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RR RUEHWEB

DE RUEHNR #2754/01 1861329
ZNR UUUUU ZZH
R 051329Z JUL 07
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC 0814
INFO RUEHAR/AMEMBASSY ACCRA 0908
RUEHDS/AMEMBASSY ADDIS ABABA 9407
RUEHAE/AMEMBASSY ASMARA 4967
RUEHJB/AMEMBASSY BUJUMBURA 0167
RUEHEG/AMEMBASSY CAIRO 3947
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RUEHKH/AMEMBASSY KHARTOUM 1283
RUEHLGB/AMEMBASSY KIGALI 4858
RUEHLO/AMEMBASSY LONDON 2320
RUEHSA/AMEMBASSY PRETORIA 8860
RUEHFR/AMEMBASSY PARIS 2258
RUEHRO/AMEMBASSY ROME 5173
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAWJA/DEPT OF JUSTICE WASHDC

UNCLAS NAIROBI 002754 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR AF/E, AF/EPS, EB/ESC/TFS, AND S/CT 
 
TREASURY FOR VIRGINIA BRANDON AND FINCEN 
 
JUSTICE FOR AFMLS DE KLUIVER, OIA, OPDAT 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN PGOV EINV KCOR KCRM PINR KE
SUBJECT: CENTRAL BANK OF KENYA GOVERNOR REPUTEDLY UNDER 
POLITICAL PRESSURE FOR STANDING FIRM AGAINST CHARTERHOUSE 
 
REFS: (A) NAIROBI 1185  (B) NAIROBI 1026 
 
      (C) 06 NAIROBI 4469 NOTAL 
 
¶1.  (U) Sensitive but Unclassified.  Please protect 
accordingly.  For USG use only. 
 
¶2.  (SBU) Summary: Former Central Bank of Kenya (CBK) Bank 
Supervision Director Gerald Arita Nyaoma suggested to 
Economic Specialist on June 29 that he fears that President 
Mwai Kibaki and the State House are attempting to sideline 
recently appointed CBK Governor Njuguna Ndung?u (ref B) for 
standing firm against unsavory private banks such as 
Charterhouse Bank (ref A).  He cited as particularly 
worrisome proposed amendments to the Central Bank of Kenya 
Act to provide for the presidential appointment of the 
Chairman of the Board of the Directors, a position 
traditionally held by the Governor.  In Nyaoma?s 
estimation, these amendments, if adopted, would open 
avenues for political manipulation of this key institution. 
End summary. 
 
--------------------------------- 
CBK Governor makes His First Move 
--------------------------------- 
 
¶3.  (SBU) Appointed in March 2007, Central Bank of Kenya 
(CBK) Governor Njuguna Ndung?u (ref B) made his first 
personnel changes in late June when he transferred Gerald 
Arita Nyaoma from his position as the director of Banking 
Supervision to the helm of a bigger National Payments 
Systems, External Payments and Reserve Management 
Department.  As Nyaoma explained to Economic Specialist on 
June 29, his transfer ostensibly is intended to have him 
assume responsibilities as the director of a larger, more 
varied department.  However, Nyaoma feels his transfer may 
have less to do with his abilities than with his efforts to 
close shady private banks, in particular the notorious 
Charterhouse Bank (refs A,C), which was shut down last 
December for engaging in money laundering and tax evasion. 
Nyaoma contended Kenyans with a financial stake in 
Charterhouse are waging a media campaign against the CBK 
claiming it unjustly closed the bank, while behind the 
scenes they are putting political pressure on Ndung?u to 
sideline Nyaoma and other CBK officials committed to 
cleaning up Kenya?s financial sector.  He alleged demands 
were made on Ndung?u to have him removed from the Banking 
Supervision Department.  (Note: Nyaoma is scheduled to 
attend the Federal Reserve?s Anti-Money Laundering 
Examination Seminar to be held August 27-31, 2007 in 
Chicago, Illinois with other two senior officers from 
Banking Supervision Department.  End Note.) 
 
-------------------------- 
A Career Banker takes over 
-------------------------- 
 
¶4.  (U) In Nyaoma?s stead, Governor Ndung?u promoted Rose 
Alex Detho as Bank Supervision director on June 12.  A 
career banker, credited for liquidating errant banks, Ms. 
Detho was previously assistant director in the same 
department and has served on several occasions as the CBK- 
appointed ?statutory manager? for distressed financial 
institutions.  Since joining the Central Bank in August 
1988, Detho has worked as a bank examiner and financial 
analyst in the Bank Supervision Department.  Her new role 
 
is to regulate and supervise the banking sector with 
the core objective of fostering the liquidity, solvency and 
proper functioning of a stable market-based financial 
system.  She has served at the Kenya Deposit Protection 
Fund Board in her capacity as Liquidation Agent of a number 
of failed institutions.   She once deputized the Receiver, 
Grand Regency Hotel, which was under the receivership of 
CBK.  The 47-year old banker holds an MBA and Bachelor of 
Commerce from the University of Nairobi. 
 
¶5.  (SBU) Detho has been in the process of winding up 
Charterhouse Bank, i.e., paying the depositors in 
accordance with the Deposit Protection Act.  Upon her 
appointment, Nyaoma alleged that Charterhouse Bank members 
started sending threatening messages to her phone. 
According to Nyaoma, Detho had to record a statement with 
the Nairobi Criminal Investigations Department (CID). 
Although no action has yet been taken, the police are aware 
of the threats, which Nyaoma asserted are intended to arm- 
twist CBK to have Charterhouse Bank re-opened.  Aside from 
these threats against Detho, Nyaoma argued that 
Charterhouse Bank associates are behind an effort to amend 
the Central Bank of Kenya Act.  He took exception to 
proposed amendments to the Act which would provide for the 
presidential appointment of the Chairman of the Board of 
the Directors, a position traditionally held by the 
Governor.  Nyaoma was adamant that the proposed amendment 
of the CBK Act to provide for a political appointee at the 
helm of CBK as its Chairman of the Board of Directors would 
compromise the autonomy of the Bank.  He posed a question 
?what happens if CBK wants to close a bank and the Chairman 
feels otherwise like in the Charterhouse Bank case where 
Finance Minister Amos Kimunya felt the Bank should not be 
closed??  Last year, Minister Kimunya attempted to wrestle 
powers from CBK by making a similar proposal but it was not 
passed by the Kenyan Parliament. Other proposals include 
creation of a second office of Deputy Governor although no 
specific duties are assigned to the new office. 
 
------- 
Comment 
------- 
 
¶6.  (SBU) The personnel changes made by CBK Governor 
Ndung?u appear well intentioned but the timing is wanting. 
It is not clear whether the Governor is succumbing to the 
whims of certain political elites beholden to Charterhouse 
Bank, although he has repeatedly informed the Econ office 
that he would quit should politicians try to manipulate his 
work.  We will continue to monitor developments at the 
institution which is at the heart of Kenya?s economic 
development, especially during this election year as 
politicians are bound to try to exert pressure on the 
institution.  End comment. 
 
Ranneberger