A senior official at the Bank of South Sudan (BoSS) has said that Stanbic Bank credited the accounts of a Kenyan aviation firm with $7.2 million (Sh929.14 million) in 2016, but withheld the money from the would be beneficiary, claiming insufficient funds.
Mr Chan Andrea Chan added that although Stanbic alleged it could not pay the beneficiary- Air Afrik Aviation- because its nostro account had insufficient funds, the said account, held at BoSS, had no connection whatsoever with the monies.
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.
The witness for the airline, who is currently the director of financial markets at the South Sudan central bank, said 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”.
Mr Chan was testifying in a case where the aviation firm has sued Stanbic for freezing its funds, a move it claims has crippled its operations.
“I reiterate that the nostro account had no connection with the subject transaction for the transfer of $7,224,000. These are issues to be dealt with between Stanbic and BoSS in the general course of doing the business of banking,” the witness told Justice Nixon Sifuna.
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.
Mr 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.
“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.
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 $7.2 million 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 1st defendant was entitled to reverse the said entries and also stop further withdrawals by the plaintiff or other dealings based on the erroneous entry in the plaintiff’s account,” the lender said in reply.
The hearing continues on November 25.
