Lenders are still waiting for the Central Bank of Kenya’s nod to raise the threshold for reporting transactions beyond the Sh1 million set in law, eight months and 26 days after President Uhuru Kenyatta gave an order to expand limits for high-value transfers.
Commercial banks say the regulator is yet to issue guidelines to implement the presidential directive allowing a higher limit for customer cash transaction disclosures.
President Kenyatta last October issued a directive to raise the threshold of suspicious cash transactions commercial banks are required to report under anti-money laundering laws to facilitate cash deals among small businesses.
Mr Kenyatta ordered the immediate raise of the reporting threshold for both deposits and withdrawals above the current Sh1 million, without saying what the new figure will be.
A senior banker, a microfinance executive and the bankers’ lobby group confirmed to the Business Daily they are yet to receive any communication from the regulator on the implementation of the directive.
“I am not aware of any communication on that matter,” said Kenya Bankers Association chief executive Habil Olaka.
The President had last year noted a higher cash transaction limit “will facilitate easy transactions for MSMEs [micro, small and medium enterprises] and help the economy respond to Covid shocks”.
“There is no communication,” said another senior banker yesterday in anonymity while elaborating the challenge the President sought to cure.
“What the President asked is banks be human as they continue to implement the POCAMLA (Proceeds of Crime and Anti-Money Laundering) law.
“Basically review how we handle clients for amounts above Sh1 million, as our approach was becoming unfriendly. I believe banks have largely changed their approach in how they handle necessary disclosure.”
Mr Kenyatta said cash remains an important payments channel for medium, small and micro enterprises, representing 80 percent of all their transactions.
“I hereby order the National Treasury, after consultations with other stakeholders, to immediately cause the upward revision of the cash transactions reporting threshold from the current mark of Sh1 million applicable to both withdrawals and deposits by customers. The financial institutions will retain their reporting obligations to the Financial Reporting Centre (FRC),” said President Kenyatta, while issuing the order in his Mashujaa Day speech last October.
The law mandates financial institutions to keep records of cash transactions of more than Sh1 million and report suspicious deals to the FRC.
The Central Bank of Kenya (CBK) and the Treasury remained tight-lipped on what is causing the delay and on what the new limits will be, even as insiders say increasing the limits in an election year could open the floodgates for dirty cash to fund the August poll.
The Treasury, the CBK, and the President’s office did not respond to the Business Daily queries by press time yesterday. Treasury Cabinet secretary Ukur Yatani, the CBK, Dr Joseph Kinyua and State House did not respond to our queries sent via telephone and email as of Tuesday afternoon.
Insiders say banks would benefit from the increase in the threshold for reporting but the regulator is hesitant as it would breach some international obligations.
The CBK issued a circular in 2016 reminding banks not to relent on the prudential disclosures.
Business people have complained that the cash limit has hindered their ability to carry out smooth transactions.
According to the CBK circular, some of the questions banks are supposed to ask customers by law for large transactions equivalent to or exceeding $10,000 include: why the large cash deposit or withdrawal is necessary, why it cannot be made through electronic means, where the money will be taken right from the bank premises, and what the money is going to be used for.
Others are “who will be the direct and indirect beneficiaries of the money, the full identity of the intended beneficiaries of the money, and the source of the money”.
“Where a customer is unable to provide this information or the facts given fail to support the rationale behind the transaction the institution should immediately file a suspicious transaction report with the Financial Reporting Centre,” said CBK in a circular in 2016 to lenders and the FRC.
CBK Governor Patrick Njoroge said in his last update in December that the review was “being dealt with in the central bank” and that he had to make a good judgment based on several concerns. He indicated that he would communicate to the market at an appropriate time.
CBK has a free hand over banking policy under Chapter 231 of the Constitution that says the CBK “shall not be under the direction or control of any person or authority in the exercise of its powers or the performance of its functions.”
However, the executive has been pushing for populist policies including a freeze on reporting loan defaults and the current push to increase threshold on reporting high-value transactions.
The regulator reckons tightening controls against money laundering is key in guarding Kenya’s reputation and building the country’s attractiveness to investors especially as the country targets to build Nairobi into a regional financial hub.
Governor Njoroge however admitted concerns that some banking officials were harassing businessmen over the Sh1 million cash transaction limit.
He noted at the time banks should refer to a history of regular cash transactions in flagging suspicious deals so that they don’t end up subjecting customers to questions on the source and use of the cash every time they visit banking halls.
“There’s ‘Know Your Customer’ sort of issue. It’s not that they [banks] should start to know you [customer] every single time you come. No. No. There’s a history,” Dr Njoroge told an online press conference in December.
Kenya passed anti-money laundering legislation in 2009 and enacted several regulations in the following years, including the one that requires commercial banks to report all suspicious cash transactions above Sh1 million.
Kenya put the Anti-Money Laundering framework (the Proceeds of Crime and Anti-Money Laundering Act (POCAMLA)) in place in Kenya since 2009.
In 2010 Kenya was placed on the watchdog’s "grey list" of high-risk countries failing to combat money laundering, drug trafficking, corruption and terrorism.
Kenya was taken off the Financial Action Task Force (FATF) 2014 list of countries at high risk for money laundering and terrorist financing after the country made considerable steps to safeguard financial systems.
"Of course banks and even CBK know that allowing in excess of $10,000 cash transactions will breach the Proceeds of Crime and Anti-Money Laundering Act (POCAMLA) rules that Kenya is a signatory to, which would risk inviting sanctions from especially western financial regulators," said a bank executive who sought anonymity on the perceived regulator's dilemma.
To enhance the framework, President Kenyatta encouraged and signed the Proceeds of Crime and Anti-Money Laundering Amendment Act, 2017.
The new legislation and amendments were to enforce the AML and CTF framework and mechanisms.
Commercial banks started following the rules aggressively in recent years after at least five of them were hit with heavy fines by regulators for being used to transact proceeds of crime in government-related procurement deals.
Other institutions, or their staff, have also been investigated on suspicions of being used to funnel cash used by Somalia-based militants, to carry out attacks against civilians in Kenya.