State moves to relax checks on large cash transactions

Bank customers will be spared the trouble of disclosing the source, intended use and beneficiaries when making transactions of $15,000 (Sh2.1 million) and below if Parliament approves a Cabinet proposal to relax the anti-money laundering rules.

A Cabinet meeting chaired by President William Ruto Tuesday approved the Anti-Money Laundering and Combating of Terrorism Financing Laws (Amendment) Bill 2023, setting the stage for the increase of the cash-reporting threshold by 50 percent from the current $10,000 (Sh1.42 million).

The Bill, which will now be tabled in Parliament, marks the latest test to the 2016 regulations after Dr Ruto and his predecessor Uhuru Kenyatta in the past separately pushed for a review, arguing that they had inconvenienced many individuals and businesses.

Moneyed individuals and businesses have protested the onerous checks amid fears relaxing the rules could aid money laundering and terrorism financing.

“Besides raising the cash reporting threshold from $10,000 to $15,000, the Bill provides for the requirement for companies to keep a register of beneficial owners,” said a statement by the Presidential Communication Service (PCS) on Tuesday Cabinet meeting.

The proposed $15,000 threshold is the maximum limit recommended by the Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog for which Kenya aligns through the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG)— an associate member of FATF.

More than 200 jurisdictions worldwide are committed to the FATF recommendations, which, among others, require financial institutions to undertake customer due diligence on transactions above the designated threshold of $15,000 or €15,000 (Sh2.1 million).

FATF recommendations are widely considered the global standard for anti-money laundering and combating financing of terrorism but a number of MPs have been pushing for a Sh10 million threshold.

Kenya’s counterparts in the East African Community—Tanzania, Uganda, South Sudan and Tanzania— are all on FATF’s ‘grey list,’ meaning they are under increased monitoring when it comes to risks of money laundering and terrorism financing.

Kenya is a key regional business and travel hub as well as a gateway to the neighbouring East African economies and well-developed trade links to the rest of the world.

A 2021 report of the task force on the national risk assessment on money laundering and terrorism financing said this geo-positioning, trade inter-connectedness and high fintech use had increased the country’s vulnerability to money laundering and terrorism financing. The overall money laundering threat for the country was assessed as medium with a potential for increase in the future.

The task force found that banking was the sector with the highest impact on the national money laundering vulnerability, followed by real estate, money remittance providers, saccos, legal professionals and second-hand motor vehicle dealers.

The common methods of laundering money in Kenya were found to involve opening ‘suspicious’ bank accounts and making periodic cash deposits which do not correspond to the suspect’s known sources of income.

“To avoid detection, deposits are made in tranches below the reporting threshold to evade the attention of the authorities and guidelines placed by regulators which require that an account holder declares the source of such money,” said the task force’s report.

The CBK had in a January 5, 2016 circular told banks that large cash transactions were characterised by “informality and anonymity,” making the banking sector vulnerable to money laundering and terrorism financing.

The regulator issued the guidelines to tighten Regulation 31 of the Proceeds of Crime and Anti-Money Laundering Regulations, 2013 which require financial institutions to obtain written confirmations from customers that they are engaged in activities that generate money that matches what they are depositing or withdrawing.

Under the additional guidelines that have been reviewed, those depositing at least $10,000 are required to disclose the source of the cash and justify why such transactions could not be made through electronic means.

Customers have also been required to disclose where the money being withdrawn was going, what the money is to be spent on and who the direct and indirect beneficiaries are.

Banks are also currently required to keep records of cash transactions of more than $10,000 and report suspicious deals to the Financial Reporting Centre (FRC) — the agency tasked with identifying and combating money laundering and financing of terrorism. Former CBK governor Patrick Njoroge left office mid-last month having successfully resisted the pressure to revise the rules that have been.

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