The Big Man Syndrome in the Justice System: Have We Lost the War Against White Collar and Corporate Crime in Kenya?

Abstract

Kenya as a country has a reputation of being a haven of white collar crime involving both the public and private sector. What is conspicuous about this trend is that chief masterminds behind these offences never get charged and even if they do, they always get acquitted. On the contrary it is the so called ‘small fish’ who are the mere foot soldiers that end up facing the full wrath of the system. This trend has left the justice system with stains of double standards and incompetence.

This paper will analyze how the Kenya has dealt with white collar crime and the effect of this trend on the entire criminal justice system. It is divided into four major parts. First part shall deal with background information on white collar crime as independent area of law. The second part shall address the history of white collar crime in Kenya and how the justice system has fallen short in dealing with it. The third part shall give a comparison with the USA and how their system handles such offences. The final part shall address the recommendations on addressing these matters.

1.0 INTRODUCTION 1.1 HISTORY OF WHITE COLLAR AND CORPORATE CRIME For a long time white collar crime and corporate (hereinafter WCCC) did not exist as distinct area of law. This line of thinking was based on two reasons. First the term criminal was associated with the usual everyday offences such as burglary, pick pocketing, theft, robbery and mugging. Secondly, most of the high end people were considered noble and disciplined and could never engaged in crime.

This trend changed in the US with the rise of the ‘robber barons’. This was a group of wealthy individuals who controlled vital sectors the economy. The prominent members were John D. Rockefeller (oil), Andrew Carnegie (steel), Cornelius Vanderbilt (railroad) and J.P. Morgan (finance). They engaged in anti competitive behavior that gave them a monopoly of the entire economy.

Secondly, the 1930’s and 1940’s marked the rise of the mobsters such as Al Capone. These individuals were mostly associated with Italian and Irish mobs. They were suspected to be involved in organized crime and money laundering for drugs, prostitution, gambling, counterfeit goods, smuggling and extortion rings.

Due to these events, Professor Edwin Sutherland coined the term ‘white collar crime.’ He defined it as a crime committed by a person of respectability and high social status in the course of his occupation. According to Sutherland, these were people were special because of four characteristics;

1.1.1 The anonymity of their criminal background When dealing with suspects, one of the issues considered is the criminal background. The ordinary criminal is presumed to have a rough background such as poor upbringing or inhumane treatment, abuse and neglect. However, when it comes to White collar criminals most suspects have proper all round life that includes; good family life, quality education and enviable jobs/businesses. This makes it difficult to establish the origin of their criminal intent.

1.1.2 The factor of poverty Most sociologists attribute poverty as a factor that pushes people into the crime. On the contrary, white collar suspects are the exact anti thesis of this theory. This is because most of them commit these offences when they are well established members of the society. Therefore poverty is not a motive. In some instances, the benefits from their actions is outweighs their achievements such as wealth, power, family, fame/reputation and freedom. As such the big question is “for such a person, was committing the crime worth it”?

An example is Raja Gupta in the US. He was a respected financial advisor and corporate brain trust whose clients included Presidents and powerful business executives. His reputation was priceless and an envy of many. In addition, he had made close to $100 million (Kshs. 8.4 billion) in his decorated career. However, all this went up in smoke when he was charged, convicted and sentenced two years imprisonment for insider trading involving a transaction carried out by a business partner involving a few million dollars.

1.1.3 They never get charged and if they do, they always get acquitted. The suspects in WCCC fall in broad category encompassing business, crime and politics. This gives them lot of privileges before the law. When tried, these individuals may use common tactic such as hiring top notch lawyers or bribe their way to freedom. In the alternative, they utilize the specific influence within their control. For example a corporate/business person will use bribes and gifts, a politician will use power and influence while a mobster will use threats and blackmail. This makes it difficult to prosecute these individuals.

1.1.4 The peculiar nature of their offence. The word crime paints a picture of a violent act. But when dealing with WCCC their crime is the exact opposite. Sutherland states an example of the year 1936 when a clerk at a retail store stole $600,000 within a period of one year. This amount was equivalent to what 500 burglars and robbers could have stolen within the same period. A survey carried out in Switzerland showed the monetary ratio between a street criminal to a white collar criminal is $35 to $621,000 respectively (for every $1(Kshs 85) stolen by street criminal a WCCC has $17,000 (Kshs. 1.45 million) ).

Secondly, they occupy vital positions in the society making it difficult to unmask masks their identity as offenders.

Third, WCCC occurs in grey areas between crime and profession/business. For example the Black Wednesday scandal involving billionaire hedge fund manager George Soros. On the 16th September 1992 Britain withdrew the sterling pound from the European Exchange Rate Mechanism (EERM). Together with other currency traders, he hoarded the Sterling pound. As a result the shortage, Mr Soros made a record $1 billion in a day (earning him the title ‘The man who broke the Bank of England’). This is was a dilemma because it was normal currency transaction that resulted in economic losses, therefore no charges could be leveled against them.

1.1.5 The psychological paradox behind their crimes WCCC suspects do not exhibit a specific type of mindset when committing such offences. . They cannot be classified as psychopaths, sociopaths, sadists or narcissists. This gap makes it difficult to establish their state of mind when committing these offences.

In most cases it was assumed to be the greed for money, but there may be other reasons. First is self preservation. Sutherland gives an example of the ‘rules of the game in the business world’. A businessman who wants to play fair will find it difficult to survive in such an environment. Take the case of procurement for contracts in Government or private sector. The unwritten rule is either to ‘oil hands’ (bribe) or ‘know someone on the inside’ (use connections). So for such an individual it was the environment that forced to him to bribe.

Second, is the economic theory. This school of thought believes that society places too much emphasis on material possession. This is why top ranked Forbes billionaires such as Carlos Slim, Warren Buffet and Mark Zuckerbug who live a frugal way of life is considered stingy. Therefore, the rich are expected to subscribe to a certain lifestyle such as leafy suburbs, private jets/personal choppers, expensive vehicles, designer clothes, expensive jewellery etc. As such, some people will engage in WCCC so as to be considered affluent.

Here in Kenya, the public has a culture of pursuing politicians or Waheshimiwa (Swahili for Honourable) as they are known for financial assistance since they are presumed to be powerful and wealthy. In most instances, this is false, and as a result such they increase their income through dubious such as embezzlement of Constituency Development Fund (CDF) and demanding hefty allowances so as to sustain this lifestyle.

Third, is general theory which states WCCC is an addiction. All it takes is one successful e.g. insider trading and money laundering. These actions make quick money and such actors cannot contemplate life in the real world where one has to work extra hard to make an average income.

1.2 SUB SECTORS OF WHITE COLLAR AND CORPORATE CRIME WCCC is made up of the following sub sectors:

Bribery - this is where one gives/accepts gifts so as to grant favour to the giver.

Graft (embezzlement) - this is where a person diverts money from the employer.

Tax evasion - this occurs when an individual avoids to pay taxes from the income. Accounting fraud - means the act of altering the books of account so as to avoid showing the true events on the ground.

Insider trading - this is the act of high profile members of a company use privy information so for their financial advantage in the markets.

Money laundering - is where money gained from illegal activities such as drugs, human trafficking, prostitution, ransoms etc is invested as genuine businesses so as to appear legitimate.

Ponzi schemes - these are complex ‘investment’ systems where the founder recruits people to put money in the scheme with the promise of good returns. In reality, the older investors are paid off with the money obtained from the new investors a case which is subsequently replicated. Its existence relies on the subsequent recruitment of new members.

Product price manipulation - this is happens in the financial markets where rogue traders alter the prices of products such as equities, bonds, currencies and commodities so as to make a profit.

Anti Trust/Monopolies - this occurs when principal businesses acts to drive out competition so as to dominate the market.

2.0 THE PLACE OF WHITE COLLAR CRIME IN KENYA As earlier stated Kenya has played hosts to various acts of WCCC. However, the conspicuous nature of WCCC in Kenya is majorly political involving the Government.

2.1 CORRUPTION This is the most common type of WCCC in Kenya. Infact, the 2013 Transparency International Corruption Index, placed Kenya at number twenty seven (27) in terms of corruption. There are three types of corrupt practices in Kenya. First, those that purely involve the Government departments. Examples include free primary education and Kazi kwa vijana (KKV) scandals. Secondly, which is the most common there are those that intersect between Government and private sector. Examples include Goldenberg, Anglo leasing, Triton, Grand Regency, Euro bank, and Rift Valley Railways procurement. Third, there are those that purely deal with activities within the private sector/parastatal. Examples include banking crisis of the 1990’s that led to collapse of many banks such as Trust Bank, Post bank, KCB, Cooperative, National Bank, KCC, KMC, KBS etc.

Corrupt dealings involving the Government are prohibited under part V of the Anti corruption and economic crimes Act (hereinafter the anti corruption Act).

2.1.1 Legal Approach to Corruption in Kenya 2.1.1.1 Special Courts It was passed in the year 2003 by the NARC Government as a means of enforcing zero tolerance on corruption. Among its salient features include; appointment of special magistrates, establishment of Kenya Anti Corruption Commission (now the Ethics and Anti Corruption Commission).

2.1.1.2 Anti corruption agencies This is done where the Government creates an independent agency within itself to fight graft. This system was considered effective because the agency will have unlimited access to Government resources such as funds, police and judiciary. The first body to be set up was the Kenya Anti Corruption Authority (KACA). However, its existence was short lived when it was disbanded by the Constitutional court after the case of Stephen Mwai Gacengo and another v Republic.

In 2003, the NARC Government established the Kenya Anti Corruption Commission (KACC) to take over from KACA. However, KACC has not lived to its expectation because of two major reasons. First, it lacks prosecutorial powers. Secondly, it was always involved in tug of war with the Attorney General on the viability of prosecuting some cases thereby losing its credibility.

After the promulgation of the new constitution in 2010, KACC evolved to Ethics and Anti Corruption Commission (EACC). Even with the rebranding the body could not escape controversy when the credibility of the new head Professor Mumo Matemu to question. However, the same was later settled and he assumed office.

2.1.1.3 Commissions of Inquiries A commission of inquiry (hereinafter COI) is a body that is set up to investigate into a specific matter and recommend appropriate actions to be taken. In Kenya, it is established under Commission of Inquiry Act. The members to the body are appointed by the President and after their term, they are expected to present their report to him. The use of COI has been the approach used by the Government when dealing mega scandals that have major political ramifications. Examples include The COI into the Goldenberg Affair and the questionable sale of Grand Regency Hotel. However, this approach has several shortcomings. First, a COI is not a constitutional body; as such it has no place in the criminal justice system. Therefore, most of their reports are never implemented. Secondly, commissions of inquiry have always been criticized as a mere waste of time and public resources. This is because since time immemorial most of their reports have never been implemented.

2.1.2 Challenges facing the fights against Corruption in Kenya. 2.1.2.3 Executive Challenges The executive is the most powerful and influential organ in Government. Therefore, for there to be a full scale war on graft then there must be executive good will. However, this is not the case in Kenya where successive regimes have tolerated corruption. This is because these dealings involve state officials and their allies in private sector. Who manipulate outsmart the system.

The trend is set by senior Government officials who eluding political responsibility when their departments are involved in corruption. The drill has always been ‘stepping aside to allow investigations’ afterwhich there will be re-appointment in another department.

2.1.2.4 Judicial Challenges They emanate from judicial decisions that impede to the war on graft. The worst hit was the report by the judicial commission of inquiry into the Goldenberg scandal which was systematically mutilated by a series of judicial review proceedings. In the cases of Republic v Judicial of Inquiry into the Goldenberg Commission ex parte George Saitoti and Republic v Judicial of Inquiry into the Goldenberg Commission ex parte Eric Kotut the High Court granted orders of certiorari to quash the respondents report and orders of prohibition against the Attorney General from preffering charges against them. The basis of the certiorari was the numerous errors of fact in the report that prejudiced the applicant’s right to a fair trial. The prohibition was granted because should the AG initiated the charges 15 years after the Goldenberg scandal, would be breach the Githunguri principle. However, in the case of Wilfred Karuga Koinange v Commission of Inquiry into the Goldenberg Affair the same High Court departed from this line of reasoning. The applicant had sought leave to file JR against the respondent, however the same was denied because he failed to demonstrate a prima facie case that would warrant JR intervention. These inconsistencies have left Kenyans with the mindset that the judiciary is scared of taking on high profile suspects, thereby encouraging corruption.

2.1.3 The position after the 2010. After the promulgation of the new constitution, it was expected that this document would assist in cleaning the system. This is because of Chapter 6 on Integrity and ethics was meant to weed out corrupt persons with from public office. This expectation was further boosted in 2012 in the case of Republic v Rebecca Nabutola, Ongo’nga Ac.

Keywords: White, Collar, Crime, Kenya