Banks rush to comply with new rules on large cash

Tuesday February 2 2016



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Banks are rushing to implement a directive by the Central Bank of Kenya on large cash transactions.

Last week the lenders began writing to their customers urging them to adhere to the directive as the regulator seeks to stem money laundering and illicit money transfers.

The Central Bank early this year wrote to lenders instructing them to have their customers complete forms explaining the nature of any large cash transactions amounting to Sh1 million and above.

“We would like to notify you of an additional prudential guideline issued by the Central Bank of Kenya (CBK) on 05/01/16, regarding large cash transactions processed over the counter. With immediate effect, it is now a mandatory requirement that all customers making cash transactions equivalent to or exceeding USD 10,000 or its equivalent, must complete an ‘over the counter large transaction form’ providing the details stated below,” wrote Commercial Bank of Africa in one such a notice to its customers.

The questions that Kenyans must now state clearly when transacting deals involving large cash in banks include the source of the money being deposited/withdrawn over the counter; whether the nature of their business generates substantial amounts of cash to support the large cash transaction; why the large cash deposit or withdrawal is necessary; why the cash deposit or withdrawal cannot be made through electronic means; and also where the money will be taken to from the bank premises.

Additionally, customers will have to state what the money is going to be used for, who are the direct and indirect beneficiaries of the money, and state the full identity of the intended beneficiaries of the money.

“In compliance with this CBK regulatory requirement, all CBA customers making a large over-the -counter cash transaction will be required to complete the form for each transaction,” CBA explained in the notice seen by Smart Company.

“The regulatory introduction aims to reduce risks inherent with cash transactions and encourage the use of electronic payments which are an alternative and secure channel to process your payments.”

The noose began tightening on rogue financial institutions last November after President Uhuru Kenyatta called for tough penalties against individuals and institutions who flout anti-money laundering laws. The measures include loss of licence for banks found culpable.

Dire situation
A 2013 report by Washington-based non-profit, research and advocacy organisation, the Global Financial Integrity (GFI) captured this dire situation, saying Kenya is the easiest place in the world to open a shell company.

The report noted that global financial regulators see Kenya as a high risk place for money laundering and terrorist finance.

More recently, a joint report by the African Union (AU) and the United Nations Economic Commission for Africa, (UNECA) unveiled in September this year, showed that the Kenyan economy is haemorrhaging billions of shillings annually in illicit financial outflows. This crucial resources, experts say, could be used to invest in struggling sectors such as healthcare, education, and infrastructure.

The study estimated that Kenya could have lost as much as Sh158 billion ($1.51 billion) between 2002 and 2011.

Despite Kenya boasting of a fairly advanced — by many global standards — anti-money laundering and counter terrorist financing regulatory and legal regime, financial institutions continue to abet the vice giving authorities a headache.

“The laws have been there and financial institutions under the know-your-customer principle have been in operation. What the President is calling for is enforcement that will enable us preserve the integrity of our financial system,” National Treasury Cabinet Secretary Henry Rotich told Smart Company in an earlier interview.

In a similar directive enforcing unprecedented scrutiny on cash transfers, thousands of new Kenyan bank account holders have been completing tax forms by the United States Internal Revenue Service as the noose on tax evaders in Kenya’s diaspora tightens.

Check tax evasion

The above move came into operation as part of an inter-governmental agreement between the US and Kenya that was fronted by Washington under the terms of the Foreign Account Tax Compliance Act, which is designed to check tax evasion.

In his address to the Nation from State House Nairobi last October where he outlined unprecedented measures to re-invigorate the war corruption, the President said of the new push: “I have met with the Governor of the Central Bank of Kenya, and with the head of the Financial Reporting Centre, to discuss and agree with them how we can ensure the banking system is not used to launder the proceeds of theft and fraud.”