Kenya currency notes. Ten commercial banks under investigation for
processing clients’ transactions from the National Youth Service have
maintained a studious silence. FILE PHOTO | NMG
Summary
- Ten of Kenya’s biggest and best run banks handled the bad cash.
- Diamond Trust Bank, which said it fulfils its prudence obligations in respect of all transactions.
- Many banks said they could not comment on a matter under the investigation by the DCI, ODPP, National intelligence Service, Central Bank and KRA.
- Central Bank Governor Dr Patrick Njoroge said that the theft of NYS money was aided by the banks “deliberately”.
Ten commercial banks under investigation for processing clients’
transactions from the National Youth Service have maintained a studious
silence — even as Central Bank and the Directorate of Criminal
Investigations (DCI) warned of consequences that could include loss of
operating licences.
With a few exceptions such as Diamond Trust Bank,
which said it fulfils its prudence obligations in respect of all
transactions, many banks said they could not comment on a matter under
the investigation by the DCI, Office of the Director of Public
Prosecutions (ODPP), National intelligence Service (NIS), Central Bank
and the Kenya Revenue Authority. Some did not respond at all.
Central
Bank Governor Dr Patrick Njoroge said that the theft of NYS money —
through fake payment vouchers — was aided by the banks “deliberately” –
and asked: “Or how else could you make a mistake on things that you are
aware of?”
And yesterday, the Director of Criminal
Investigations, Mr George Kinoti, also warned the banks not to hide
behind the ongoing investigations.
“They should come out clean on whether
prudence guidelines were flouted,” he said. “But tell them, they have
touched a wrong number. We and CBK are going for them.”
However,
these warnings must be treated with caution. Banks are not required to
investigate their customers, arrest them or confiscate their cash.
They
are supposed to comply with Know Your Customer rules — which, for
example, might require the customer to explain where the money has come
from and what its purpose is — and report anything suspicious to the
Financial Reporting Centre.
The
governor and DCI’s warning came as 24 people were charged in court on
Tuesday with various counts of plundering public funds and as the hunt
for more suspects continued. The next phase, according to the Director
of Public Prosecutions Noordin Haji, will lead to the recovery of money
and more prosecutions.
on Wednesday,
the FRC, which is supposed to investigate accounts that are usually
flagged by banks, was at first cagey on the issue.
Compliance reports
“All
issues regarding banks are currently under investigation as indicated
by the Director of Public Prosecutions,” Saitoti Maika, the
Director-General, whose office is in the spotlight too, had at first
said. Later, he said that CBK is yet to file the banks’ compliance
reports for 2017 and was willing to share the previous years’ reports.
He
explained that it is currently too early to tell whether the banks were
complicit in facilitating the fraudulent transfer of NYS funds.
He
said: “All banks filed their compliance reports with us by the January
31 deadline. We are still going through their files to ensure that
nothing was overlooked. If we pick up on a suspicious transaction that
they failed to report to us, we shall hold the bank as non-compliant,”
he said.
This, however, does not
explain what will happen in cases where banks flagged suspiciously large
transactions where money was brought in and then wired out of accounts,
as might have happened in the current scandal.
On
December 21, 2017, Mr Maika had written to all reporting institutions to
ensure those under them have filed their compliance reports to his
office in FRC circular No 2 and by January 31, 2018.
While
banks are required to report to FRC on their internal anti-money
laundering rules and compliance of the same, regulatory institutions
such as the Central Bank are not obliged to forward these to the centre.
They, however, share the information on a peer to peer basis.
A banking source told the Nation
that they usually file flagged accounts to FRC. “As a bank, we can only
ask customers ‘where is this money coming from’ but cannot stop it from
hitting our accounts. We then raise an FRC report and what they do with
it is their business,” said the banker who sought anonymity.
But banks continued to hide behind investigations and were not willing to say what they did.
Requirements
Stanbic
Bank said its officials are “bound by the requirements of Preservation
of Secrecy and as such any information (on what they did when the money
was wired) can only be shared with approved authorities.”
Banks
are regulated by the Central Bank and are required to comply with the
provisions of the Proceeds of Crime and Money Laundering Control Act,
Prevention of Terrorism Act, Banking Act and relevant Prudential
Guidelines.
They are by law required
to adhere to the Know Your Customer requirements and are bound to
monitor and report suspicious and unusual transactions to FRC.
Kenya Commercial Bank,
which is also being investigated, refused to comment on any of the
issues raised – including what they did when money was wired to the
bank.
“As you are aware,” said KCB,
“this issue is under inquiry by legally mandated investigating
authorities and is a subject matter of a court case. We therefore do not
wish to comment.”
Standard Chartered Kenya
chief executive Lamin Manjang also refused to reveal any details
saying: “We are unable to comment on the matter since it is under
investigation by the authorised government agencies.”
Co-operate fully
Similarly, Barclays Bank of Kenya
said they do not want to “compromise the quality of (the investigation)
process,” adding that they “take governance very seriously and, to that
end, we always co-operate fully with any investigating agencies as
called upon.”
“We are aware of the
ongoing investigation at the NYS. The matter is being investigated by
the relevant government authorities … beyond that, we cannot comment on
the matter as it is still a subject of investigation,” it said.
The Nation formally sent letters of request for comment to Equity Bank,
Co-operative Bank,
and Consolidated Bank which are also mentioned by investigators, but they did not respond by the time of going to press.
Whereas the transactions of the customers of those banks are under investigation, the Nation
does not accuse any of the banks, including those that did not respond
to requests for comment, of wrongdoing, a situation which can only
change at the conclusion of ongoing investigations.
--
Original reporting by the Daily Nation
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