Sometimes last year, the Nation exposed an international money laundering syndicate that involved Chinese operating in Nairobi targeting businesses out to make quick cash.
It involved credit cards believed to have been stolen or cloned from leading companies in China.
The foreigners in the syndicate run credit cards loaded with cash on the Point of Sale machines purporting to be purchasing goods or services rendered by the Kenyan business. In a moment, the money will reflect in the firm’s bank account but, in reality, no actual business has been transacted.
That is money laundering.
Money laundering is the act of concealing the transformation of profits from illegal activities and corruption into “legitimate” assets. Globally, there are three distinct steps of laundering money: Placement, layering and integration.
Placement refers to the act of introducing money obtained through illegitimate means into the financial system. Layering involves concealing the source of that money by a series of complex transactions and bookkeeping tricks. Integration is the act of acquiring that money in purportedly legitimate means.
After money has been suitably laundered, it can be used in the mainstream economy for accumulation of wealth, acquisition of property or to run legitimate business. It is sometimes used more generally to include misuse of the financial system involving things such as securities, digital currencies, credit cards and traditional currency.
Money laundering, in its entirety, has consequences that can ruin a country’s economy. It’s a problem not only in the world’s major financial markets and offshore centres, but also in emerging markets.
Commercial banks are susceptible to risks from money launderers. There is a very thin line between a financial institution suspecting that its products and services are targeted and one that is criminally involved with the activity. Banks that are discovered to be laundering money could lose business and face legal consequences and have directors face prosecution.
There is the increased pressure on bank employees to deliver on the job and bring in new business in opening of accounts, sale of credit cards and new deposits to drive up profits and enable banks to adequately manage their assets, liabilities and operational costs. At times, proper know-your-customer (KYC) procedures and due process are not followed.
The government has been vigilant to combat money laundering by passing anti-money laundering regulations. These require banks and financial institutions to have systems in place to detect and report suspicious transactions. Banks are, therefore, strategically positioned and, thus, have set up systems to curb the vice. Many have signed international agreements to that effect.
The anti-bank fraud units in every bank must remain vigilant and map out and mitigate the risks banks face at every stage of money laundering and then work with law enforcement agencies and overlay the relevant legislative compliance elements.
This combined approach is strategic to target each of the three stages and ensure the banks’ products and services are safeguarded and the criminals exposed early.
In Kenya, there is the Financial Reporting Centre (FRC), created by the Proceeds of Crime and Anti-Money Laundering Act (Pocamla) 2009, with the objective of assisting in the identification of the proceeds of crime and the combating of money laundering. In pursuit of its mandate, the FRC receives and maintains a register of reporting institutions, annual compliance reports and reports on cross-border conveyance of monetary instruments.
The Central Bank’s guidance notes are designed to help financial institutions to conduct a money laundering and terrorism finance risk assessment. The purpose of this is to ensure that the assessments are compliant with the CBK’s Prudential Guidelines on Anti-Money Laundering and Combating the Financing of Terrorism and Regulation of the Proceeds of Crime and Anti-Money Laundering (POCAML) Regulations.
The buck, then, must stop with commercial banks, who must be very deliberate in exhibiting the highest level of integrity — do proper KYC at accounts opening stage, remain vigilant through anti-money laundering officers and report every suspicious transaction to the authorities.
It is important that banks adopt and enforce the legal procedures in deposit taking and tighten the noose on employees likely to collude with criminals and circumvent the bank’s depository procedures to launder money.
Mr Nunda is senior adviser, finance and strategy, Howard Group. [email protected]