Stanbic Bank Kenya has been accused by a senior official at the Bank of South Sudan Chan Andrea of withholding Sh929.14 million that was credited to the accounts of a Kenyan aviation firm in 2016 claiming.
According to Chan, although Stanbic alleged it could not pay Air Afrik Aviation because its Nostro account had insufficient funds, the said account held at BoSS, had no connection whatsoever with the money.
A nostro account is an account that a bank holds with a foreign bank in the currency of the country, where the funds are held.
Chan who is the director of financial markets at the South Sudan Central Bank, says in court documents that Stanbic should have withheld the credit into the airline’s bank account until its nostro account was credited with sufficient funds “to clearly justify any possible connection between beneficiary and the nostro account”.
Chan was testifying in a case where the aviation firm has sued Stanbic for crippling its operations.
In the case that is in the High Court of Kenya at Nairobi Nairobi Commercial and Tax Division Milimani Law Courts, civil suit No 413 of 2008, Afrik Aviation Limited versus Stanbic Bank Kenya Limited and Bank of South Sudan, there was a consolidated witness statement of Eric Lukalia who is a director of Air Afrik.
Air Afrik is a Limited Liability Company incorporated both in Kenya and the Republic of South Sudan.
Stanbic was a banking institution carrying out its banking business as a bank whereas the Air Afrik was the customer holding account numbers 0200000098786 and 0200000043906 domiciled at the bank’s Juba branch.
The accounts were being operated under a branchless system between Kenya and South Sudan with its Juba branch being treated merely as a branch and controlled from the Nairobi head office of Stanbic, and with an arrangement that enabled and entitled Air Afrik to carry out all its banking business from either Juba or Kenya.
A similar banker and customer relationship existed, at all material times, between Stanbic and the government of South Sudan as customer pursuant to which BoSS held and operated and continues to hold and operate several bank accounts with Stanbic’s Nairobi and Juba with branches, including, but not limited to bank account numbers 024008093501, 00269210001024, 0100000296613 and 00269210001/005:
In the latest twist of events, Chan reiterates that the Nostro account had no connection with the subject transaction for the transfer of $7,224,000.
The witness told Justice Nixon Sifuna that these are issues to be dealt with between Stanbic and BoSS in the general course of doing the business of banking,
Air Afrik claimed that the reversal of the funds led to the termination of a plane leasing agreement with the government of South Sudan as the airline could not execute its obligations under a lease agreement dated September 4 2014.
Chan who was in charge of overseeing the front, middle, and back office foreign transactions at BoSS, told the court that Stanbic Bank did not reject and decline the credit advice but went ahead and credited the beneficiary account with the amount.
He said it took Stanbic about three days from the date of the credit advice to credit the airline’s account.
According to Chan, a nostro account generally handles funds for different transactions. If the funds were not sufficient, Stanbic Bank should either have returned the funds to BoSS immediately or requested for replenishment of their Nostro account with the equivalent of $7,224,000 to be credited to the plaintiff, and meanwhile, not credit the customer’s account.
He said the customer is not ordinarily aware of or involved in all the back office procedures.
The carrier sued Stanbic in 2018 for allegedly breaching banking regulations after it credited million $7.2 to its accounts, before freezing and reversing the money without a valid court order or a directive from the Central Bank of Kenya.
The airline sought to be paid damages for losses suffered after a plane leasing contract of $20 million (Sh2.58 billion) with the South Sudan government was terminated after the funds were withheld.
The airline says the money had been deposited for a plane leasing contract it signed with the ministry of Defence and Veterans Affairs of South Sudan in September 2014.
Stanbic has denied the claims and reversal, stating that the transaction was reversed after it realised that the credit note from the South Sudan government did not have funds and the lender could not use its own money.
The lender says the actual transfer of $7.2 million was never made into its nostro account as alleged by BoSS and all that was done was a paper entry,, which should have been followed by an actual transfer of funds.
The bank maintained it was forced to reverse the entry that it had made to the customer’s account since it was made in error and not backed by the actual transfer of funds.
“The 1st defendant (Stanbic) avers that due to the erroneous credit of $7,224,000 of the 1st defendant’s money into the plaintiff’s (Air Afrik) account,” the lender said in a reply. The hearing continues on November 25.
It is important to note that by a Leasing Agreement dated September 4 2014 signed between Air Afrik and the ministry of Defence and Veterans Affairs of the Republic of South Sudan (“the lessee”), the plaintiff leased several aircrafts to the lessee for a term of one year but renewable for five years commencing on October 1 2014 upto 12.00 midnight on August 30 2015 for the agreed total cost of United States of $20,640,000.
It was expressly agreed in the said leasing agreement, inter alia, that the lessee shall pay to the Air Afrik a deposit of 35pc of the value of the total contract sum equivalent to $7,224,000 as advance payment and that such Shall be made into the Air Afrik bank account held with the Stanbic on a lump sum basis.
Thereafter, the ministry of Finance and Economic Planning of South Sudan raised a Payment order No 287 dated December 10 2015 for the sum of $7,224,000 in favour of Air Afrik.
It was an express term and condition of the said Payment Order No. 287 that payment of the subject sum to Air Afrik would be by way of ‘transfer” and the payment order named Stanbic’s Juba branch as the correspondent bank for purposes of the said transfer thereby authorising Air Afrik to make a transfer from the account of GoSS held with Stanbic for purposes of effecting the said instructions.
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