Parliament will now have to craft laws that will demand transparency and accountability from all private entities receiving state funds, a Machakos Court has ruled.
Justice Francis Rayola Olei stated that any private entity benefiting from public funds or state resources must explain how they use it.
"A declaration be and is hereby issued that any private entity that receives public funds and other state resources is obliged to account for the utilisation of the same to the public through appropriate legislation to be put in place by parliament," he said.
The decision by the court stems from a case filed by Paul Lihanda in May 2023 against the East African Development Bank, CS Finance, the Central Bank of Kenya and other parties.
Lihanda, in his court papers, sought a raft of declarations and orders against the Bank and the CS.
His main contention was that under Section 2(1) of the EADB Act, the Kenyan government was required to pay out of the consolidated fund without further needing the approval of Parliament.
This, he said, bestowed on CS Finance the sole responsibility, without Parliamentary oversight and accountability, to manage public money, which he explained goes against the principles of good governance and accountability.
He asked the court to intervene, saying the process lacked transparency and that it was unfair because the law doesn't allow Parliament to properly check the said actions.
Additionally, Lihanda further stated that the law that governs how Kenya deals with the regional bank was changed without properly checking if the changes were constitutional.
He said there was no public involvement in the decision-making process.
But the CS Finance, CS Foreign Affairs, and the Attorney General defended themselves, saying funds advanced to the regional bank from the consolidated funds are overnighted by the Public Debt and Privatization Committee.
But the judge, in his decision, dismissed their argument, saying it was not factual.
"It is to be noted that consolidated funds services are mandatory expenditures, including debt repayment, pensions, and salaries for constitutional offices that are paid from the consolidated funds. The same does include money advanced to EADB," said Judge.
He concurred with Lihanda that a section of the EADB Act unilaterally bestows upon CS Finance the sole responsibility to charge in and issue public funds out of the consolidated fund, without Parliamentary oversight.
"This offends the principles of public finance and the principles of good governance," remarked the judge.
Based on this, the judge declared that the process by which CS Finance accesses the consolidated fund to fulfill obligations to the EADB violates key constitutional principles.
He pointed out that the current system lacks proper checks and balances, particularly under sections 2(1) and (2) of the EADB Act, which govern how funds are allocated.
The court stressed that without proper oversight, the funding process could lead to misused public funds.
In closing, the judge issued an order directing CS Finance to produce records of all payments made from the consolidated fund to EADB from 2014 to date.
The same he said should be availed to Parliament within the next 60 days.
The court at the same time issued a declaration that Section 2 of the EADB Act is unconstitutional but at the same time suspended this order for 12 months to allow Parliament and the Attorney General to consider appropriate amendments to the EADB Act.
