Fourteen years after independence from The Sudan, South Sudan’s financial infrastructure is still beholden to Kenya, highlighting the political, economic and security risks the world’s youngest nation still faces beyond the hopes of autonomy raised for more than 14 million people when the black, red and green flag was hoisted in the capital, Juba on July 9, 2011.

The “Lone Star” as symbolised by the withering yellow star inscribed in the sky-blue triangle in the national flag finds itself straddled in a political, economic and security triangle that puts a leash on the growth of financial institutions to propel rapid growth of domestic financial sector, according to an investigation by United Nations, World Bank, United States and European Union-certified international investigative agency, The Sentry.

At the centre of South Sudan’s economic and political are Kenya and Uganda, which host about half of their neighbouring country’s refugees in northern Kenya and northern Uganda, with a sprinkling in their respective capitals.

In Nairobi, security, legal and financial experts warn that the booming real estate and construction sectors are beneficiaries of proceeds of crime, with Nairobi taking the lead as a conduit for illicit money flows from or destined for South Sudan, with tentacles in entire eastern and central Africa.

There are questions about why the Bank of South Sudan (BoSS) is still located in Kenya or its key functions are still run from Kenya. Located in Woodley estate, off Ngong Road, just metres away from former President Daniel arap Moi’s Kabarnet Gardens residence and The Sudan embassy, the bank has been a subject of interest in international financial system for quite some time.

The international interest, though, is focused more on the role of Central Bank of Kenya for its indifference or deliberately abetting illicit financial flows to and from South Sudan, Uganda, Tanzania and Burundi, says security analyst, Dr George Musamali, the founder and director of Executive Protections Services.

The latter company advises governments, companies and business on security, besides proving training in security.

Nearly one-and-half decades, Musamali says, BOSS has mutated into a criminal enterprise that is financing multiple conflicts in South Sudan and The Sudan, with its ramifications as far afield as Kenya, Ethiopia, Uganda, Burundi, the Democratic Republic of Congo, Central Africa Republic, Ethiopia and Somalia.

The nexus of the expansive South Sudan criminal enterprise network is CBK, according a recently published report by United States, European Union and United Nations-certified international investigative agency, The Sentry.

Reached for comment, an international financial expert and a former auditor at the National Treasury, Bernard Muchere, summed up the dealings between Nairobi and Juba as a “fraud”. Muchere, the director of Zerot Financial Consultants is a certified fraud examiner, whose latest call of duty was laying bare the massive looting of public finances in the ministry of health and the now-defunct National Health Insurance Fund (NHIF). He explains that the retention of South Sudan’s government banker in Nairobi is injurious to the young nation’s economy.

“A central bank is the banker of the government. I find it a very unique situation that South Sudan central bank is in Kenya. Maybe in their law, they have a provision that allows the central bank to operate an offshore account of the central bank. When you have an offshore account it means you have a central bank in their own country. That means all the tax that is being collected in that country is being banked in Kenya. So, if the central bank is here, it makes it easy for the central bank governor and other staff to divert money and that means it easy Kenya gaining.

Muchere likens the financial activities between Kenya and South Sudan to the 1975 coffee smuggling from Uganda by senior officials of the Jomo Kenyatta government. The Chebkube coffee smuggling scandal earned Kenya hefty foreign exchange at the expense of Uganda, which – like South Sudan – was in the throes of a civil war to remove strongman Idi Amin from power.

“The purpose of operating their central bank from Nairobi is to syphon South Sudanese money and it could be in collusion with some Kenyans in positions of influence. The function of a central bank is to deal with monetary policies – inflation, control circulation of money in the economy (supply and demand), monitoring the money in circulation, control other commercial banks. How can it be effective in performing that duty if it is operating from Kenya? The bank is operating clandestinely and it cannot undertake any laws that affect the monetary policy. The host country benefits as some of the money will spill into its economy,” he says.

More than 90 per cent of South Sudan government budget is funded by foreign institutions – World Bank, International Monetary Fund, the European and African Development Bank, among others. That implies that the funds first land n Kenya upon disbursement.

On the suitability of Kenya as the hub of financial crimes, The Sentry says, “Kenya is a country that is rich in natural resources, has strong manufacturing and services sectors and acts as a strategic gateway between East and Central Africa and Europe, the Middle East and Asia. While this position offers great opportunity, it also makes Kenya highly susceptible to acting as a transshipment point for illicit trade and finance, meaning that it is essential for Kenya to have effective and adequate anti-money laundering and countering the financing of terrorism measures in place.”

Asked how this arrangement reflects on the diplomatic relations between Juba and Nairobi, Principal Secretary in Kenya’s Ministry of Foreign Affairs Korir Sing’oei did not deny or affirm BOSS location in Nairobi, instead he deflected the question to the Central Bank of Kenya. He said via WhatsApp message, “You might wish to contact CBK on this matter.”

The office of the CBK governor was not forthcoming with answers to shed light on BOSS in Kenya. A staffer in the office told Tell Media, “No one is giving me a straight answer. Maybe it is classified information.”

Calls and text messages to National Treasury Cabinet Secretary John Mbadi, too, drew no responses.

To illustrate the fragility of the situation in Juba, in 2021 as the country was smarting from a civil war that broke out in 2013, the UN Human Rights Office of High Commission and the United States sanctioned 75 army general and government ministers for the theft of more than $4 billion dollars. There was no central bank in Juba to administer the funds.

The UN agency reported, “According to investigations carried out by the Commission over the past two years, more than $73 million was diverted since 2018, including transactions worth almost $39 million in a period of less than two months. The Commission noted that this figure is only a fraction of the overall amount looted; as President Salva Kiir himself admitted as far back as 2012, South Sudan’s ruling elites had diverted more than $4 billion.”

While a senior security official at the South Sudan embassy in Nairobi denied BOSS is still embedded at the Central Bank of Kenya, Musamali, says South Sudan central bank financial operations have never left the Kenyan jurisdiction as multiple insurgencies in the neighbouring country are hostile to a critical institution such as the central bank and other pillars of the economy.

Asked to identify the location of what he described as “a new central” bank in Juba the South Sudan official was unable to specifically state whether the BOSS was at the near parliament, State House or in the central business district. In addition the official would not give a state when the bank relocated to Juba from Kenya. On Google map the bank is marked as closed.

Previously, the South Sudan government would access funds from its central-bank-in-exile through the Kenya Commercial Bank, Equity Bank or Cooperative Bank, all which have been spreading their tentacles in East and central Africa. Stanbic Bank also plays a critical role in processing South Sudan government financial services.

The Sentry report, titled Kenya Illicit Finance Risks and Assessment and edited by Denisse Rudich cites dozens of instances in which CBK currency control policy has been flouted with abandon in a laissez-faire fashion to satisfy the financial hankerings of South Sudanese top government officials and military generals.

The Sentry says it obtained documents indicating that millions of dollars in questionable payments linked to top South Sudanese officials have transited through Kenyan banks, reinforcing the need to monitor and report suspicious transactions and to have foreign (politically exposed persons) due diligence measures in place.

“In one instance, a South Sudanese PEP purchased a luxury home using a US dollar-denominated account held at the Ugandan branch of a Kenyan bank. This occurred during a period of intense fighting involving a non-state militia that was funded and supported by the PEP’s office. In a separate example, a Kenyan bank housed a South Sudanese (politically exposed person’s) US dollar-denominated personal account, through which millions transited. Transactions included the receipt of large cash deposits and payments from construction companies backed by Chinese, Lebanese, and possibly Turkish investors and the withdrawal of over $1 million in cash by the South Sudanese (politically exposed person). In a case involving another South Sudanese (politically exposed person), suspicious transactions were related to ‘reimbursement’ payments for a fuel supply deal that fell through and took the form of transfers of hundreds of thousands of dollars into the (politically exposed person’s) account by a multinational corporation operating in South Sudan.”

While President William Ruto may have inherited some of the dealings from his predecessor, Uhuru Kenyatta, Tell found a link to the current regime to a foundation associated with the first family – the Eldoret-based Samoei Ruto Foundation, senior official (name withheld) reportedly who “now is a “secretary” supporting presidential advisers.” The extent of the Samoei Ruto Foundation’s chief executive’s involvement is not clear given her designation’s nebulousness.

The Sentry report acknowledges Kenya as the largest foreign investor in the South Sudanese banking sector.

“South Sudan significantly relied upon Kenya for financial services during the war, and this close relationship has continued, with Kenya acting as a significant food export partner to South Sudan. Today, some South Sudanese politically exposed persons-owned or -controlled banks have Kenyan investors, and South Sudanese banks with correspondent relationships with Kenyan banks may hold nested accounts in Kenya. Additionally, most remittances sent to South Sudan from around the world are spent in Kenya and Uganda,” The Sentry investigation found.

Reached for comment, a former senior legal officer in the presidency who was privy to how BOSS found a footing in Kenya says the hosting of bank in Nairobi is not extraordinary “and it is not a precedent.”

The ex-official says, “Speaking off the top of my head, it is not illegal. It is conceivable that you can designate a physical place to be the headquarters of your central bank. And I remember when Europe was at war, the governments in exile – and they were several – were deemed to be operating central banks outside the physical presence of their country which were under occupation.”

He says there is a precedent in internal with regards central-bank-in-exile and it is not illegal.

“Even in recent memory when there was a big problem in Venezuela as to who was the legitimate government, part of the assets of the central bank of Venezuela were held in the UK (United Kingdom) – including gold bullions, etc. As matter of legal consequence that arises out of that when you lend and the central bank loses currency, certain consequences follow from that, especially if it is legal tender, including the ability to bank for another bank.

• A Tell report