Account-holders of suspicious deposits in banks in Kenya are being tipped off to move their cash before authorities can seize them dealing a body blow to the fight against money laundering.
According to the law in Kenya, the police or any other investigating arm must obtain a court order by presenting evidence linking the deposits to a criminal violation before demanding one’s bank records or freezing an account.
The International Narcotics Control Strategy report released this week calls on Kenya to strengthen the rollout of good governance and anti-corruption measures and improve its anti-money laundering cum combating the financing of terrorism regime.
“Kenya currently has no individual reporting requirement in place for large cash transactions, although banks must report large transactions to the Financial Reporting Center (FRC). Suspicious transaction reporting is scanned and sent to the FRC via email,” the report said.
In October last year, President Uhuru Kenyatta directed the banking industry to vacate a requirement for banks to record and declare all transactions above $10,000 or at least Kes1 million.
Mr Kenyatta said the move “will facilitate easy transactions for micro, small and medium enterprises and help the economy respond to Covid shocks.”
The US report adds that Kenya is not well-equipped or with trained personnel who can effectively monitor and help combat the increasingly complex cyber tools for money laundering, including virtual currency.
At the moment, the Central Bank of Kenya (CBK) cautions banks and the public not to engage in digital asset trades, but authorities have not developed a framework to address digital asset threats.
In February, the CBK proposed a digital currency, a product that will allow Kenyans to directly keep cash at the top bank, placing it in direct competition with commercial lenders for deposits.
The Kenyan version of the Central Bank Digital Currency (CBDC), whose introduction has been under debate for the last few years, will be exchangeable on a one-to-one basis with physical cash.
Kenya’s mobile cash transfer segment is also vulnerable to money launderers, the report notes.
“Tracking and investigating suspicious transactions within the mobile money sector remains challenging. Poor oversight and enforcement in this sector increase the risk of abuse,” it reads in part.
The report, which was submitted to US Congress, said Kenya’s increasing number of mobile money lenders are not closely regulated despite the widespread use of mobile lending applications.
According to CBK, Kenyans made 1.9 trillion mobile money transactions in the first 11 months of 2021, worth more than $55 billion.
Kenya’s proximity to Somalia makes the country an attractive destination for money from unregulated sectors in Somalia including the khat and charcoal business.
Further, goods reported at points of entry as transiting Kenya are not subject to customs duties, but authorities acknowledge many such goods are sold in Kenya. The trade is often used to offset transactions in regional hawala networks.