President Kenyatta has earned plaudits for a supposedly decisive move against corruption barons suspected to be hoarding large amounts of illicit cash.
The decision to remove the current Sh1,000 denomination banknotes from circulation on introduction of new currency is interpreted as a strike at the heart of those storing huge amounts of cash outside the formal financial systems.
Given a historic opportunity to address the nation at the Madaraka Day celebrations in Narok on Saturday, Central Bank Governor Patrick Njoroge announced an October 1 deadline for withdrawal of the Sh1,000 notes, which will, on that day, cease to be legal tender.
This means that the old notes, which have not been exchanged for the new ones or otherwise put back in circulation within the banking system, become worthless pieces of paper.
According to Dr Njoroge, the move was taken because large amounts of cash outside the banking system indicate illicit financial flows.
He did not have to add that the proceeds of corruption and transnational crimes — including trade in narcotics, illegal arms, wildlife trophies and other contraband — are usually kept in cash until ‘laundered’ into the system. So are monies used or earned in organised crime, including terrorism.
Tycoons intent on evading the taxman also hold large amounts of cash, as do politicians for whom illicit slush funds are an integral part of the business of buying support through ‘charity’ fundraisers or direct cash injections to political causes.
Curbing the circulation of dirty money is, therefore, a key component of President Kenyatta’s anti-corruption war. It’s also a national security imperative.
But if the government is, indeed, serious about tackling the threat of dirty money, questions can be raised on why a full four months were given instead of a shock deadline of a month or less. The timespan seems designed to allow the culprits to progressively move their illicit money into the formal economy rather than face the threat of a sudden wipe-out.
However, the move comes at a time that the CBK, the Directorate of Criminal Investigations and the Director of Public Prosecution have tightened the screws on banks that have been less than prudent in adherence to reporting regulations on large or suspect money movements.
It is, therefore, likely that sudden cash infusions into bank accounts or spikes in foreign currency purchases will not escape the attention of the authorities and that will come with demands for an explanation on its source.
Land, property, and motor vehicle dealers and other merchants who prefer cash to conceal their transactions and earnings from the taxman will also now be chary about continuing in that fashion.
Estimates on how much money is stashed away in mattresses, wardrobes, roof ceilings and other places outside the formal banking system vary wildly. Barely educated guesswork suggests that anything between Sh100 billion and Sh500 billion could be recovered into the formal economy in the four months.
Much could depend, however, on if President Kenyatta has the stomach to face likely political fallouts.
If much of the illicit funds are held by powerful politicians, fierce resistance should be expected.
Just a day after the announcement, allies of Deputy President William Ruto raised eyebrows by not only supporting the move on the withdrawal of the Sh1,000 note but suggesting that the deadline should have been much shorter. This stance was surprising, coming from a group conditioned to crying foul and claiming victimisation around almost every anti-corruption initiative.
Mr Ruto’s 2022 presidential election campaign has attracted attention with the large amounts of cash dished out to much fanfare at public rallies every weekend, raising questions about the source of funds.
In the immediate aftermath of the CBK announcement, some observers were quick to voice suspicion that he could be the target, but were obviously disarmed by his message of support.
Another problem could be from President Kenyatta’s own political base. Just a week before Madaraka Day, the President had directed the Kenya Revenue Authority and other agencies to hasten release of container-loads of imported goods detained for various reasons.
Presidential intervention was dictated by cries from players in a vast underground economy hard hit by a crackdown on smugglers, customs duty evaders and importers of counterfeit and substandard goods. Many of those affected happened to be from the community that forms the bedrock of his political support, so government policy was reversed to appease them.
It would not be surprising if similar pressure is applied on the currency note decision.
[email protected]; @MachariaGaitho