In my view, the recent decision by Director of Public Prosecutions (DPP) Noordin Haji to enter into a deferred prosecution agreement with the top five commercial banks makes a great deal of sense.
I say so because part of the reason why our anti -corruption strategy has not worked well is that it is based on the belief that the only way to fight corruption is to send all offenders to jail.
In the rest of the world, the trend you will now see is that the emphasis and focus is on restitution, restoration and integration.
Alternative dispute resolution arrangements such as deferred prosecution agreements make sense for three reasons - speed, finality and cheapness. Our courts are flooded with cases because our people litigate for every conceivable relief.
The reason deferred prosecution agreements work efficiently is because once the negotiations begin, they are brought to a speedy conclusion, without permitting the tactics lawyers introduce in courts to prolong hearings. The problem is that we don’t seem to appreciate the damages that clogged courts do to the health of commerce in this country.
The second reason I support the deferred prosecution agreement between Mr Haji and the five top banks is the fact that it is a warning to banks to start taking the issue of reporting of suspicious transactions more seriously. We have a proceeds of crime and anti-money laundering law that obliges commercial banks to report all transactions above Sh1 million to the Financial Reporting Centre (FRC) on a daily basis.
Indeed, we have a full-fledged financial reporting centre complete with the infrastructure to trace, seize and confiscate proceeds of illegal payments and other forms of suspicious currency transactions. But the problem is that these reporting rules are honoured by banks more in breach than practice.
The capacity of the FRC is also a problem. Even though it receives and processes information on suspicious transactions, it does not have a database robust enough to process the information and flag the suspicious deals in real time. Another tell-tale sign of our financial system’s vulnerability to suspicious transactions is the mushrooming forex bureaus that operate with scant regard of the Central Bank of Kenya’s KYC (know your customer) guidelines.
Clearly, the monitoring of suspicious transactions will have to be taken to the next level because the trends we are seeing today are that criminals appear to be targeting weak links in our financial system.
As we saw during the Dusit terrorist attack last year, criminals have now become adept at dodging reporting by exploiting loopholes especially in the fastest-growing segment of our financial systems - mobile money.
In the Dusit attack, we saw how criminals obtained false identification documents to obtain subscriber status. And, by registering multiple distributor agency shops, they were able to withdraw large sums of money from banks and to elude reporting by disguising the transactions as ‘float’ being transported to mobile money distributor shops.
It is a worrisome trend because at the rate things are going, we will not be able to deal and manage the threats that international money laundering poses to our financial systems.
Which brings me back to the deferred prosecution deal between Mr Haji and the five banks.
Indeed, what the DPP did is not without parallel in developed markets. Regulators in developed markets have been meting out severe punishment on banks for breaching anti-money laundering regulations or for failing to report suspicious transactions by slapping huge fines that are mostly calculated as a percentage of pre-tax profits.
In 2016, the Commonwealth Bank of Australia was fined $ 700 million after the Australian Transactions Reporting and Analysis Centre (Autrac), the country’s equivalent of our FRC, accused the bank of failing to report suspiciously large transactions across its networks in Sydney.
In 2015, the Serious Fraud Office in the UK reached an agreement with Stanbic Bank Tanzania to defer prosecution in return for the banks agreeing to compensate the Tanzania government hundreds of millions of dollars relating to a bribery case.
Under the deal, the bank was also forced to submit a comprehensive review of it’s anti bribery policies. We fine banks that breach suspicious reporting laws seriously because the matter touches on national security.
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