Ten commercial banks under investigation for processing clients’ transactions from the National Youth Service have maintained a studious silence — even as Central Bank and the Directorate of Criminal Investigations (DCI) warned of consequences that could include loss of operating licences.
With a few exceptions such as Diamond Trust Bank, which said it fulfils its prudence obligations in respect of all transactions, many banks said they could not comment on a matter under the investigation by the DCI, Office of the Director of Public Prosecutions (ODPP), National intelligence Service (NIS), Central Bank and the Kenya Revenue Authority. Some did not respond at all.
Central Bank Governor Dr Patrick Njoroge said that the theft of NYS money — through fake payment vouchers — was aided by the banks “deliberately” – and asked: “Or how else could you make a mistake on things that you are aware of?”
And yesterday, the Director of Criminal Investigations, Mr George Kinoti, also warned the banks not to hide behind the ongoing investigations.
“They should come out clean on whether prudence guidelines were flouted,” he said. “But tell them, they have touched a wrong number. We and CBK are going for them.”
However, these warnings must be treated with caution. Banks are not required to investigate their customers, arrest them or confiscate their cash.
They are supposed to comply with Know Your Customer rules — which, for example, might require the customer to explain where the money has come from and what its purpose is — and report anything suspicious to the Financial Reporting Centre.
The governor and DCI’s warning came as 24 people were charged in court on Tuesday with various counts of plundering public funds and as the hunt for more suspects continued. The next phase, according to the Director of Public Prosecutions Noordin Haji, will lead to the recovery of money and more prosecutions.
on Wednesday, the FRC, which is supposed to investigate accounts that are usually flagged by banks, was at first cagey on the issue.
FILE COMPLIANCE REPORTS
“All issues regarding banks are currently under investigation as indicated by the Director of Public Prosecutions,” Saitoti Maika, the Director-General, whose office is in the spotlight too, had at first said. Later, he said that CBK is yet to file the banks’ compliance reports for 2017 and was willing to share the previous years’ reports.
He explained that it is currently too early to tell whether the banks were complicit in facilitating the fraudulent transfer of NYS funds.
He said: “All banks filed their compliance reports with us by the January 31 deadline. We are still going through their files to ensure that nothing was overlooked. If we pick up on a suspicious transaction that they failed to report to us, we shall hold the bank as non-compliant,” he said.
This, however, does not explain what will happen in cases where banks flagged suspiciously large transactions where money was brought in and then wired out of accounts, as might have happened in the current scandal.
On December 21, 2017, Mr Maika had written to all reporting institutions to ensure those under them have filed their compliance reports to his office in FRC circular No 2 and by January 31, 2018.
While banks are required to report to FRC on their internal anti-money laundering rules and compliance of the same, regulatory institutions such as the Central Bank are not obliged to forward these to the centre. They, however, share the information on a peer to peer basis.
A banking source told the Nation that they usually file flagged accounts to FRC. “As a bank, we can only ask customers ‘where is this money coming from’ but cannot stop it from hitting our accounts. We then raise an FRC report and what they do with it is their business,” said the banker who sought anonymity.
But banks continued to hide behind investigations and were not willing to say what they did.
Stanbic Bank said its officials are “bound by the requirements of Preservation of Secrecy and as such any information (on what they did when the money was wired) can only be shared with approved authorities.”
Banks are regulated by the Central Bank and are required to comply with the provisions of the Proceeds of Crime and Money Laundering Control Act, Prevention of Terrorism Act, Banking Act and relevant Prudential Guidelines.
They are by law required to adhere to the Know Your Customer requirements and are bound to monitor and report suspicious and unusual transactions to FRC.
Kenya Commercial Bank, which is also being investigated, refused to comment on any of the issues raised – including what they did when money was wired to the bank.
“As you are aware,” said KCB, “this issue is under inquiry by legally mandated investigating authorities and is a subject matter of a court case. We therefore do not wish to comment.”
UNABLE TO COMMENT
Standard Chartered Kenya chief executive Lamin Manjang also refused to reveal any details saying: “We are unable to comment on the matter since it is under investigation by the authorised government agencies.”
Similarly, Barclays Bank of Kenya said they do not want to “compromise the quality of (the investigation) process,” adding that they “take governance very seriously and, to that end, we always co-operate fully with any investigating agencies as called upon.”
“We are aware of the ongoing investigation at the NYS. The matter is being investigated by the relevant government authorities … beyond that, we cannot comment on the matter as it is still a subject of investigation,” it said.
LETTERS OF REQUEST
The Nation formally sent letters of request for comment to Equity Bank, Co-operative Bank, and Consolidated Bank which are also mentioned by investigators, but they did not respond by the time of going to press.
Whereas the transactions of the customers of those banks are under investigation, the Nation does not accuse any of the banks, including those that did not respond to requests for comment, of wrongdoing, a situation which can only change at the conclusion of ongoing investigations.