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Prime Minister Meles Zenawi's Political Drama Played Under the Pretext of Fighting Corruption The Case of the CBE Officials and Selected Business Rivals JULY, 2004 Table of Contents 1.
Background 2. Introduction 3. Summary
of the First-Time Charges, Evidences and Processes 3.1
The First-Time Charges 3.2 The Evidence to the First-Time Charges 3.3 The Defendants’ Response to the Charges and the Evidences 3.4 The Defendants’ Objections to the Evidences 3.5
The
Change of the First-Time Charge 4. Summary of the Second-Time Charges,
Evidences and Processes 4.1 The
Main Charge 4.2 Details
of the Charges 4.3 Evidences
to the Second-Time Charge 4.4 Objections
to the Prosecutor’s Charges 4.5 Objections
to the Prosecutor’s Evidences 4.6 Prosecutor’s
Response to the Defendants’ Plea 5. The
Court Ruling and the End of the Pretrial Process 6. Some Reflections on
the Charges 6.1 Acceptable
Financial Statements 6.2
Cash Flow Forecast 6.3
Credit Information 6.4
Business Plan 6.5 Credit Analysis 6.6
Adequate and Acceptable Collateral 6.6.1 Buildings
6.6.2 Vehicles 6.6.3 Personal
Guarantee 6.6.4 Insurance Bond (Financial Guarantee Bond (FGB)) 6.6.5 Share
Certificates 6.6.6 Using
Same Collateral for Two or More Loans 6.7
Merchandise Loan 6.8 Credit
Decision Flow 6.9 The
Case of New Customers 6.10 Overdrawal 6.11 Truck Loans 6.11.1 Truck Loans before 1996 6.11.2 Truck
Loans after 1996 6.12
Summary of the Reflections on the Charges 7. Update and the
Current Status of the Court Proceedings 7.1 The Witness Hearing Process 7.2 The Profile of the Witnesses 7.3
The Witnesses Testify 7.3.1 On General Issues 7.3.2 On Specific Issues 7.4 The Prospects of the
Hearings of the Witnesses 8. Concluding Remarks 1. Background It is more
than three and half years now, since the split in the EPRDF leadership
occurred. The two factions - the so
called palace group and the others started to accuse each other on various
issues. The main issue for the split
was the disagreements over the handling of the Ethio-Eriteria conflict. To defuse this main issue, the so called
palace group argued that corruption is the number one problem of the country
and proposed to concentrate on fighting corruption. The other group, which concentrated on Ethio-Eriterea conflict
from the beginning, accused the palace group of committing treason on the
sovereignty of Ethiopia. The political
turmoil continued for a while and the palace group, with the army, police and
the security at hand, finally won the power game. The Prime Minister, who was heading the palace group, effectively
evicted the other members of the group, led by ex-Defense Minister Seeye
Abreha, from the Government and the Party.
To implement
the hidden agenda the Prime Minister immediately caused the enactment of the proclamations
establishing the Federal Ethics and Anti-Corruption Commission (Proclamation
235/2001) and the Rule of Evidence and Procedure (Proclamation 236/2001) both
on May 24, 2001, just less than two months after the split in the EPRDF
leadership. Four days
and just one working day (3 of them were holidays) after the enactment of these
proclamations, about 25 people including dissident politician Seey Abreha (with
his whole family members, brothers and sister) and Bitew Belay, the Board Chair
the General Manager of Ethiopian Privatization Agency Assefa Abreha and Beshah
Azmite, two Vice Presidents and one Assistant Vice President of the Commercial
Bank of Ethiopia, General Managers of Methara and Wonji Sugar Factories, the General Manager and Marketing Manager of
the Ethiopian Sugar Industries Support Center, business people like the owners
and managers of Star Business Group, Yegeta Trading, Abeba Trading, Tiss
AbayPlc, Mina Trading, Ajema Eth. Plc, Abmar International, Tana Transport,
Mesqel Flower, Hagbes Plc, the Monitor Plc, Sami Yusuf Trading, etc. were all
arrested in the morning of May 29, 2001. On the
evening of May 29, 2001, the Prime Minister’s Office (PMO) released an official
public statement pronouncing the arrest of what it called “corrupt officials and their collaborators” and announced the names of the above detainees. The Federal Police Commission also echoed
the PMO's statements on all government owned mass media. Both announcements solicited the general
public to come forward with evidences incriminating the detainees and
designated people and offices to receive the forthcoming evidences and
information. Later on, it was learned that no single information was provided
by the public against the detainees. The
public rather came out with a lot of information that would incriminate the
Prime Minister and his close cronies both in the Government and the Party. The formula
for the selection of the “corrupt officials and their
collaborators” was
simple. The dissidents, their relatives
and “the collaborators” were the main targets. This brings Seeye Abreha, Assefa Abreha,
their brothers and Bitew Belay to the front. The next question to be answered
was: Who were the possible supporters?
The answer was the business people who are mentioned above. Along this line the palace group had to select
those who were suspected of assisting the dissidents financially. The search picked up Abreham G/Kirstos owner
of Abmar and the nephew of General Tsadkan G/Kidn, former Chief of Staff and
Berhane Gidey owner of Abeba Gidey Plc and a close relative of Alemseged
G/Amlak, one of the political dissidents.
The next task was to find a connection between the dissidents and the
business people. Despite strenuous
efforts to create a criminal link between, especially Ato Seeye Abraha and the
Star Business Group or the other dissidents and these business people, not a
single connection was found. Even
finding a roundabout way to connect the two parties was difficult. But, the business people had to be arrested
in order to weaken their economic power. The easiest way was to tie them to the
public enterprises and government organizations with which they had business
relationship. All the businesses
mentioned above used to take loans from the CBE. Most of them dealt with the
sugar companies and others had bought some businesses from the Ethiopian
Privatization Agency. Therefore, the
easiest way found was to pull individuals from these government organizations
and connect them to the business people. This way the objective of selecting
and connecting “corrupt officials and collaborators” was achieved. The next
challenge was to find crimes committed by these selected individuals. The solicitation of evidence and information
from the general public did not work the way the accusers wanted. No stone was left unturned. The only option
left at the time was to recruit people as ‘inspectors’ and ‘auditors’ assign them to the government
organizations in order to dig for possible crimes against the detainees. These army of highly paid but least
qualified people were then sent to the Ethiopian Privatization Agency, the CBE,
the Sugar companies etc. to come back with what were then called special
inspection or audit reports. This way it became possible to institute “corruption”
charges against the so called “corrupt officials and
collaborators”, of
course, based on these special inspection and audit reports. Now, more
than three and half years have elapsed.
The detainees are still languishing in jail. This report aims at presenting the current status of especially
the Banker's case currently being heard at the Federal High Court. After their
arrest the detained bankers were not even interrogated for more than 3 months,
because the police did not know what to ask.
Instead, it was only the government radio and television that seemed to
have the information. They continued broadcasting the alleged ‘crimes’, in
collaboration with the PMO and party organs.
Meanwhile, the police collected the information on who had approved the
loans to the ‘selected borrowers’.
This was easy because they could easily pick up signatures from Loan
Approval Forms (LAF) of the CBE. Alas,
they found that the ‘criminals’ were not only the 3 bankers whom the PMO
initially selected, but there were about 110 of them, including members of the
Board of Management, who were predominantly government ministers. The difficulty was even exacerbated because
these government ministers had approved about 85% of the loans under investigation. It became difficult to make selections from
all these bankers to determine who should and should not be charged. As usual, the criteria were set: who
supports the palace group? Who does not?
Then who should be charged became very easy. Finally about 41 bankers were selected and the prosecutor filed
the charges, 7 solid months after the initial arrest. While arresting loan officers and credit analysts for making the
recommendations, the prosecutor, however, ‘pardoned’ the government ministers who approved the
loans. 2. Introduction The authors of this report are
concerned individuals who struggle to contribute to the efficiency of the Ethiopian
justice system. One of the methods of
the struggle is to make follow ups on some selected proceedings of cases at
various courts, both at the federal and regional levels, and produce reports on
what is really happening to those cases.
The individuals give due attention, among others, to politically
instigated charges. One of these is the
unprecedented ‘corruption
charges’ coined by Prime Meles
Zenawi in May, 2001, that targeted to wipe out his opponents. On May 29, 2001 he ordered the arrest of the
leader of the dissident group, Seeye Abreha and his whole family members
together with some businessmen whom Ato Meles thought would give invisible hand
to the dissidents. Included in this
group are also Bankers whom Ato Meles thought had approved loans to the alleged
businessmen. He coined that the only
way to make it ‘corruption
case’ is by relating the
bankers and the businessmen, because connecting the dissident and the
businessmen was not possible. This way
the bankers had to be the lynchpin between the dissidents and the
businessmen. This report concentrated
on the cases between the Ato Meles’s Ethics and Anti-Corruption Commission and
the bankers and the businessmen, at Federal High Court. The report will initially give
some highlights on the background of the inception and the initiation of the ‘corruption campaign’, followed by brief introduction. The next two sections, section
3 and 4, mainly deal with the summary of charges, evidences and the processes
thereafter. The first-time charge was filed
7 months after the arrest of the defendants.
The pretrial continued up to October 2002, and with the change of mind
by the prosecutor, the charge was waived and the new charges – the second-time
charge - was again filed after the elapse of nearly one and half years. The second pre-trial started and continued
up to July 2003. The two sections,
therefore, cover these two pre-trial processes. The court ruling, which was
given in July 2003 after the second pretrial process will be discussed
extensively in section 5. Section 6, Some Reflections on
the Charges and Evidences, discusses the main issues of the charges. In this section, the contents of the
prosecutor’s charges and documentary evidences
– so called special audit reports of the Office of the Auditor General (OAG) –
will be presented and their comparisons with the Bank’s lending policies,
procedures and practices will be made. Section 7 will highlight the
update and the current status of the proceedings. This section mainly covers the hearing of the prosecutor’s
witnesses, the outcome, and the status of the cases as of July 2004. Final conclusions are drawn in section 8. 3. Summary of the First-Time
Charges, Evidences and Processes 3.1 The First-Time Charges The Federal Ethics and
Anti-Corruption Commission instituted the first charge on December 21,
2001. The charge consists of 41 bankers
of Commercial Bank of Ethiopia (CBE) and 13 of its prime customers. Most of the businessmen and the two bankers
have been in jail since May 2001 and the third one since August 2001. The rest, including the president, Ato
Tilahun Abay, were sent to jail, the same day the prosecutor filed his case at
the federal high court. Included in the
list were some carefully selected individuals from those who had been involved
in the approval or appraisal of loans to the targeted businesses. These include the vice presidents, assistant
vice presidents, regional managers, branch managers, credit analysts and loan
officers. The ex-vice governor of the National Bank of Ethiopia, Ato Nesredin
Ahmed was also included, just because he approved an overdraft loan to one of
the targets, 10 years previously. He
died after few months of imprisonment.
Many of the bankers were in their retirement, some were arraigned from
their hospital beds, and some of them had left the CBE over 9 years earlier and
were employed in other banks. Among them all, these bankers represent both the
old guard of the banking sector as well as the new generation of bankers the
nation had groomed and trained for years.
The Prosecutor filed four
charges in one application. The basis of the charges were Proclamation 214/1974
E.C article 23 (1) a & b and penal code of 1949 E.C art. No. 33. The charge, in its particulars of offense,
stated that the bankers, while working in various capacities in the CBE,
committed illegal acts to benefit the accused borrowers and their respective
business enterprises thus violating bank Policies, rules and procedures. The Central Investigation
Bureau (CIB), immediately after arresting the businessmen in May 2001, had
dispatched special teams to the CBE with the task of conducting special investigation
on the loan files of the detainees.
These teams disguised as ‘inspectors’ and closely working with the Head of the
Inspection Department of the CBE (a cousin of the PM, and newly promoted to the
job) prepared their ‘inspection reports’ wherein they listed a series of acts
which they called ‘irregular’ and allegedly contravened the procedures
and systems of the CBE. About forty of
them have been listed in the preambles to the first charge in the prosecutors’
application. These included, among
other things:- ·
Extending
loans that exceeded the borrower’s business enterprise's paid-up capital. ·
Accepting
personal guarantees as security ·
Extending
loans in the absence of financial statements from accredited auditors. ·
Accepting
chattel mortgages, share certificates, and financial guarantee bonds as
collateral ·
Failure to
require additional collateral to compensate for the depreciated value of
assets. ·
Approving
temporary overdrafts without first requiring a promissory note from the
borrower ·
Extending
large loans while the value of the collaterals were low ·
Extending
credit facilities without adequate and deep analysis. ·
Extending
loans against assets with exaggerated value of assets valuated by an
unaccredited external valuator (ABD consult) instead of the Bank’s valuation
officers. ·
Switching
already collateralized assets as additional collateral for other loans. ·
Accepting already collateralized assets as
additional collateral (2nd degree) for loans extended for a further
period. ·
Extending
term loans while overdraft credit is still in place. ·
Providing
similar loans for a borrower prior to the settlement of an existing similar
loan. ·
Approving
loans to a borrower who does not own any fixed assets. ·
Accepting
chattel mortgage with a 2nd
degree mortgage status ·
Using a
particular enterprise’s fixed assets as security for another enterprise. ·
Issuing CPO services with insufficient fund
in the account. The list of the so called ‘irregular acts’
is then followed by a list of 12 sub charges (i.e. 1.1 up to 1.12). Each sub-charge lists the loan facilities
and amounts allegedly advanced to the businessmen and/or their businesses. The
employees of the bank i.e credit analysts, branch managers, and loan committee
members along with the borrower are then clustered around each sub-charge. The
summary of the companies involved and alleged loan amount is as follows:
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