Markets & Finance

Three banks fined Sh3 million for NYS cash transfers


CBK governor Patrick Njoroge. He said the regulator is seeking to amend the CBK Act to enhance the maximum penalty to be meted on banks that flout the law. PHOTO | FILE

The Central Bank of Kenya (CBK) slapped three commercial banks with a fine totalling Sh3 million for failing to report suspicious transactions relating to the Sh791 million National Youth Service (NYS) scandal, Governor Patrick Njoroge revealed in Parliament Thursday.

Dr Njoroge said the banking industry regulator also forced the sacking of nine top managers of Family Bank where the bulk of the money stolen from NYS was paid to Ms Josephine Kabura, the businesswoman at the centre of the scandal.

READ: Tobiko orders grilling of 7 Family Bank officials over NYS theft

He told the National Assembly’s Public Accounts Committee (PAC) that four other managers at Sidian Bank, formerly known as K-Rep, are undergoing tests that the CBK is undertaking to ascertain whether that they are fit to hold office.

Central Bank says it is also vetting managers of Faulu Microfinance who were involved in transactions connected to the NYS loot.

Dr Njoroge said the banking regulator is seeking to amend the CBK Act to enhance the maximum penalty to be meted on banks that flout the law.

Targeted inspection

Following information received from the Financial Reporting Centre (FRC) on specific transactions, the CBK conducted a targeted inspection on Family Bank that eventually led it to Sidian Bank and Faulu Microfinance.

“We established that there have been cases of flouting prudential guidelines and we took enforcement action. We levied a maximum penalty to Family Bank. We fined them Sh1 million. We also required re-vetting of nine officers who were responsible since there was culpability on their part,” he said.

Dr Njoroge said the findings at Family bank, Sidian Bank and Faulu were presented to the FRC who are allowed by law to take up any criminal charges against the officers found culpable.

“They are allowed to take up criminal charges. They have corresponding responsibility which is in their domain,” he said.

Dr Njoroge said when CBK conducted targeted inspection, it saw transactions leading to other banks.

“We went to those subsequent banks and did targeted inspection. At Faulu Microfinance, we saw some transactions and we followed the money trail. We levied penalties to this bank. The third bank (Sidian) we saw that there has been some infractions and taken action to enforce. We imposed a maximum penalty of Sh1 million to each of the banks,” he said.

Ignored red flag

Dr Njoroge also turned the spotlight on Treasury Director General Accounting services and the Ministry of Devolution where the NYS fell under at the time of the scandal.

He accused the government officers of ignoring a red alert that GT Bank raised on Sh86.4 million that was wired to Out of the Box Solutions Limited, a firm that ended up receiving a total of Sh218 million from NYS.

He said the GT bank raised issues on the payment to CBK which directed the same to the accountant general and the ministry of devolution for action. Dr Njoroge said the CBK asked GT Bank not to pay the money pending a response.

“We wrote a letter that was followed up with numerous phone calls asking Treasury and the parent ministry to explain the payments. This is after GT bank notified us of the huge transaction. The two ministries never gave us a response,” he said.

Dr Njoroge said the CBK has no role in stopping payments made by individual ministries to their vendors but only provides a system where money is wired to commercial banks to pay the suppliers.

“We only check if the payments are authorised by signatories who are in our system. The responsibility lies with the institutions and the commercial banks making payments to conduct proper due diligence,” he told MPs.

He said the concerned departments generate the payments through the Integrated Financial Management System (Ifmis), which is then transmitted to the G-Pay at the CBK and the same is electronically effected through the Kenya Electronic Payment Settlement System (KEPPS).

“There is no manual contact. The system is automated and once we check that signatories making payments are authorised, the money is released to the commercial banks. The banks then pay the beneficiaries after conducting due diligence,” he said.

He said a similar concern had been raised by Development Bank after Sh48 million was wired to its accounts to be paid to Bora Global Ltd but the director general accounting services cleared for payments.

MPs are probing payments made by the NYS after Auditor General Edward Ouko said in a special audit report that up to Sh1.8 billion was stolen from the NYS.

READ: Auditor-General says Sh1.9 billion was lost in NYS scam