Money Markets
CBK governor Patrick Njoroge. He said the regulator is seeking to amend
the CBK Act to enhance the maximum penalty to be meted on banks that
flout the law. PHOTO | FILE
By EDWIN MUTAI, emutai@ke.nationmedia.com
In Summary
The Central Bank of Kenya (CBK) slapped three
commercial banks with a fine totalling Sh3 million for failing to report
suspicious transactions relating to the Sh791 million National Youth
Service (NYS) scandal, Governor Patrick Njoroge revealed in Parliament
Thursday.
Dr Njoroge said the banking industry regulator also forced
the sacking of nine top managers of Family Bank where the bulk of the
money stolen from NYS was paid to Ms Josephine Kabura, the businesswoman
at the centre of the scandal.
He told the National Assembly’s Public Accounts
Committee (PAC) that four other managers at Sidian Bank, formerly known
as K-Rep, are undergoing tests that the CBK is undertaking to ascertain
whether that they are fit to hold office.
Central Bank says it is also vetting managers of Faulu Microfinance who were involved in transactions connected to the NYS loot.
Dr Njoroge said the banking regulator is seeking to
amend the CBK Act to enhance the maximum penalty to be meted on banks
that flout the law.
Targeted inspection
Following information received from the Financial
Reporting Centre (FRC) on specific transactions, the CBK conducted a
targeted inspection on Family Bank that eventually led it to Sidian Bank
and Faulu Microfinance.
“We established that there have been cases of
flouting prudential guidelines and we took enforcement action. We levied
a maximum penalty to Family Bank. We fined them Sh1 million. We also
required re-vetting of nine officers who were responsible since there
was culpability on their part,” he said.
Dr Njoroge said the findings at Family bank, Sidian
Bank and Faulu were presented to the FRC who are allowed by law to take
up any criminal charges against the officers found culpable.
“They are allowed to take up criminal charges. They have corresponding responsibility which is in their domain,” he said.
Dr Njoroge said when CBK conducted targeted inspection, it saw transactions leading to other banks.
“We went to those subsequent banks and did targeted
inspection. At Faulu Microfinance, we saw some transactions and we
followed the money trail. We levied penalties to this bank. The third
bank (Sidian) we saw that there has been some infractions and taken
action to enforce. We imposed a maximum penalty of Sh1 million to each
of the banks,” he said.
Ignored red flag
Dr Njoroge also turned the spotlight on Treasury
Director General Accounting services and the Ministry of Devolution
where the NYS fell under at the time of the scandal.
He accused the government officers of ignoring a red
alert that GT Bank raised on Sh86.4 million that was wired to Out of the
Box Solutions Limited, a firm that ended up receiving a total of Sh218
million from NYS.
He said the GT bank raised issues on the payment to CBK
which directed the same to the accountant general and the ministry of
devolution for action. Dr Njoroge said the CBK asked GT Bank not to pay
the money pending a response.
“We wrote a letter that was followed up with
numerous phone calls asking Treasury and the parent ministry to explain
the payments. This is after GT bank notified us of the huge transaction.
The two ministries never gave us a response,” he said.
Dr Njoroge said the CBK has no role in stopping
payments made by individual ministries to their vendors but only
provides a system where money is wired to commercial banks to pay the
suppliers.
“We only check if the payments are authorised by
signatories who are in our system. The responsibility lies with the
institutions and the commercial banks making payments to conduct proper
due diligence,” he told MPs.
He said the concerned departments generate the
payments through the Integrated Financial Management System (Ifmis),
which is then transmitted to the G-Pay at the CBK and the same is
electronically effected through the Kenya Electronic Payment Settlement
System (KEPPS).
“There is no manual contact. The system is
automated and once we check that signatories making payments are
authorised, the money is released to the commercial banks. The banks
then pay the beneficiaries after conducting due diligence,” he said.
He said a similar concern had been raised by
Development Bank after Sh48 million was wired to its accounts to be paid
to Bora Global Ltd but the director general accounting services cleared
for payments.
MPs are probing payments made by the NYS after
Auditor General Edward Ouko said in a special audit report that up to
Sh1.8 billion was stolen from the NYS.
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