It may look as a mere administrative action by a regulator. But the Central Bank of Kenya’s (CBK) decision to sanction commercial banks that were used as conduits for illicit National Youth Service (NYS) millions is a defining step whose impact will be felt far and wide in the war against corruption and other economic crimes.
This is because throughout the world, governments have two big and effective weapons against illicit finance – the taxman and a clean banking system that make it difficult to move dirty money around.
The CBK’s move is the strongest signal yet that looters of public coffers and dealers in illicit goods will have limited options to ‘clean’ their dirty cash.
Punishing banks that facilitate theft or are used as laundries for dirty cash is the surest and the least costly method to close the taps of corruption, theft and dirty trade.
The CBK’s action is also one that if sustained over time has the potential to preserve the integrity of Kenya’s economy. For too long corrupt officials in both the public and private sectors have used banks to game the system for personal enrichment.
In addition to the regulator’s action to slap hefty fines, the Banking Fraud Investigations Unit of the Directorate of Criminal Investigations (DCI) and the office of Director of Public Prosecution (DPP) must also move in to tighten the noose on banks by holding officials complicit in money laundering enterprise to account.
Banks are legally required to provide the regulator with a report on the latest results of its own money laundering risk assessment by the end of the year. The rules require banks to identify potential risks posed by customers, including use of shell companies, within their operations.
The next frontier in regulating movement of dirty cash should now involve curtailing flow of money between countries as corrupt officials will likely be forced to either stuff notes under their beds or take it to neighbouring jurisdictions with lax rules.
To this end, the CBK will have to collaborate with similar institutions outside the country to establish a wider-reaching supervisory framework.
Such an effort is under way in the European Union where legislators are seeking establishment of a common cross-border agency to check banks in the event central banks are unable to police lenders, a step that could be considered by East African authorities if they are to slay the corruption dragon once and for all.