- Financial institutions are the first line of defense in the fight against money laundering and terrorist financing but beyond this, there are other duty bearers who supervise and enforce implementation of related regulations.
Financial institutions are the first line of defense in the fight against money laundering and terrorist financing but beyond this, there are other duty bearers who supervise and enforce implementation of related regulations.
The Central Bank of Kenya fined five Tier 1 banks Sh392.5 million in 2018, stirring a national conversation on money laundering. Bank executives must have been surprised when the Director of Public Prosecutions also imposed a fine of Sh395 million after entering a deferred prosecution deal with them.
Clearly, lenders were not out of the woods. It took serious negotiations and pleas for leniency to defer their prosecution and their executives for violating anti-money laundering laws and regulations.
In January 2019, terrorists attacked DusitD2 hotel in Nairobi and after investigations a bank manager was accused in court of allegedly failing to stop financial transactions leading to the raid.
In the fight against financial crime, it is important from the onset to acknowledge that there are three main actors: the criminal, the financial intermediary, State regulators and enforcement agencies. Financial intermediaries should ideally provide a safe channel to transact while the work of enforcement agencies should be to apprehend perpetrators.
It must be clearly demonstrated that deliberate action to punish the actual culprit is pursued beyond levying of heavy fines to the financial intermediaries where proceeds of crime are channeled through. Financiers who are co-players with regulators and enforcement agencies in the fight against financial crime remain the most exposed when perpetrators go unpunished.
As a compliance practitioner, I see a power imbalance between government agencies and private sector players. This has created a vertical power relationship instead of a horizontal collaborative approach. At present, criminals have an upper hand because they can collaborate whereas financial intermediaries still work in silos.
I refer to the NYS scandal, where it is reported that the same perpetrators channeled the funds through five different banks. Had one of them raised suspicion within an established framework of cooperation, then there would have been higher chances of early exposure on the suspicious nature of the deals.
This would have minimised the damage on banks and barred theft of public funds. On the contrary, each of the institutions dealt with the situation independently and unfortunately, the approach remains the same.
Hesitance to collaborate is understandably so, because it comes with its challenges, which could be either business or policy related. Financial institutions that have invested heavily in their systems may be averse to such collaborations due to risk of exposure from collaborating with perceived weaker counterparts who are considered inadequately resourced.
Policy related challenges include limitations brought about by laws and regulations. A case in point is the recently enacted 2019 Data Protection Act whose objective is to regulate processing of personal information. Such a policy should ensure that criminals do not have a comparatively favourable position than duty bearers in the fight against financial crime.
One may ask if such collaborations exists and whether they would thrive in the fight against financial crime?
In the United Kingdom (UK), the Joint Money Laundering Intelligence Taskforce (JMLIT) is a partnership between law enforcement and the financial sector to exchange and analyse information relating to money laundering and wider economic threats. It has been considered internationally to be an example of best practice. Through collaboration with Financial institutions and law enforcement agencies, JMLIT is reported to have made considerable progress in the fight against financial crimes.
The idea of collaboration is very potent right now because criminals have a tendency to use multiple channels, and when barred from one they run to another.
A formalised collaboration can create peer accountability, a safety net for the private sector, and enhanced integrity of the financial services sector. It has the potential to embolden the private sector to be more proactive as the first line of defense against financial crimes.
Muthaura is a director, financial crime control