Crack down on money laundering cartels

Opinion and Analysis

 

Mr Alex Mutungi Mutuku (centre)and Mr Stanley Kimeu Mutua in a Nairobi court. PHOTO | FILE

By JAINDI KISERO, jkisero@ke.nationmedia.com

In the wake of the Garissa University College massacre, the government this week moved to suspend the licences of 13 Somali cash transfer companies even as it announced that it was also planning to freeze accounts of a dozen individuals, NGOs and travel agencies suspected to be funding terrorists.

Critics instantly dismissed the move as a typical knee jerk reaction which although targeting the guilty, may end up hurting the innocent.

Did the government have to wait for the Garissa massacre to happen to make its move on the forex bureaus?

The events have brought the whole issue of money laundering to the fore. We cannot blame the perceived upsurge of money laundering and other forms of suspicious transactions on the lack of laws.

We have both a ‘proceeds of crime and anti- money laundering law and a law to combat terrorism financing.

In addition, we have a fully- established financial reporting centre, complete with infrastructure to trace , size and confiscate proceeds of illegal payments and other forms of suspicious currency transactions.

Yet even as the government was cracking down on forex bureaus, I still found myself asking myself whether we know enough about the incidence money laundering activity in this country.

Because of the secretive nature of money laundering, determining the incidence and gravity of the problem is not easy. What is clear, however, is that the structure of our financial system lends itself to a high incidence of money laundering.

Experience has shown that money laundering thrives in cities with many small banks and especially in territories with large immigrant and expatriate populations.

We have too many small banks, a good number of which are one- branch operations located in obscure parts of the capital city.

But the tell-tale signs are the mushrooming forex bureaus in Nairobi. Indeed, Nairobi’s central business district is littered with money changing firms competing for survival in a very small market.

Is it just a coincidence that Nairobi’s Eastleigh has such a large number of forex bureaus?

From being small entities handling small transactions, the typical forex bureau in Eastleigh has grown into a big operation capable of out-competing large commercial banks in servicing large foreign exchange deals.

And, most forex bureaus do not apply high ‘know your customer” standards and other prudential regulations that oblige commercial banks to report suspected cases of money laundering.

Today, you can walk into a forex bureau with tens of thousands of dollars in cash and change it over the counter of a forex bureau in a matter of minutes.

Clearly, the forex bureau is the financial sector’s link to the world of shadowy business.

The policy implications are clear. If we are to reduce the incidence of money laundering, the starting point would be for the Financial Reporting Sector to introduce tougher rules to commit forex bureaus to regularly report shadowy transactions.

It will also need to strengthen the training of its inspectorate staff in anti-laundering surveillance.

Self-regulation should also be explored. In some countries foreign currency dealers have come up with codes of conduct which are observed by members of their association.

Countries have also sought technical assistance from institutions such as the International Monetary Fund on best practice.

Money laundering can pose serious economic challenges for a country because it involves cross border currency flows.

A high incidence in money laundering activity will make it difficult for monetary authorities to track currency movements.

Money laundering can cause unpredictability and volatility of both the exchange rate and interest rates.

Money laundering redirects incomes from sound to low-quality investments. Let’s make money laundering a top agenda item of our economic policies.