Crack down on suspicious bank transactions

So, the governor of the Central Bank of Kenya, Dr Patrick Njoroge, has come up with an arrangement where close to 90 per cent of depositors of the troubled Imperial Bank will access all their money.

By saving the majority of depositors from misery while throwing the shareholders of the bank under the bus, he has made the most politically expedient move under the circumstances. It was a political masterstroke.

Considering that Imperial Bank branches and nearly 500 hundred workers are still in office under the receiver appointed by the Central Bank, why couldn’t the governor just pay the Sh1 million amounts through Imperial’s network?

Why is he paying these depositors through the Kenya Commercial Bank and Diamond Trust Bank?

My own sense is that the move by Dr Njoroge will achieve two things. First, remove the Kenya Deposit Insurance Corporation (KDIC) from dealing with the payments to small depositors.

Indeed, KDIC has not had a good record at either paying out depositors of collapsed banks or collecting loans.

I recently came across an analysis of asset recoveries of problem banks that shows KDIC’s record of asset recoveries at 11 per cent since it’s inception compared with an average of 90 per cent in the developed world.

Secondly, the idea of letting the Kenya Commercial Bank and Diamond Trust Bank make the Sh1 million payments achieves the following: All depositors – big or small – who turn up at a KCB branch to collect their money will now be subjected to a KYC audit.

If your records were kept in the parallel bank – the ‘chopdi’ accounts as they are described – you will not have the guts to approach KCB.

Thus, only the patriotic citizen who pays his taxes will get their money back. My own prediction is that a very big proportion of the depositors of Imperial Bank will not turn up.

Had the payments been left in the hands of Imperial Bank employees and KDIC, the chopdi chaps were not going to access their monies. Still, what the governor has accomplished so far is the easy part.

The elephant in the room in the whole equation is the entity known as W. Tilley Ltd, which alone accounts for more than 90 per cent of Imperial Bank’s problems.

W. Tilley’s name also featured prominently in tribulations of the troubled Charterhouse Bank. Who is this  W. Tilley?  I have looked at the revelations in the forensic audit report on Imperial Bank and the statutory management report on Charterhouse.

Clearly, this company is a colossus bestriding a large segment of the banking system and causing havoc wherever it goes.

In my view, no authority is in a position to track and determine where all the money that left Imperial Bank through suspicious transactions than the Central Bank of Kenya.

Central Bank must now get down to work and investigate the big borrowers at the bank, the parallel banking activity  and other forms of suspicious transactions.

The evidence is that CBK’s supervision department has done a poor job at compelling commercial banks to comply with statutory and regulatory money laundering requirements.

Supervisors turn a blind eye even where there is evidence that a bank is conducting suspicious transactions.

And this regulatory failure is very troubling in view of the ongoing battles against both terrorism and corruption.

How can we prevent terrorists from misusing our financial system when the level of suspicious transactions as we have witnessed in Imperial Bank, Dubai Bank and Charterhouse Bank persist?

Me thinks that the governor has spent too much time arguing with the shareholders of Imperial Bank.

The level of  suspicious transactions  at both Imperial Bank and Dubai Bank have major security implications. The real work must begin.