Proposal is informed by findings that part of the stolen cash was used to buy motor vehicles and houses.
Most cars, including used models, are currently retailing at more Sh1 million, meaning that their sale will be reported to the FRC.
Entities required to make similar filings with the FRC include casinos, real estate agents, accountants, non-governmental organisations and dealers in precious metals and stones.
Car dealers could soon be required to report customers buying vehicles worth more than $10,000 (Sh1 million) to the State financial intelligence unit as part of new measures to counter the laundering of stolen public funds.
The National Assembly’s Public Accounts Committee (PAC) says in its report on the National Youth Service (NYS) scam that car dealers should be added to the list of institutions that must report transactions above a certain threshold to the Financial Reporting Centre (FRC).
The PAC recommendation is informed by findings that part of the stolen cash was used to buy motor vehicles and houses in a well-coordinated laundering scheme.
“Reporting obligations, including guidelines of due diligence and Know-Your-Customer principles should include law firms, real estate agents, registered car dealers and other professional firms/service providers dealing in both moveable and immovable assets,” the PAC report says.
The committee wants Parliament to immediately review and subsequently amend the Banking Act and other financial laws and regulations with a view to effecting the proposal.
The recommendation, if enacted into law, could see car dealers report tens of thousands of transactions each year in a move that is expected to cause unease among some customers.
Most cars, including used models, are currently retailing at more Sh1 million, meaning that their sale will be reported to the FRC.
Such information could help various government agencies, including the Kenya Revenue Authority (KRA) and the Ethics and Anti-Corruption Commission (EACC), pursue tax cheats and individuals living on proceeds of theft.
Used car dealers said the proposed amendment is unnecessary because transfers of sums above Sh1 million — for whatever reason — through the banking system are already captured under reporting obligations of banks.
“We are doing this already. You have to fill a form recording the nature of transaction for which you are receiving money,” said Charles Munyori, the secretary-general of Kenya Auto Bazaar Association that represents used car dealers.
The PAC proposal, however, plans to unmask the car buyer whose details are to be recorded by the dealer and reported directly to the FRC rather than through banks.
But Mr Munyori said such direct reporting is unlikely to work because dealers will find a way to go around it to protect their customers and avoid incurring higher administrative expenses.
“Customers can simply split the payments into a few transactions, each falling below the Sh1 million mark,” he said, adding it is unfair to target car buyers and dealers as banks can play a more decisive role in fighting corruption.
“Any significant amount of money circulating in the market must initially pass through the financial system before being pocketed by individuals.”
PAC established that 29 commercial banks handled the NYS cash amounting to Sh1.8 billion.
Manipulation of the government’s integrated financial management software, outright forgery — including addition of zeroes to official numbers whose effect is to increase ten-fold the amounts payable — and neglect of duty were found to have facilitated the massive theft.
The cash moved through commercial banks into individual pockets and was ultimately used to buy personal assets.
Lawyers were actively involved in the asset purchase frenzy, prompting PAC to propose that they be added to the list of entities that must report to the FRC.
The Proceeds of Crime and Anti-Money Laundering Act requires banks, insurers, forex bureaus and investment managers to report all transactions above the set threshold.
They are also required to report complex, unusual and suspicious transactions to the FRC for investigations.
The FRC’s key objective is to flag and combat money laundering and financing of terrorism.
Entities required to make similar filings with the FRC include casinos, real estate agents, accountants, non-governmental organisations and dealers in precious metals and stones.
The law prescribes penalties for failure to file reports with the FRC, including a maximum fine of Sh10 million or the value of the property involved, whichever is higher.
