ALEX BLUMBERG, HOST:
So, Julia, before we even begin - where are you right now?
JULIA SIMON, HOST:
Well, I'm in Nairobi, Kenya. And I'm standing in front of this huge billboard. It's kind of bright blue. And there's this guy on it. He has a little mustache. He's an Indian, Kenyan guy. And on his billboard it says when men of God are in authority, the people rejoice. And then in big parentheses it says, Brother Paul and then his real name up top, Kamlesh Pattni.
BLUMBERG: And this billboard, it's pretty big?
SIMON: Yeah, it's like two stories tall. You can't miss it.
BLUMBERG: And - so this guy on the billboard, Kamlesh Pattni, he has a history.
SIMON: Yeah. He definitely has a history. We're talking about him because he ran one of the biggest, if not the biggest financial scams in Kenya's history. And his scam singlehandedly kicked off the country's worst bout of inflation in the triple digits, destroyed the country's credibility with creditors and essentially doubled Kenya's national debt.
BLUMBERG: This one guy was (laughter) responsible for all of that?
SIMON: Well, he set it all in motion. He had help. But, yeah, he has a lot of chutzpah, this guy. And I didn't mention the most amazing part. His scam ended up costing the country about 100 billion Kenyan shillings, which was at the time about 10 percent of the country's GDP.
BLUMBERG: 10 percent of the country's GDP. If we put that in U.S. terms, it's like if Bernie Madoff had lost not just a couple of tens of billions but $1.5 trillion.
SIMON: Yeah, it's crazy.
BLUMBERG: So it does seem odd that there is a building-size picture of his face on a billboard (laughter) along the freeway in Kenya.
SIMON: Yeah. This is very odd. You see his face everywhere. Not only was this guy not arrested, today it's voting day here in Kenya. They're voting for the president. They're voting for parliament. And Kamlesh Pattni, the guy on the poster, is running for a seat in parliament. When all is said and done, tomorrow he could be one of the country's elected representatives.
BLUMBERG: And that seems like a perfect place for us to introduce the show today, Julia.
Hello. And welcome to PLANET MONEY. I'm Alex Blumberg.
SIMON: And I'm Julia Simon, a reporter here in Kenya. Today on the program, how Kamlesh Pattni managed to avoid prison and rebrand himself as a man of God.
BLUMBERG: And the details of how he managed to pull off one of the largest financial scams in Kenyan history.
(SOUNDBITE OF SONG, "KIGEUGEU")
JAGUAR: (Singing in foreign language)
BLUMBERG: So, Julia, the story that we're telling today, the story of Kamlesh Pattni, it involves many people. It involves Pattni himself. It involves a Kenyan government that was riddled with corruption. It involves a lonely whistleblower. And it involves some pretty elaborate games involving banks and monetary policy.
SIMON: It started with a crisis. Kenya had always gotten by with loans from the Western world. Kenya was one of the West's only allies in Africa. But then the Berlin Wall came down. And Kenya just wasn't as important. And the loans stopped.
PETER WARUTERE: So $350 million, which the government was expecting as part of the budget was not there.
BLUMBERG: This is Peter Warutere. He's an economist in Nairobi. And notice he says dollars. This is important. Kenya of course has its own currency, Kenyan shillings. But to buy the stuff they needed from the rest of the world, things like gas and toothpaste, they needed dollars and other foreign money.
SIMON: One way to get dollars is sell stuff that the rest of the world wants to buy. So in the early '90s, the Kenyan government put this policy in place. If you were a Kenyan export business, for every $100 of foreign money you brought into the country, the government would give you an additional $20 worth of Kenyan shillings.
BLUMBERG: A huge incentive. A 20 percent bonus for every export. That's how desperate the government was for foreign money.
And this is where the guy on the billboard, Kamlesh Pattni, enters our story. Terry Ryan worked in the Kenyan Ministry of Finance at the time. And he remembers his boss, the Minister of Finance calling him into his office and saying...
TERRY RYAN: We have a proposal here for a way of solving the foreign exchange. Could you give an opinion?
SIMON: The proposal came from the man on the poster, Kamlesh Pattni, who was at the time a very charming businessman in his mid-20s.
BLUMBERG: His family was originally from India. But they'd been living in Kenya for generations. And they were jewelers. And Pattni claimed to the Kenyan government he was starting a new company, a gold and diamond export company which was named Goldenberg.
SIMON: Just the kind of thing the Kenyan government was looking for, a higher value export than the traditional Kenyan exports like tea and coffee. And - so the Kenyan government cut a deal with Goldenberg, an even sweeter deal than the 20 percent incentive that they were giving to other exporters.
BLUMBERG: Goldenberg would get 35 percent. Pattni in a letter promised that Goldenberg would give the Kenyan government $50 million a year. So in 1990, the Kenyan government signed the deal. And Goldenberg was up and running.
MICHELA WRONG: The trouble is that as far as I'm aware, Kenya didn't have any gold mines or gold industry.
SIMON: This is Michela Wrong. She's a British author who lived in Kenya for many years and has written about Goldenberg. She points out what many people who have looked at this scandal point out. This should have been the first clue. Something was wrong with Goldenberg. It was claiming to export something that did not exist in Kenya. But Terry Ryan in the finance ministry says we knew that. We just figured they were smuggling the gold in from somewhere else.
RYAN: Gold has been smuggled through Kenya from time immemorial. It comes mainly from DRC, which was at that time Zaire. And...
SIMON: Wait a second. So you always knew that Kenya didn't have gold. You were just...
RYAN: Oh, yes. Oh, yes. Oh, definitely (laughter). I mean, we knew that. That's (laughter) there was no question whatsoever.
SIMON: So how could the government have been willing to pay for gold that they knew was (laughter) smuggled?
RYAN: If you have no foreign exchange, I assure you, you will look for it wherever you can because the alternative of not having foreign exchange is not having petrol to run your motor cars, et cetera, et cetera.
BLUMBERG: So the Kenyan government accepts this plan that they know involves the smuggling of gold.
SIMON: But the problem is this imperfect, last-ditch plan was even more imperfect than they thought.
SIMON: There was an even smuggled gold. There was no gold.
Here's Peter Warutere. He's the Economist.
WARUTERE: There was nothing being exported. It was just doing paperwork, just by filling the paperwork and insuring that all the authorities that were supposed to verify that these goods were exported, you know, stamped the papers. All they required were the stamps on the papers without exporting anything.
BLUMBERG: So this is obviously crazy. You've (laughter) got this company selling non-existent gold for non-existent dollars and taking a very real bonus from the government. And all Pattni needed to do was get a couple of people in some government office to stamp some papers for him. There had to be other people in on the scam, people in the government.
SIMON: Yeah. In fact, to this day we don't know how many. We do know the guy who co-owned Goldenberg with Pattni was high up in the Kenyan government. He was the top cop, the head of the Kenyan security service. And he was a really scary guy. I mean, he could make you disappear and torture your family. So, yes, there was government involvement.
BLUMBERG: OK. So the government is playing along. But the banks are actually starting to get suspicious because not only was there no gold but there was no foreign money showing up in these banks accounts. Or if it did show up, it showed up in these really weird ways.
RYAN: For instance, they're saying, well, we've got - the foreign exchange has come. But it's in travelers checks. And it's in all - travelers checks for paying for gold? - that doesn't sound right.
BLUMBERG: And this is the point where the scam is teetering on the brink of being discovered. And this is also the point where a normal person might have conceded that the jig was up, given up, gotten out but not Kamlesh Pattni. He decides to go even bigger.
RYAN: Pattni then says, well, because of all the complications of this, the best thing to do is - if I had my own bank, that would then solve the problem.
SIMON: It definitely solved Pattni's problem. But once the Kenyan government actually fulfilled his request and gave me a license to start his own bank, that is where the real mischief starts.
WARUTERE: They had the biggest scandal actually happened when he started the bank. When they started the bank, they started going to mega scandals.
BLUMBERG: Mega scandals - you give a demonstrated scam artist his own bank, he can do a lot of damage. The original Goldenberg scandal made money off of fake gold. But once Pattni had his own bank, he could make money off of fake money.
SIMON: And Pattni and his new banking embarked on a lot of new scams. There was writing fake checks. He was financing a hotel development with fake money. But one of the biggest and most damaging scams was one he ran involving Kenyan Treasury bills. Kenya at this time had massive inflation, in part because the Kenyan government was having to print real money to pay for all the fake gold Pattni claimed to be exporting.
BLUMBERG: But regardless, because of inflation, government Treasury bills were paying a huge interest rate.
RYAN: Nobody's going to believe this. But we were actually paying 83 percent on a 91-day bill - Treasury bill.
SIMON: We checked. It's actually 82 percent. But, still, you get the idea - 82 percent on a three-month Treasury bill. To compare, a three-month U.S. Treasury is paying .07 percent, Kenya, 82 percent. You could almost double your money in three months.
BLUMBERG: And if you have your own bank, this situation with high inflation is a perfect opportunity to run a big scam, which Pattni did. And here's how it would work.
He would say to the Kenyan government, hey, I just put a bunch of U.S. dollars in your bank account in New York City or London or wherever. And I'd like to exchange those dollars for Kenyan shillings. Now, don't worry, Kenyan government. You'll be getting the paperwork in a few weeks. But I would like my shillings now.
SIMON: The Kenyan government says, sure. So he's just turned fake dollars into real schillings. He uses the shillings to buy real Kenyan treasuries.
BLUMBERG: Real Kenyan treasuries, which, remember, are paying 82 percent in three months.
SIMON: And - so three months later, he's nearly doubled the money. And during this time someone in the government says, hey, those dollars that you deposited, they never arrived. You've got to pay back those shillings we gave you plus a 3 percent penalty.
BLUMBERG: So Pattni says, oh, I'm so sorry. Absolutely. Here's the original money plus the 3 percent penalty. But, remember, during this time Pattni has made 82 percent. So he pockets the entire difference.
SIMON: And he didn't have to spend a dime.
BLUMBERG: The Kenyan government it's estimated gave Pattni's bank hundreds of millions of Kenyan shillings in the scam, the equivalent of tens of millions of U.S. dollars, money Pattni pocketed without spending one real cent. It was all from moving money around. And it might have been more if it weren't for one guy, one guy who caught wind of what was going on, our whistleblower.
SIMON: His name was David Munyakei. Author Michela Wrong met David Munyakei in late 2005. And he told her about how he started working at the Central Bank of Kenya.
WRONG: What had happened is he had joined the central bank as a young man, a fairly lowly job, a clerk and had found himself processing a lot of these forms that were granting expert compensation to firms that was supposed to be shipping gold abroad.
BLUMBERG: So in that very first scam, the one with the fake gold, Munyakei was the guy who was processing the paperwork that was paying Goldenberg their 35 percent bonus.
SIMON: Yeah, that was him.
WRONG: He began to notice that all the forms were identical. He was actually processing the same forms. The entries had been tippexed over very crudely.
WRONG: What's tippex?
WRONG: Oh, tippex is whitener. So whitener had been used to change the numbers. But essentially these were the same forms. And - so he's processing forms which involved billions of shillings in payments. And the thing that made him very suspicious is he was being asked to go later at night, stay on. And it was all very hush-hush. And it was kind of like, don't talk to anyone about what we're doing here.
And I think he began to realize there was some massive scam going on and that he was a part of it. And that bothered him.
SIMON: So he reported it. Munyakei photocopied these documents as proof. And he brought them to the opposition political parties and the local newspapers. And they publicized this scam and that was the end of Goldenberg. Less than three years after he began, it was shut down in 1993.
BLUMBERG: But not without devastating the Kenyan government. The government lost so much money that the country was plunged into a recession. The national debt nearly doubled. And Professor Terry Ryan says that hit ordinary Kenyans. In the end, they're the ones who will pay for this.
RYAN: It affected the interest rates. It affected the tax rates. It affected all sorts of things. And the grandchildren are going to have to pay for them. Defaulting on debt is just bad. You - somebody's got to pay for it. Grandchildren (laughter) right? That is the dominant - the (unintelligible) residual bad. And that's still with us.
SIMON: All tolled, economists estimate that the total cost of the Kenyan economy is $1 billion.
BLUMBERG: U.S. dollars.
SIMON: Yeah. And when you see a graph of the Kenyan economy, you see this big dip in 1993. And that dip, that is Kamlesh Pattni.
BLUMBERG: But no one connected with the scandal was ever convicted, not Pattni, not any of his cronies. There were several trials. There was also a government commission, which produced a big report. But no one went to jail. No one got dragged away in handcuffs.
There was no Bernie Madoff moment where the country gets its revenge. Although, there was one guy who paid a price, David Munyakei, the whistleblower. For revealing the scam, for being the one guy to do his job...
WRONG: He was sacked. He lost his job. And then he began to get death threats, some of them from his former colleagues at the central bank who were saying, you better disappear. And that's what he did.
SIMON: He left town, changed his name, married a woman from the coast, pretty much laid low, eventually became a farmer in a poor dusty part of Kenya. And in 2006, he caught pneumonia. And he died. He was young, 38 and broke. And he left behind his wife and his three kids.
BLUMBERG: And that sadly is the lesson to any potential whistleblower. Exposing corruption, it does not end well.
(SOUNDBITE OF CHURCH SERVICE)
UNIDENTIFIED CHOIR: (Singing in foreign language).
SIMON: So this is the sound of a recent Sunday at Hope International Church. And there are thousands of people here in this big blue tent-like structure singing, clapping, little kids in their Sunday best. And up above all the congregants is this big poster of this guy with a mustache, the guy from the billboard.
BLUMBERG: Oh, wait. I know - Kamlesh Pattni.
SIMON: The man himself. This is his church. After the scandal he said he found God, converted to Christianity and built this place. I came looking for him. But he wasn't there that day I went. And I should say I spent a lot of time trying to talk to Pattni. I went through his political party, his assistants. I had interviews scheduled with him two separate times, once in his casino in Nairobi...
BLUMBERG: Wait. Wait. Casino?
SIMON: Oh, yeah. He has a bunch of casinos. He has a bunch of businesses. He is not a poor preacher. So, yeah, I went to the casino. He didn't show, another time at his office boardroom where there are photographs of him all over the walls with these different African leaders, including Moammar Gadhafi. And, again, I waited five hours that time. And he never showed.
BLUMBERG: Which is sort of surprising since this guy was also as we mentioned running for office for parliament. He must have had to answer some of these questions about this giant scam that sank the country at some point during his campaign, didn't he?
SIMON: He actually really didn't. I mean, there is this Kenyan TV interview. And you - if you watch it, you can see he didn't really directly answer the questions. He just says that a lot of the allegations are hearsay and that he feels like now as a Christian, his soul is clear. And people do seem to believe him, some people. I mean, I talked to this guy named Eric Wanambizi. He's an elementary school teacher. And he showed up at 3:30 in the morning on election day and waited five hours to cast his vote for Pattni.
ERIC WANAMBIZI: He is very much in touch with that person who is down, you know, down, down, down. He want to bring this person out of that Pete. And that is why my heart is overwhelmed. And I think he's one guy who does have this thing.
SIMON: Have you heard about this thing called Goldenberg? Have you heard of it?
WANAMBIZI: Of course. This is a scandal that was - it was alleged that Pattni was involved. But if it was a (unintelligible) case then the court would have found him guilty. He went through trial several times. And the court did not found any legal purpose to sue him.
SIMON: So you don't think he did anything wrong?
WANAMBIZI: Absolutely not. Pattni, he came up very clearly to face these guys and tell them - I did not.
SIMON: You hear this a lot. And a lot of people say, listen, the president at the time, Daniel arap Moi, he was the one who is really in charge. Pattni is just a scapegoat. Even if he did do some bad things in the past, that's not important. What is important is that he's changed. He's confessed his sins to God. And there's one other thing going on here. In that neighborhood where I met Eric Wanambizi, it's called Congemi. And it's a slum. I mean, many Kenyans are still very, very, very poor, living on a dollar a day or less. And Pattni, when Pattni was on the campaign trail, he would go and visit these people and hand out gifts - food, flour and even money says Eric Wanambizi.
WANAMBIZI: He does all for where I need to be - where I need to be. He's there for them. And he has also inshedded a program of even now paying some of those - paying rent some of them.
SIMON: Is that illegal?
WANAMBIZI: No. (Laughter) OK. OK. Competing according to the Constitution, it is illegal. The Constitution in the print has it as corruption, as if you are buying the vote.
SIMON: It is illegal.
WANAMBIZI: Yes. But Pattni, he does not buy you votes because he's a kind of a person who is ready to listen to your problem. If the problem touches his heart, he's ready to get in his pocket and help you according to your need but not to buy you a vote.
SIMON: The fact that voters like Eric Wanambizi look up to Pattni and want to vote for him, the fact that he's a pastor with a church with thousands of people, the fact that at Pattni's trial little kids went up to him to try to get his autograph, author Michela Wrong says it tells you a lot about modern Kenya.
WRONG: Pattni in many Kenyans eyes is a bit of a sort of scoundrel. But he's admired. He's widely admired for what he did. He's regarded as having pulled off something remarkable. And instead of being, you know (laughter) humiliated, an outcast by the society, he continues to thrive here.
SIMON: And when I talk about it with Kenyan friends, it really disappoints them to see Pattni up there on those huge posters. It makes them feel like all those messages they got as kids to work hard and that's how you'll be successful, that that's just a myth, that the guys who make it in Kenya are the schemers, the fraudsters, the thieves. These are the ones who are rewarded and these are the ones who win.
BLUMBERG: And this belief if it's pervasive enough can have serious economic consequences. In societies where corruption becomes endemic, it's hard for them to grow. Why should citizens work hard coming up with new products or inventing a great new business if none of that matters and the only way ahead is by cheating and bribery? And this is a tension you feel in Kenya today and lots of developing countries.
SIMON: And, yet, people do work hard and continue to have hope for Kenya. You have massive companies like Google and IBM setting up shop. You have the Kenyan economy, which except for a brief dip during the Goldenberg years has been growing at a pretty good clip for the last 15 years.
BLUMBERG: And you have this fact. The election for the Kenyan parliament is over. The results are still not final. But we do know this. Even with all his wealth and his popularity, Pattni did not win a seat in Parliament.
SIMON: No he didn't. And in the slums before the elections, when Pattni came around and gave out money there are plenty of people who took the money and then didn't vote for him because this one guy told me - that money he gave us, it's our money.
(SOUNDBITE OF SONG, "KIGEUGEU")
JAGUAR: (Singing in foreign language).
BLUMBERG: As always, we invite you to check us out online - planetmoney.com. Or you can write to us at firstname.lastname@example.org. I'm Alex Blumberg.
Julia, you want to take us out?
SIMON: Sure. And I'm Julia Simon. Thanks for listening.
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