The recent move by the Central Bank of Kenya (CBK) to enforce its directive requiring banks and other financial institutions to report cash transactions has met with considerable opposition in financial, political and business circles.
The Banking Circular No 1 of 2016 (Additional guidelines on Large Cash Transactions) has been termed draconian and unjustified, and the CBK has even been accused in some circles of overstepping its mandate.
It requires banks to obtain certain information regarding cash transactions (both deposits and withdrawals) over $10,000 or Sh1 million, including beneficiary information, and the source of funds.
Under the Anti-money Laundering and Counter Financing of Terrorism (AML/CFT) law, the reporting of cash transactions is a key control in the detection and prevention of money laundering and terrorist financing activity and facilitates the determination of the legitimacy of the source of funds. Other controls are customer due diligence, transactions monitoring, suspicious activity reporting, sanctions screening to detect terrorist activity and record keeping.
Money laundering enables criminals to hide the proceeds generated from economic crimes or predicate offences, such as grand corruption in public office, embezzlement, drug trafficking, human trafficking, counterfeiting, and piracy. If undetected or unchecked, money laundering encourages the proliferation of such criminal activities, as well as terrorist financing. This is because criminals can easily access the proceeds of their crimes even after serving criminal sentences or paying penalties such as fines.
According to statistics from the United Nations Office on Drugs and Organised Crime (UNDOC), between $800 billion and $2 trillion is laundered per year, which translates to 2-5 per cent of global GDP. In Africa, the main predicate offences --which have led to billions of dollars being laundered each year -- are corruption, illicit wildlife trafficking, and drug trafficking.
Due to the far-reaching and negative impact of money laundering to the financial system and of terrorism globally, the offences of money laundering and terrorist financing have been criminalised through international protocols and guidelines such as the Financial Action Task Force (FATF) recommendations and UN conventions.
These have been replicated in national AML/CFT legislation across the globe and comprise various mandatory guidelines to prevent money laundering and terrorist financing with the key objective of ensuring that offenders are not allowed to derive a financial benefit from the proceeds of their crimes.
These guidelines and legislation recognise the central banks of each country as playing a critical role in the enforcement, since they are the custodians of the financial system
In this regard, the CBK has played a pivotal role in the implementation of AML/CFT compliance in Kenya, and in recent months this role has assumed critical importance, given the rampant grand corruption scandals involving public institutions such as the National Youth Service (NYS) and the National Cereals and Produce Board (NCPB), and the National Hospital Insurance Fund (NHIF), to name a few, in which billions of shillings have been lost.
Under the Proceeds of Crime and Antimoney Laundering Act 2009 (POCAMLA) and regulations issued thereunder, the CBK is designated as a supervisory body and has oversight authority over banks and other financial institutions referred to as Reporting Institutions (RI’s) to ensure they are compliant with the law. This includes a statutory obligation to report suspicious activity to the Financial Crime Reporting Centre (FRC). Such suspicious activity would normally arise from transactions, including cash emanating from or dealings with RI’s subject to its supervision.
The CBK and other supervisory bodies listed in the First Schedule of the POCAMLA such as the Insurance Regulatory Authority (IRA), the Capital Markets Authority (CMA) and the Retirement Benefits Authority (RBA), also have a statutory power to issue guidelines to RI’s on any matter regarding compliance, including setting maximum limits for cash transactions.
In exercise of this statutory power, various guidelines have been issued by the CBK, and the other bodies to enforce AML/CFT compliance by RI’s in the respective sectors. It is worthy of note, however, that even before the enactment of POCAMLA, the CBK, acting within its mandate under the CBK Act and the Banking Act, had proactively issued CBK Prudential guideline No 8, which provides for compliance by banks and other financial service providers (including micro finance institutions, forex bureaux, and electronic payments providers).
Following the enactment of the POCAMLA regulations, the CBK has since issued additional guidelines in fulfilment of its mandate; dealing with suspicious transaction reporting, sanctions screening and risk assessment, amongst others.
The guidelines on large cash transactions were issued specifically to enforce the requirement under the POCAMLA regulations for banks to report transactions over $10,000.
From the foregoing, it is manifestly clear that the CBK has both a statutory and international obligation to enforce compliance with the AML Legislation. It does this through the provision of supervisory oversight over the operations of RI’s and through the issuing of relevant guidelines from time to time on various aspects of the Act.
This statutory obligation to issue such guidelines under POCAMLA is separate from the corresponding obligation under the CBK Act and the Banking Act and cannot be fettered or diluted without impacting on the spirit of POCAMLA. It should also be noted that the enforcement provisions under the POCAMLA supersede those in other Acts dealing with criminal or predicate offences which generate financial proceeds such as drug trafficking, poaching, and corruption laws.
The primary and universal objective of AML law is to ensure that criminals cannot access the proceeds of their crimes even after serving prison sentences for predicate offences under related criminal legislation. In this regard, the AML and related legislation give sweeping powers to regulators and enforcement agencies to enforce the provisions of the law covering surprise inspections, investigations and evidence taking, arrest and prosecution, tracing, seizure and confiscation of property and other proceeds of crime.
There is no need to prove the commission of an actual offence; reasonable suspicion that an offence has been committed is enough. It is on this principle that the CBK guidelines relating to suspicious transaction and cash reporting are founded and accordingly any attempt to fetter the central bank’s statutory obligation in this regard must fail in the face of the law.
Additionally, given the commitment by the Executive to rein in corruption in public office and in light of the ongoing investigations and enforcement actions currently being undertaken by the law enforcement agencies to deal with suspects and preserve criminally acquired assets in cases such as the NYS scandal; it is imperative that the CBK, as the primary financial services regulator, should be allowed to continue with its key task of ensuring the integrity of the financial system unhindered.
Ms Buku is an advocate and AML/CFT specialist. [email protected]