Three banks fined Sh3m for failing to report on NYS scam

The Central Bank of Kenya slapped three commercial banks with a total fine of Sh3 million for failing to report suspicious transactions relating to the Sh791 million NYS scandal, Governor Patrick Njoroge told Parliament yesterday.

Dr Njoroge said the banking industry regulator also forced the sacking of nine top managers at Family Bank, where the bulk of the money stolen from National Youth Service (NYS) was paid to Josephine Kabura, the businesswoman at the centre of the scandal.

Governor Njoroge told the National Assembly’s Public Accounts Committee that four other managers at Sidian Bank (formerly K-Rep), are undergoing “a fit and proper test” that the CBK is undertaking to ascertain whether they are fit to hold office.

The CBK is also vetting managers of Faulu Microfinance, who were involved in the transactions involving the NYS loot.

Dr Njoroge said the regulator is seeking to amend the CBK Act to enhance the maximum penalty against banks that flout the law.

He said following information received from the Financial Reporting Centre (FRC) on specific transactions, the CBK conducted a targeted inspection of Family Bank that eventually led it to Sidian Bank and Faulu Microfinance.

“We established that there have been cases of flouting prudential guidelines and we took enforcement action. We levied a maximum penalty to Family Bank. We fined them Sh1 million. We also required re-vetting of nine officers who were responsible since there was culpability on their part,” he said.

MONEY TRAIL

Dr Njoroge said the findings at Family Bank, Sidian Bank and Faulu were presented to the FRC, which is allowed by law to take up any criminal charges against the officers found culpable.

“They are allowed to take up criminal charges. They have corresponding responsibility which is in their domain,” he said.

Dr Njoroge said when the CBK conducted targeted inspections, it saw transactions leading to other banks.

“We went to those subsequent banks and did targeted inspection. At Faulu Microfinance, we saw some transactions and we followed the money trail. We levied penalties to this bank. (In) the third bank (Sidian) we saw that there has been some infractions and taken action to enforce. We imposed a maximum penalty of Sh1 million to each of the banks,” he said.

Dr Njoroge also turned the spotlight on the Treasury director-general of accounting services and the Ministry of Devolution, accusing officers at those entities of ignoring an alert that GT Bank raised on Sh86.4 million that was wired to Out of the Box Solutions Limited, a firm that ended up receiving a total of Sh218 million from the NYS.

He said GT Bank raised issues to the CBK on the payment and the regulator directed the queries to the Ministry of Devolution and accounting officers for action. Dr Njoroge said the CBK asked GT Bank not to pay the money pending a response.

“We wrote a letter that was followed up with numerous phone calls asking Treasury and the parent ministry to explain the payments. This is after GT Bank notified us of the huge transaction. The two ministries never gave us a response,” he said.

Dr Njoroge said the CBK has no role in stopping payments made by individual ministries to their vendors but only provides a system where money is wired to commercial banks to pay the suppliers.