Step up money laundering warFriday January 27 2023
I smell a rat. I think that there are plans afoot by the incumbent political elite to do away with the anti-money laundering rules that require customers to disclose the source, use, and beneficiaries before getting clearance to withdraw or deposit at least Sh1 million in cash.
Currently, the law requires commercial banks to report all transactions above Sh1 million to the Financial Reporting Centre (FRC) daily.
The argument that some of the anti-money laundering regulations were introduced without the approval of a committee of parliament as demanded by the Statutes Amendment Act is a red- herring.
The truth of the matter is that the political elite in this country will instinctively rally together to oppose the introduction of any rules seeking to close loopholes for money laundering.
Read: Kenya flags betting jackpots for money laundering
It is an open secret that lawyer-client accounts and safe deposit boxes are used by the elites as conduits for hiding money.
Yet we all saw how MPs close ranks to oppose the National Treasury’s effort to introduce advocates and law firms to the list of institutions which must report suspicious financial transactions to the FRC.
They wanted the rest of us to accept that the principle of advocate-client confidentiality was more important than the high public interest issues which the anti-money laundering rules and regulations sought to introduce.
Under the current IMF programme being implemented by the government, we have agreed with lenders that all contractors and suppliers providing services to public institutions must disclose ultimate beneficial ownership of the companies.
Although this is an important performance benchmark under the IMF program, the idea has been met with stiff opposition.
The truth of the matter is that the political elite in this country just love cash. The attitude of members of the public encourages it.
When a flashy, flamboyant and rich politician docks at your church or funeral gathering to donate millions of shillings and opulently display thick wads of cash, is it not just obvious that the money did not come from the inside of a bank — and, therefore, it most likely originated from proceeds of corruption?
Were the thick wads of banknotes donated to schools and churches coming from a bank and sourced from genuinely acquired wealth, these benevolent elites would be writing cheques to these churches, wouldn’t they?
I ask because when you have to pay out money today, there are many alternatives to cash. You can channel the payment through Real Time Gross Settlement Systems (RTGSS), which have the capability of transferring the money from your bank straight to the bank of the church or school you are supporting.
Even M-Pesa can do it. You just give your bank a list of beneficiaries and instruct it to credit their accounts. Indeed, Kenya has one of the most advanced mobile payment platforms in the world.
There is also PesaLink, a bank-based platform that facilitates payments between banks. And all banks have mobile banking platforms.
We must limit large cash withdrawals because we have learnt from recent experience that we have a national payments system that repeatedly falls prey to narcotic trade, cross-border charcoal trading, and terrorist financing.
The evidence may be anecdotal but it appears that the biggest type of money laundering taking place within our financial system is the laundering of proceeds of corruption.
This is what we witnessed in the National Youth Service (NYS) scandal in the way agents of corrupt elites were receiving and withdrawing huge sums of illicit cash stuffed in gunny bags.
Today, you hear sensational tales of how some corrupt prominent public officials have been concealing sources of illicit flows by using opaque lawyer-client accounts to remit loan repayment to banks.
Money laundering cannot only create huge liquidity problems for a bank but even precipitate a bank run.
As we saw with the NYS transactions, huge sums of laundered money may arrive at a financial institution but then disappear in a matter of hours.
Read: Walk the talk on graft, money laundering war
These sudden withdrawals of huge amounts of laundered money can exert untold pressures on liquidity, especially for small banks.
Three years ago, CBK governor, Dr Patrick Njoroge, unprecedentedly slapped fines on a number of banks for failure to detect and prevent proceeds of money laundering from the NYS scandal.
What was even more interesting in that episode was the fact that all of our top-rated banks were caught in the dragnet.
We must strengthen our anti-money laundering legal framework. Obeying and following The Statutes Amendment Act is not a bad thing.
You must stop rogue ministers from introducing substantive laws through regulations. Where I disagree is when greedy and corrupt elites invoke that piece of legislation to insulate themselves from the consequences of breaching anti-money laundering laws and regulations.
Laws must also have public legitimacy. The Hustler Fund was introduced through regulations. The Credit Reference Bureau framework also came through regulations. We are splitting hairs.