Bank customers have to name beneficiaries of cash withdrawals above Sh1 million and justify not using electronic transfer, the Central Bank of Kenya (CBK) has ordered in a circular.
The industry regulator’s order dated January 5, 2016 aims to fight flow of graft funds—usually transmitted in cash to avoid tracing and evade tax—through the banking and micro-banking system.
“The CBK asks institutions to obtain the following additional information while handling large cash transactions: Why the large cash deposit or withdrawal is necessary? Why it cannot be done through electronic means? The full identity of the intended beneficiaries of the money,” said the CBK the circular.
The regulator defines a large transaction as one exceeding $10,000 (Sh1 million) or its equivalent in any currency. Customers will also be required to disclose where they will be taking the money immediately it leaves the bank and what it will be used for.
The drastic move comes in the wake of several corruption scandals which have exposed weakness in how banks deal with large cash transactions.
A bank fired nine employees for their handling of accounts used in the Sh791 million suspected National Youth Service fraud.
Those transacting Sh1 million or more are now required to fill a form that the bank has to file with the CBK’s Financial Reporting Centre.
Commercial banks have been forced to open files for their regular customers including retail outlets who have to make regular bulk deposits.
Developers have complained about the new regulations arguing they have to make huge payouts to their workers at the end of each week.
Most prefer to be paid in cash and therefore the extra scrutiny is an inconvenience. Some of the suspects in the NYS scandal were holding large sums which they claimed was to pay construction suppliers.
The CBK has been pushing for deepening of financial inclusion with licensing of innovative bank products which include mobile banking and use of agents.
There are currently over 33,291,000 bank accounts in the country with 75 per cent of Kenya’s bankable population said to have access to banking services.
While there is no law requiring payments exceeding Sh1 million not to be made in cash, the disclosure is expected to push bank customers to the traceable electronic platform.