How Kakuzi wanted to shut down media from covering transfer pricing probe

A week after Kakuzi management were summoned by the Capital Markets Authority, the listed agricultural exporter rushed to the markets tribunal to block the inquiry and gag the media from reporting.

Court tribunal documents show Kakuzi attempted to invoke section 13 (2) of the Capital Markets Act that barred the regulator from disclosing returns and information demanded during investigations to any person save for other regulators.

The tribunal chaired by Paul Lilan agreed to freeze the CMA inquiry and maintain status quo but declined to gag the media over coverage of Kakuzi insider dealings.

Kakuzi officials have been fighting to block transfer pricing probes for over three years after the regulator launched an inquiry that revealed a web of interconnected companies with shared ownership and directorship were trading among themselves in what seemed like a ploy to shift profits abroad.

Transfer pricing probe

The CMA probe centered on disclosures of contracts signed between Kakuzi and affiliates of its parent company UK based Camelia.

The regulator demanded to see contracts signed between Kakuzi and Robertson Bois Dickson Anderson (RBDA) and Eastern Produce Regional Services Limited as well as business dealings with Eastern Produce Kenya limited, Lintak, Linton and Siret tea.

The regulator was also probing a Sh696 million payment for human rights abuse as well as weak management and board structures.

The regulator demanded board papers, invoices of tea, macadamia and avocado, agreements and contracts as well as bank statements.

Kakuzi Management’s multiple roles

Mr Ketan Shah was questioned on his role as a finance director at Kakuzi yet at the same time overseeing the finance function of Camelia subsidiaries in Kenya including serving as an accountant at Eastern Produce Regional Services Limited and RBDA.

The UK company restructured RBDA in 2018 moving operations from the UK into a branch in Kenya when Kakuzi board signed a management deal with the company.

In 2021 the management contract was moved to another Camelia company Eastern Produce Regional Services Limited when the UK Company sought to restructure the technical knowhow and marketing contract to a locally incorporated company.

Conflict of interest

Mr Shah said that although he worked for both Kakuzi and RBDA when they signed a management contract that saw Kakuzi pay the subsidiary of its parent company Sh314.9 million, there was no conflict of interest because he declared he was a director when the agreement was signed.

Kakuzi was paying RBDA all costs incurred in providing management services including salaries, benefits and bonuses plus a mark-up of 7 percent.

The agricultural company would also pay for indirect costs like electricity, rent and printing also with a 7 per cent mark-up as well as cost of staff, accommodation of RBA staff on Kakuzi businesses.

RBDA also charged Kakuzi third party costs like internal audit, human resource support, training, transport, warehousing, shipping and other logistics.

Mr Shah said RBDA paid him Sh3.5 million as reimbursement for employment entitlement, schools fees for his children medical expenses and some business related expenditures.

Stalling probe

CMA lawyer Timothy Githendu told the tribunal after CMA summoned Kakuzi officials in 2022, they filed an appeal but failed to serve the regulator with required documents.

He said since then the regulator had continued and finished its probe and now wanted leave to conclude the disciplinary process only for the company to return to the Tribunal to file a new case.

“Mr Githendu appearing for the respondent told the tribunal he was yet to be served, though he requested to file a response within three days of service. Nevertheless he opposed grant of the orders of stay as sought arguing that the inquiry process that had bene conducted by the respondents was complete and thus the 2022 appeal was overtaken by events. Counsel argued that granting the order sought would be tantamount to stoppage of a lawful regulatory process,” the court tribunal documents read.

Although the tribunal put a freeze on the Kakuzi inquiry it has set tight timelines within which to hear the appeal before ruling on whether to allow the regulatory process to continue.

The matter has been certified urgent with Kakuzia ordered to serve the application to CMA immediately and the regulator has only one week to respond.