A befitting description of a bank is its central role in financial intermediation, which they usually execute by facilitating transactions between persons. Healthy financial flows in an economy are necessary for its stability, which is in the jurisdiction of banks as the most important intermediaries.
But while the corruption chain in Kenya is intertwined with a narrative of individuals and cartels looting public money, the responsibility of this major financial industry player is often ignored or downplayed.
The scams have largely featured procurement anomalies and unusually huge financial transactions in banks, through which public money is siphoned.
The banking industry is guided by key pillars meant to guard against illicit financial transactions. The Anti-Money Laundering and Counterfeit Financing of Terrorism (AML/CFT) law, for instance, mandates banks to perform requisite due diligence checks prior to establishing bank accounts for customers. This enables them to monitor account transactions and keep records of their operations.
Financial transactions that are uncommon to a bank customer’s profile need to be reported to the Financial Reporting Centre (FRC).
With such a seemingly well-structured institutional governance system in place, the question lingers why there are numerous unusual and illicit financial transactions processed by Kenyan banks.
Glaringly unusual dealings through the banking industry have brought to light the salient truth of the banks’ (un)willing complicity in the looting of public funds, which is actualised in an apparently enabling financial environment that incubates this norm. Queries, demands and warnings from the Central Bank of Kenya have done little to prevent systemic enablement of illicit financial flows within the institutions.
A 2015 report by the Global Witness states that, while most countries have the relevant laws and regulations, a large number of banks do not uphold them and are driven by profit-making demands without accountability.
In Kenya, for instance, the Proceeds of Crime and Anti-Money Laundering Act 2009 (Pocamla) mandates the FRC to investigate and report unusual transactions within banks. Interestingly, the MPs recently amended the Banking Circular No. 1 of 2016 (additional guidelines on Large Cash Transactions) by removing the requirement that all transactions over $10,000 (Sh1 million) must have additional information on the deal first provided to banks.
Kenya’s banks and oversight agencies ought to adopt smarter and more transparent approaches in ensuring that only legitimate and accountable funds flow through the system. And multiple options exist to cure the systemic loopholes.
First, the FRC needs to be accountable and update the public on a regular basis the number of reported cases of unusual cash flows in the banking sector and the outcome of their investigations.
Secondly, banks should enhance due diligence checks to enabling high scrutiny of accounts held by public officers and politically exposed persons who execute public budgets and individuals whose main business is supplying goods and services to the government.
Lastly, the Kenyan banking industry ought to increase monetary sanctions and fines on financial institutions that allow illicit public funds to flow through their system.