Banks must report suspicious transactions to beat terrorism
As investigations into the recent terrorist attack on 14 Riverside Drive that left 21 people dead and scores injured continue, I am astonished by the revelations coming out of the court proceedings, especially regarding money laundering and terrorism financing.
It seems the criminals are ahead of us in targeting weak links in the financial systems.
Until recently, the most popular money laundering technique was smurfing, that is, placing small amounts of dirty money into financial institutions in ways that do not trigger suspicious reporting requirements.
The court proceedings show that these criminals have now become adept at exploiting loopholes in our mobile money, the fastest-growing segment of our financial systems, to dodge reporting.
They use false identification documents to obtain subscriber status. By registering multiple distributor agency shops, they withdraw large sums of money from banks and elude reporting by disguising it as ‘float’ being transported to mobile money distributor shops.
That is a worrisome trend because, at this rate, we are increasingly going to be exposed as lacking in capacity to deal and manage the threats that international money laundering poses to our financial systems.
It seems that prevention and blocking the loopholes exploited by criminals who perpetrate terrorism financing is not among the high security enforcement priorities of our time. For, truth be told, we don’t have a suspicious reporting system to speak of in this country.
Four years, ago, in the wake of the Garissa University massacre, the government moved to suspend the licences of 13 Somali-domiciled cash transfer companies and announced that it also planned to freeze accounts of a dozen individuals, NGOs and travel agencies suspected to be funding terrorists.
Shortly after, the issue of dealing with entities suspected to be involved in perpetrating terrorism financing was put on the back burner.
More recently, the Governor of the Central Bank of Kenya, Dr Patrick Njoroge, came out — for the first time in the country’s history — to slap fines on banks for lapses and poor reporting of anti-money laundering and suspicious transactions.
The fines touched on illegal payments laundered out of State coffers by perpetrators of the infamous National Youth Service scandal through the banking system.
Even more interesting was the fact that all of our top-rated banks were caught in the dragnet. If the top banks can be found to have shown such material weaknesses and lapses, what should we expect of smaller lenders with less resources to devote to anti-money laundering reporting?
Clearly, to stem money laundering and terrorist financing activities, our banks will have to take the job of reporting suspicious transactions more seriously.
A few months ago, Kenya Bankers Association came up with new guidelines on large cash transactions. It said that bank customers will now be required to provide evidence and proof of source of funds when depositing large amounts.
The deliberations of the court proceeding in the Dusit terrorist attack have shown that these guidelines are honoured more in breach than in practice.
And it is not as if we don’t have a good enough legal framework for combating money laundering and terrorism financing.
We have both a proceeds of crime and anti-money laundering law and another to combat terrorism financing.
In addition, we have a full-fledged financial reporting centre — Financial Reporting Centre — complete with infrastructure to trace, seize and confiscate proceeds of illegal payments and other forms of suspicious currency transactions.
At present, the law requires commercial banks to report all transactions above Sh1 million to the FRC on a daily basis.
But the problem is that, even though FRC receives and processes information on suspicious transactions, it does not have a database robust enough to process the information and flag the suspicious deal in real time.
Yet the information coming through is massive. With limited data capability, FRC cannot do much. You don’t put a 40-foot-container on top of a Volkswagen Beetle and expect the car to carry the weight!
Another tell-tale sign of our financial system’s vulnerability to suspicious transactions is the mushrooming forex bureaus that operate with scant regard of Central Bank’s KYC (know your customer) guidelines.
CBK should crack down on banks found to have abetted terrorism financing. Only then shall we start seeing banks taking KYC and reporting of suspicious transactions seriously, which will deal a blow to terrorism.