Crack down harder on money laundering


A forex bureau in Nairobi. A high incidence in money laundering activity makes it difficult for monetary authorities to track currency movements. FILE PHOTO \ NMG

I gather that the Central Bank of Kenya (CBK) has issued a circular giving commercial banks six months to open and declare contents of all safe deposit boxes in their custody and on behalf of their customers. It is one of the boldest attempts by the regulator to deal with one of the weakest links in the country’s anti-money laundering laws.

We still remember the outrage in March last year when it emerged that criminal elements had concealed $20 million worth of fake currency notes in a safe deposit box kept in Barclays Bank of Kenya’s Queensway Branch. That episode was indeed a wake-up call for regulatory authorities when it became clear that safe deposit boxes were one of the darkest black holes in our national payment systems.

We were made to come to terms with the reality that criminals were ahead of us in targeting weak links in our financial systems. Barclays denied culpability, declaring in a public statement it put out at the time that contents of personal deposit boxes were only known to their owners. Shortly thereafter, the bank announced that it had discontinued the safe deposit service and would review the existing deposit boxes with its customers.

This is the backdrop against which the new directive by the CBK must be understood. With the directive that banks open all safe deposit boxes and declare their contents and in the context of the realisation that these boxes have been turned into vessels for money laundering, I see many banks following the example of Barclays by closing the service.

If the secrecy of the service is removed, safety deposit boxes will naturally lose value. We must wait and see how the process of removing the secrecy will proceed.

A very high level of transparency will be required in opening the boxes because it is emerging that so many of the boxes are unclaimed. It is estimated that 2,000 safe deposit boxes held in the banking system are unclaimed. Which is why - in the interest of transparency - banks should be asked to make sure that they involve the Unclaimed Financial Assets Authority (UFAA) during the opening of the boxes.

Still, killing the safe deposit boxes will not be enough. The CBK must put more effort in sealing loopholes that render the existing anti -money laundering regime and framework ineffective.

The lesson we learnt from the DusitD2 terrorist attack last year and the court proceedings that followed was that criminals have now become adept at exploiting loopholes in our mobile money system.

We saw how they managed to use false identification documents to obtain subscriber status. We also saw how they were able to register multiple distributor agency shops, allowing them to withdraw large sums of money from banks and elude reporting by disguising it as ‘float’ being transported to mobile money distributor shops.

Indeed, the DusitD2 attack revealed that managing threats posed by international money laundering syndicates still remains a major challenge for us.

Unveiling the secrecy around safe deposit boxes is a good starting point. But the task of blocking all loopholes that criminals who perpetrate terrorism financing exploit to hit us must be made the highest security enforcement priority of our time. On paper, we have a fairly extensive regime and legal framework for dealing with anti-money laundering. We have a proceeds of crime and anti-money laundering law plus legislation that specifically deals with combating terrorism financing.

We have a full-fledged financial reporting centre — Financial Reporting Centre — complete with infrastructure to trace, seize and confiscate proceeds of illegal payments and other forms of suspicious currency.

However, the laws and institutions are still not effective. If we are to make any headway, we must start by looking at forex bureaus more carefully. The Financial Reporting Centre must introduce tougher rules to compel forex bureaus to regularly report shadowy transactions. Money laundering poses serious economic challenges to a country because it involves cross border currency flows.

A high incidence in money laundering activity makes it difficult for monetary authorities to track currency movements. Money laundering can cause unpredictability and volatility of both the exchange rate and interest rates. It redirects incomes from sound to low-quality investments.

Let’s make money laundering a top agenda item of our economic policies.