead to approve a project without requisite authority from the NSSF Board.[8]
  8. The Geothermal Development Corporation (GDC) Scandal: involved six senior managers inflating rig moving charges to the tune of KES 1.7bn. The purpose of the rigs was for drilling and harvesting steam to ease the cost of geothermal development. The six managers decided that instead of charging KES 15m per rig, they would charge KES 42m per rig. The EACC found the six senior managers culpable due to irregularities that exposed taxpayers’ funds to embezzlement and recommended they should all be jointly charged with abuse of office and surcharged to refund all monies lost as a result of their actions.[9]

The problem: regulatory failure

Whereas most of these cases are currently under investigation or before the courts, the perpetrators of some of these scandals have been acquitted. By 2015, the Ethics and Anti-Corruption Commission (EACC) had received 10,000 complaints. The EACC only investigated 4,501 complaints, out of which investigations have been completed in only 381 of the cases forwarded to the Office of the Director of Public Prosecution (DPP) for prosecution. Out of the 381 cases, only 22 cases have been concluded in court; nine cases were acquitted, two were withdrawn and six were discharged.[10] The EACC is presently investigating 434 cases which relate to corruption and economic crimes and 187 cases which relate to unethical conduct. There are also 536 cases pending in courts where 891 persons have been charged with various offences relating to corruption.[11]

A ‘List of Shame’ prepared by the EACC for the president was exposed to the public in March 2016. The List of Shame catalogues certain public officials – including cabinet secretaries, principal secretaries, governors and senators – as being associated with corruption schemes. The exposure of the list aroused public interest which resulted in five cabinet secretaries resigning to pave way for investigations. Fortunately for them, the DPP closed their files citing lack of evidence. Insufficient evidence has also been a major reason for the EACC closing most of its investigations. Perhaps lawyers should step up and be more involved in the evidence-gathering process in order to maintain the sanctity of a solid investigation.

The EACC finds itself trapped playing catch up rather than nipping corruption scandals in the bud. It is in the same position in its current form as that of its predecessors: the Kenya Anti-Corruption Authority and the Kenya Anti-Corruption Commission – a position which ultimately led to their dissolution. The EACC has, however, recovered KES 9bn worth of assets in the last ten years and KES 600m in cash, including KES 51m from the British firm involved in the chicken gate scandal, with the cooperation of the UK government.

The prevalence of these large corruption schemes and scandals, even post 2010, points to a systemic failure in regulatory and governance structures and particularly the monitoring model, which is dependent on effective information flows, proper disclosure and the vigilance of gatekeepers. The individuals involved in such magnanimous extortion schemes are rational and well-informed. These individuals have discovered loopholes in the law through which they have manipulated existing regulatory structures to perpetrate the looting of coffers.

There is widespread consensus that Kenya has some of the best regulation in the world for dealing with such corruption schemes, as is evidenced in the Constitution. However, the regulatory failure stems from a lack of enforcement of the enacted regulations. The paradox is demonstrated by the country’s high rating on the global corruption index. The institutions tasked with curbing and tackling the corruption menace have both been diluted and rendered ineffective, or have been infiltrated and compromised by the propagators of the economic crimes. Accountability has been relegated and is presently a non-issue in many transactions.

Corporate governance, both in government and the private sector, has been disparaged and is viewed as merely a procedure for the satisfaction of minimum regulatory thresholds.

The need for change

Corporate governance is progressively becoming a global force, with a push for more transparency and accountability of systems and institutions gaining traction internationally. Companies continue to expand and operate in multiple jurisdictions. As such, companies promote and develop good practice and system development in their home markets, and they replicate their values to other markets in which they operate. This, in turn, integrates the cultures and governance systems across different jurisdictions.

Kenya cannot lag behind because of poor enforcement systems and risk cementing its place as a global player. The strength and quality of Kenyan legislation has been created to curb the menace of structural manipulation, and must be mirrored in the deterrence of unscrupulous exploitation of the economy and the enforcement of prosecution for wrongdoers.

Further, the globalisation of technology means that it is easier to communicate and information travels wider and faster. If Kenya remains unaltered in the face of the changing tides, it is likely to lose out on the available opportunities to grow its economy.

Among other things, one of the strategies that should be adopted towards bolstering the weak enforcement structures in Kenya is the adoption of a multiple oversight and complementary enforcement structure involving a broad system of checks and balances.

The role of lawyers

Lawyers are expert technicians who are trained and knowledgeable in the law. When this expertise is coupled with experience, lawyers are able to offer wise counsel and the benefit of their judgement in the solving of legal challenges. Members of the legal profession have a responsibility to safeguard and abide by their countries’ constitutions, just as every other citizen does.

In the words of author Dr Orison Marden, the lawyer is a ‘responsible professional and public citizen’.[12] If anything, lawyers have independent professional responsibilities and are expected to conduct all of their affairs (including those of being a citizen) with reference to the standards of professional conduct by which they swore to abide.

Paradigm shift

Lawyers have traditionally been relied upon to provide technical advice on legal issues. However, there is a paradigm shift in terms of what the role of a lawyer should be. It is now universally accepted that the days of narrowly-couched legal advice should come to an end. The roles and obligations of the legal profession lay testament to this fact.

In today’s world, the modern lawyer has a responsibility to counsel clients beyond the strictly legal challenges, and provide advice about practical considerations, likely public perceptions and reactions, and generally about doing the ‘right thing’. In addition to their clients, lawyers owe duties to multiple other stakeholders including the legal profession, the rule of law and society as a whole.

Legal practitioners must not sit back and adopt a defeatist attitude to the goings on in their countries’ socio-economic and political landscapes. Lawyers have expanded their roles from the traditional duels in court and must not overlook their obligations towards addressing the governance problems in their own countries.

Good governance

The law and the just dispensation of justice form the solid foundation on which good governance can be introduced and sustained. Good governance means a people-oriented, people-monitored and people-introduced style of governance. A political constitution makes it possible and supports the duty of the citizens taking charge and playing an active role in the governance system. Lawyers owe it to themselves and to others to ensure that the law reigns supreme in a land that belongs to everyone and that justice is meted out to all.

In volume III of his book Towards one world: The memoirs of Judge Weeramantry,[13] the former judge and Vice President of the International Court of Justice notes, ‘No one knows better than the lawyers, the defects and loopholes in legal systems, through which injustice overcomes justice. Their collective experience in this field is vast, but this pool of experience lies untapped. There should be committees of the bar entrusted with overlooking these areas and bringing them to the notice of legislative authority and the general public.’

The potential of lawyers to offer the benefit of their vast experience and critical judgment should be exploited for the sake of safeguarding national values. In particular, a case is made for large law firms to begin this revolution. This stems from their position as interlocutors with government and the likely continuous growth in their range of practice areas. Further, large law firms have influence in setting the norms for the role of lawyers due to their training of counsellors and leaders in society, as well as their standing in the public’s perception of the law.

What are other countries doing?

The United States came to the realisation that lawyers ought to be active participants in corporate governance processes more than a decade ago. To spur the active role of legal professionals, Congress passed the Sarbanes-Oxley Act of 2002 (SOX), which was intended to protect investors from the possibility of fraudulent accounting activities by corporations. Section 307 of the SOX Act requires the Securities and Exchange Commission to prescribe minimum standards of professional conduct for lawyers appearing and practicing before the Commission when representing clients. The standards include a rule requiring an attorney to report evidence of a material violation of securities laws or breach of fiduciary duty, or any similar violation by a client’s senior employees, for example from the chief legal counsel or the chief executive officer of the company (or the equivalent thereof). Moreover, if they do not respond appropriately to the evidence, the standards require the attorney to report the evidence to the audit committee, another committee of independent directors, or the full board of directors.

The American model adopts a compulsory, regulation-based approach towards lawyer involvement in curbing corrupt and fraudulent activities within companies and corporate institutions. They are further limited in scope to an attorney-client relationship. The section also goes against the conventional rule of confidentiality between advocates and clients; it allows the attorney to reveal confidential information related to his or her representation to the extent that the attorney reasonably believes necessary to: prevent that client from committing material violations likely to cause substantial financial injury to any economic interests of the company or investors; to prevent the company from committing illegal acts; and to rectify the consequences of illegal acts in which the attorney’s services have been used.

Japan

In Japan the progressive growth of the legal profession has necessitated the expansion of the provision of legal services in novel areas of practice. It has been proposed that the expansion of the scope of these legal services should change from informal ‘administrative guidance’ to a rule-based form of administration in which businesses consult lawyers rather than bureaucrats for advice on permissibility of products and their actions.

This progressive shift comes in the context of weak bureaucracies. In his article, ‘The Paradox of Weak Power and Strong Authority in the Japanese State’[14] John O Haley puts it as such: ‘State actors in Japan have generally not had the capacity to develop and direct policy or, more importantly, to compel compliance for its implementation typically enjoyed by either Japan’s East Asian neighbors or its American and European peers.’

Kenya

Kenya finds itself in a similar quagmire with Japan: state regulators have been unable to enforce compliance with compulsory standards and laws, therefore necessitating the involvement of players such as legal practitioners to plug the gap.

In response to recent corporate scandals, many commentators have suggested that the US regulatory system is too focused on rules rather than principles. Kenya risks heading in the same direction where statute books are saturated with regulations aimed at curbing fraud and corruption, but lack the necessary monitoring and enforcement mechanisms. In this sense, lawyers are best placed to assist in promoting good governance and accountability.

The law as an instrument of service

In the words of Judge Christopher Weeramantry, ‘This work is a plea to lawyers individually and to legal professions as repositories of their exalted vocation, to shed this attitude of insularity, and to see the law as the most far ranging instrument of service available to society for the advancement of happiness and justice.’[15]

Lawyers should adopt a broader scope of the law which includes ethics, reputation and geopolitical risk, and should function as experts, counsellors and leaders. Lawyers should aspire to be responsible professional and public citizens, who are the first to ask, ‘is it legal?’ and ultimately, ‘is it right?’.



[11] Ethics and Anti-Corruption Commission, ‘Report on Achievements in the Fight Against Corruption’, 18th October 2016 (presented during the National Governance and Accountability Summit held at State House, Nairobi).

[12] Robert MacCrate, ‘Preserving the Marden Legacy: Professional Responsibility in the Twenty-First Century’, 48 A.B. Rec. 948, 949 (1993).

[13] C G Weeramantry, Towards One World: The Memoirs of Judge C. G. Weeramantry, Volume III: The International Court and Thereafter, (Stamford Lake Publication, 2014).

[14] John O Haley, ‘The paradox of weak power and strong authority in the Japanese state’ in Revisiting the Asian State: Asian states beyond the developmental perspective (Routledge Curzon, 2005) 67-82.

[15] See n13, above.

 

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