The EU’s lending arm, the European Investment Bank, has been accused by two NGOs of failing to properly investigate allegations of the fraudulent use of its funds by directors at a now-bankrupt Kenyan construction company.
The EIB, which is funded by the EU’s 27 member states and is the world’s largest multilateral bank by assets, has said that it would not examine a whistleblower’s data cache despite acknowledging evidence of “possible embezzlement” at the company. Counter Balance and The Corner House, two financial and social justice NGOs, claim the cache presents unreviewed documents detailing alleged bribery and misuse of funds by British directors at Nairobi-based Spencon.
“There is a huge risk that EIB funds could have been used to facilitate bribes or pay for illegal activity, yet the EIB seems unbothered by this as long as its investment is profitable,” said Frank Vanaerschot, director of Counter Balance.
The allegations surrounding the bankruptcy of Spencon, which resulted in hundreds of job losses across east Africa, highlight the challenges faced by multilateral banks when monitoring investments overseas and call into question the EIB’s due diligence processes.
The EIB, which has no external regulator and instead relies on an audit committee appointed by its board of governors to oversee its operations, wants to step up its non-European lending through its EIB Global arm, established in January last year. In 2022, it invested about €10.8bn, around 15 per cent of its annual total, in projects outside the EU, up from 8.6 per cent in 2021.
The Spencon allegations centre around $48mn worth of investments the EIB made into the private equity firm Emerging Capital Partners’ Africa II fund in 2006 and 2007. The fund invested $15mn into Spencon during the same period, before taking full control of the construction company in 2014.
Spencon went bust in 2016 after several years of falling profits.
In 2017, the EIB opened an investigation into the building company and interviewed former employees, according to its own report. The probe followed contact with NGOs, which detailed concerns about suspected illegal activities and provided names of witnesses.
In 2020 the EIB closed the case. In July 2022, after receiving objections from the NGOs, the bank’s complaints handling department published a statement saying the investigation had found evidence that suggested “illicit activities and possible embezzlement of Spencon funds” and that ECP Africa had “more likely than not” been informed.
However, the complaints committee reported that the EIB’s investigations service, which was tasked with judging whether the Spencon managers’ activities would have posed a “material risk” to the bank’s investment, found that it did not have “sufficient evidence” for it to be considered “prohibited conduct” according to the bank’s anti-fraud policy.
In February 2022, the two NGOs provided the EIB with a memorandum summarising further evidence of potentially fraudulent practices at Spencon.
The trove of half a million documents, some of which have been seen by the Financial Times, includes WhatsApp messages and emails detailing alleged use of funds for “facilitation” payments to local officials.
According to one 2015 WhatsApp exchange in the documents, Steven Haswell, Spencon’s British finance director, and Rose Osiemo, the company’s lawyer, discussed a $80,000 cash payment to officials for a certificate and report that was needed to confirm completion of historic work done by Spencon on a sewage treatment plant.
Osiemo said that she was “only aware of payments to engineers for site inspections” and that “there was no bribe paid by me to local officials”. Haswell declined to comment. He and Andrew Ross, Spencon’s British chief executive, told the BBC, which first reported the transaction, that they denied bribing officials and the payment had been to “debt collection agents”.
In an exchange, from 2016, Haswell and Ross talked about paying “another chunk of cash we don’t have” in relation to a claim for an invoice lodged with the Kenyan government.
Ross and ECP did not respond to requests for comment. Ross and Haswell told the BBC that the messages were taken out of context.
Despite being offered the full cache of documents, only a small number of which have been previously reported, the EIB has refused to reopen the case.
The bank in June told the NGOs that it could not accept the data being sent through a “cloud-based sharing platform”, according to emails seen by the FT. In November, it said that it required proof of the chain of custody before accepting them.
The directorate of investigations at Kenyan police did not reply to a request for information on the allegations. Neither did it confirm or deny if investigations were ever conducted in Kenya. A lawyer formerly employed at Spencon was not “aware of any investigations or charges” regarding this matter in Kenya.
The UK’s Serious Fraud Office said it could not “confirm nor deny” if it was investigating the matter, nor whether it had received the same evidence as the EIB.
The EIB said that “any allegations of maladministration or malpractice are taken extremely seriously” and that the Spencon case had been “investigated in detail”. It added that it had shared a summary document of the data sent by the NGOs with OLAF, the EU’s anti-fraud office, which dismissed the case for a second time last month.
The NGOs said that no request for information had been made to them by OLAF, nor had the EIB asked for their permission to share documents with the agency.
OLAF said it had conducted “a preliminary analysis of the available information” but did not consider there to be “sufficient grounds” to investigate.
Nicholas Hildyard, co-director of The Corner House, said the EIB’s refusal to consider further evidence amounted to “a complete lack of oversight of public funds”. He warned that such practices could lead to further misuse of its financing. “There would be no limit to the amount of money which recipients of EIB financing could lose and still get away with it.”
Christina McGlosson, director of compliance practice at financial advisory firm Promontory, said due diligence processes “should be reasonably tailored to the severity or likelihood of risk” and that investors “upstream” had to take responsibility for reputational risks stemming from “bad decisions downstream”.
“It is incumbent upon a bank that its house is clean,” she said.