The High Court has given the Ethics and Anti-Corruption Commission (EACC) green light to probe the multibillion- shilling Tatu City real estate project in Kiambu over tax evasion and money laundering claims.
Justice Esther Maina allowed the anti-graft agency which has the powers to investigate the offences Tatu City is practicing through a loan back scheme.
EACC is accusing Tatu City of effecting tax evasion and rinsing of dirty money through paper transactions which involve a chain of interlocking companies, nominee shareholders and purported loans and financing structures.
Their sister company, Kofinaf- for example is incorporating special purpose vehicles such as Purple Saturn Properties, with shareholding and directorships held by its nominees specifically to hold parcels of land.
Kofinaf then enters into sell agreement with SPVs where it pretends to advance them loans which eventually translate to Kofinaf financing its SPVs to finance its own properties.
“It is my finding that in this case the matters being investigated transcend the dispute between the individual shareholders and the petitioners as they revolve around the commission of the offences of tax evasion and money laundering,” Justice Maina said.
Tatu City and Kofinaf Company filed the suit in 2019, to reject letters sent to the Lands PS for the government to place caveat or purchase warning on 33 pieces of land.
EACC also sought documents including survey plans, maps, valuation reports and official searches from the State but Tatu argued that the anti-graft body has no powers to either order issuance of caveats on tax disputes or investigate money laundering claims. The companies argued that tax evasion is civil in nature and it’s not under EACC’s mandate to probe.
EACC began by accusing Tatu City of undervaluing property that is later transferred to related firms to allow payment of lower stamp duty–tax equivalent to 2% of land transfer value.
In the scheme, the land pieces are later transferred to newly formed foreign-registered companies as shares with the non-Kenyan company disposing the plot at market value locally and they end up escaping paying stamp duty because the firm is not listed in Nairobi.
EACC found that Tatu City is using the chain of transactions on the sale of land and corporate special vehicle to separate, screen and hide the control of the real owners over the funds generated from the property deals.
Tatu City and Kofinaf have had runs with the EACC for long, in 2020 they lost an application to have a tax evasion case halted until a suit filed before Supreme Court on whether anti-graft agency officials can investigate accounts without notifying suspects is settled.
Their case was dismissed after Anti-Corruption Judge Mumbi Ngugi found that the Supreme Court had ruled in a case filed by senior lawyer Tom Ojienda that investigators can seek information from banks and other institutions without informing the suspects.
