In February, Sh32 billion in fake foreign currency was found in a residential house in Ruiru town, while in October 2018, fake foreign cash totalling Sh1 billion was recovered at an apartment in Westlands, Nairobi. In all, the police have found over Sh35 billion in fake foreign currency in Nairobi in less than six months.
Perhaps the most daring of these fake currency acts has been the attempt to hide over Sh2 billion in a safe deposit box of a tier-1 bank at the heart of the Nairobi city centre. Ordinarily, criminals hide cash, and only take it to the bank when they want to “clean it” and use it for seemingly legitimate purposes.
For bank staff, safe deposit boxes present a particularly difficult channel to monitor because they are private and accessible only to the holder or his authorised agent.
What can banks do to continue rendering the safe deposit box services while still satisfying Central Bank of Kenya and international anti-money laundering compliance requirements to monitor and report suspicious activities involving safe deposit boxes? How do you define “suspicious” when the bank is blind to what is stored in the deposit boxes?
While banks often require that safe boxes are only granted to existing bank customers, this is insufficient. Such customers should have been in existence for a period of time sufficient for the bank to build a transactional history of the account. Otherwise customers will open an account just to get the benefit of a safe deposit box.
In the absence of a transactional history, banks may perform background checks using systems such as Refinitiv’s World Check service to highlight potential high risk and politically exposed customers. This will help to understand the customer, his activities and reasons for having a safe deposit box.
Given that there are no “transactions” involved when handling safe deposit boxes, a transaction monitoring system will be of little use in detecting suspicious activities involving such customers. The bank will rely on its frontline staff to identify and report suspicious acts.
Frontline staff should note unusually frequent visits particularly if they are inconsistent with the customer’s declared business. A discrepancy between the customer’s profile and his need for a safe deposit box is a potential red flag. For example, elderly persons, students or persons from an out-of-town area may be used as cover for the true owners of the safe deposit box.
A change in visiting patterns may also provide a red flag. For example, a customer may start carrying larger bags in and out of the secure area or spend longer in the safe deposit box area. These may indicate illegal activities going on there. Customers who always come in at the same time or shortly before or after another client but have not declared any relationship may also be potential red flags.
A customer with frequent visits to the safe deposit box area but no transactional activity in his bank accounts may also pose a higher risk. A person who makes deposits slightly below the reportable amounts immediately after visiting his safe deposit box would also be of interest to the bank. This may be an indication of large amounts of cash held in the deposit boxes being laundered as small deposits to avoid regulatory scrutiny.
Cases where the authorised agent appears to have more interest in the safe deposit box than the primary customer may also suggest that the primary customer is being used as a cover for the true beneficial owner. This may also be the case where a customer with a long transactional history is only named as an authorised agent and not the primary safe deposit box holder whereas the primary box holder is relatively new to the bank.
While the indicators above cannot by themselves be relied on as proof that a safe deposit box holder is laundering money, they provide potential red flags.
Trained front-office staff are important in identifying suspicious behaviour and quickly reporting such to the financial reporting centre.
The writer is Risk & Financial Crime Specialist, East & West Africa, Refinitiv.