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Kenya’s banking business has in recent times been within the crosshairs of nationwide, regional and worldwide watchdogs, given the nation’s function as a monetary hub in jap Africa. In 2023 Kenya enacted legal guidelines to curb cash laundering and fight terrorism financing.

Whereas the legal guidelines have led to harder sanctions on some banks, the chance of cash laundering stays, and the nation was just lately greylisted by the Monetary Motion Job Pressure. A gray record accommodates international locations which might be actively working with the Monetary Motion Job Pressure to deal with loopholes in countering cash laundering, terrorist financing, and proliferation financing.

Constance Gikonyo, a company legislation educational who has researched the place of banks and piracy in cash laundering, solutions questions on current loopholes.

How is cash laundered by means of banks?

Cash gained illegally may be laundered by putting it into the monetary system, by means of banks. Those that launder cash usually interact in “smurfing” and “structuring”. That is the breaking down of enormous sums of cash into smaller transactions in order to evade the reporting threshold and to keep away from suspicion. In Kenya, the reporting threshold has been elevated from US$10,000 to US$15,000. Banks must report sure transactions to the Monetary Reporting Centre.

As soon as within the monetary system, the cash is moved round in a course of referred to as layering. Funds are moved by means of completely different banks utilizing completely different transactions and financial institution accounts in order to disguise the illicit origin of the cash.

As soon as the cash is disguised, the banks will once more be concerned within the technique of integration. That is the place the cash is deposited into the checking account of the individual or entity that lastly makes use of it. That method, the prison proceeds are built-in with legit funds. These funds make their method into the financial system by means of investments similar to buying a property.

Why are banks the prime targets of cash launderers?

Banks supply a gateway into the monetary system. As soon as the funds are within the monetary system it’s simpler to disguise their unlawful origin. Additionally, technological developments and integration of the worldwide monetary system makes it simpler and sooner to maneuver the cash round and throughout borders.

Some banks have weak know-your-customer procedures – obligatory checks meant to identification and confirm clients when opening an account and periodically over time. These may be exploited. Banks don’t at all times proceed monitoring clients successfully.

There are additionally instances of complicit people inside banks utilizing the system to help cash laundering.

What are the duties of banks?

Kenya’s legislation, the Proceeds of Crime and Anti-Cash Laundering Act, imposes duties on banks in looking for to take care of cash laundering. Banks should:

  • Consider their clients totally. The due diligence ought to be primarily based on an evaluation of the client as a threat. The riskier a buyer seems to be, the extra complete the analysis ought to be.

  • Hold data of transactions and buyer identification info for at the least seven years after the top of engagement.

  • Report suspicious transactions and money transactions of US$15,000 or extra to the Monetary Reporting Centre, an company created underneath the identical legislation for the aim of preventing cash laundering.

  • Rent cash laundering compliance officers and guarantee steady employees coaching on anti-money laundering and combating financing to terrorism. All banks are required to develop inside insurance policies, procedures and controls to fight these crimes.

What challenges do banks face in preventing cash laundering?

Technological developments imply that cash launderers could be a step forward of the measures the banks have put in place. The criminals can discover methods to keep away from detection by the programs in banks. The rise of digital and cyber-enabled monetary crimes will increase the problem for banks. Compliance necessities imply banks must spend money on personnel, expertise and coaching. This will increase their operation prices. Banks additionally spend money on analysis to assist establish weaknesses of their programs.

Banks must stability regulatory necessities with customer support and buyer privateness. Buyer background checks may be intrusive however a financial institution faces sanctions and reputational dangers if it doesn’t do them.

Corrupt people working in banks can help in cash laundering. Banks ought to vet employees after they rent them, particularly these in delicate roles, and repeatedly monitor them.

The worldwide nature of the monetary system means banks should take care of monetary establishments and completely different regulatory requirements in several jurisdictions. Compliance with all these could be a problem. Criminals will establish the loopholes and gaps created by these variations and search to use them.

What are the principle markers of a well-governed monetary system?

A well-governed monetary system has efficient insurance policies and practices for combating cash laundering and financing of terrorism. The related authorities make sure the legal guidelines are enforced. There also needs to be worldwide cooperation, and engagement between the non-public sector and related regulatory and enforcement companies.

Efficient supervision by the central financial institution is a function of a effectively ruled system. Central banks guarantee the steadiness, soundness and integrity of the banking system. They need to set up a correct regulatory framework for banks, tighten their licensing and approval processes, guarantee steady monitoring and examination of sector gamers, and supply early warning programs. Weak supervision would imply that customers weren’t adequately protected. This results in lack of public belief and worldwide confidence. Monetary instability could possibly be the top consequence.

The private and non-private sectors ought to collaborate actively. In Kenya the Monetary Reporting Centre and the Regulation Society of Kenya are working collectively in direction of implementing the anti-money laundering provision which requires legal professionals to report entities that make suspicious transactions.

Regulatory our bodies and legislation enforcement companies want assets to do their work. Stopping, figuring out and coping with monetary crimes requires funds to innovate, to develop employees capability and for infrastructure.

Transparency and accountability in monetary establishments encourages compliance with regulatory requirements. Banks with a tradition of innovation and funding in new applied sciences are finest positioned to realize transparency and accountability.


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