Regulator puts stock market money cleaners on legal notice

The Capital Markets Authority (CMA) is stepping up the fight against blue collar crime with proposed amendments to the money laundering law that will require stockbrokers and bonds dealers to inform the regulator of large cash transactions.

Market watchers said the move is the clearest signal of the regulator’s admission that criminals may be using the stock exchange to wash dirty money, forcing it to respond with the demand that it be informed of any cash transaction worth more than $10,000 or (Sh770,000).

Cash transactions

The new rules, contained in proposed amendments to the Proceeds of Crime and Anti Money Laundering Act 2009, will also require capital market intermediaries such as investment banks, stock brokers and unit trust managers to keep detailed logs of all their clients and their cash transactions.

Increased piracy off the Somali coast in the past three years has put Kenya on the watch list of the global anti money laundering effort that is driven by the suspected use of such money to finance terrorism.

CMA’s reform effort is however expected to meet stiff opposition from capital market players who argue that a transaction of Sh770,000 is too small to warrant constant monitoring.

“The spirit of the law is good but the amount is too small,” said Mr James Wangunyu, the executive chairman at Standard Investment Bank. “It would mean we will have to report every client who comes through our doors.”

Mr Wangunyu said the threshold should be based on the average value of deals at the bourse which currently stands at Sh5 million.

“At Sh5 million and above a red flag can be raised but vetting transactions below this threshold would be irrational,” he said.

The NSE has reported average daily turnovers of Sh2.8 billion since the beginning of the year which translates to Sh1.5 million per deal.

This means that every other deal at the NSE would have to be flagged off and reported to the CMA.

Money laundering refers to a process in which criminals use legal structures to clean the proceeds of drug trafficking, gun smuggling, terrorism and corruption.

It is done by passing the proceedings through legitimate business channels such as bank deposits, investments, or transfers from one place (or person) to another.

While Kenya’s once chaotic banking system provided the criminals with such a channel, recent reforms have narrowed the space forcing the launders to look for alternative channels.

Weak regulation of capital markets has now turned the spot light on the billions of shillings traded at the bourse every day laying the ground for the reforms push.