Central Bank of Kenya Governor Patrick Njoroge holds a press conference
regarding monetary policy, last month. The CBK is demonetising the old
currency. PHOTO | FILE | NATION MEDIA GROUP
The cost of goods and services is set to rise in the coming days
as Kenyans hiding dirty money flood the market with it in a bid to
launder it and beat the Central Bank of Kenya (CBK) at its game, experts
have warned.
They base their arguments on the
experiences of countries that have travelled the path Kenya is taking to
replace its currency, among them India, Nigeria, Ghana, North Korea,
Australia, Fiji and Myanmar, all of which ended up with the unintended
consequence of high inflation or a proliferation of the black market
trade.
Tidying up the currency could also end up
causing a shortfall of cash in circulation, the Institute of Certified
Public Accountants of Kenya (ICPAK) warned in a statement.
“Experiences
from other jurisdictions indicate that the intensity of demonetisation
effects have mixed results. At the initial stage, it might lead to a
shortfall in cash in circulation, which will impact small businesses and
households that mainly depend on cash transactions,” said ICPAK, which,
however, supported CBK’s move to demonetise the old currency, saying
the process will, in the long run, help curb corruption, terror financing, fraud, money laundering and counterfeiting.
BANKS
Consumers
Federation of Kenya Secretary-General Stephen Mutoro said inflation is
inevitable as people rush to spend loads of money, which would otherwise
have been hoarded, within the four-month window.
“From all the experiments that have happened before, printing
new currency has always resulted in a spike in inflation, and this will
affect the cost of living,” he said.
He spoke as
commercial banks said they had anticipated the transition and have in
place the necessary mechanisms to receive the old notes and provide
their customers with the new currency.
The Kenya
Bankers Association (KBA), the industry lobby that speaks for banks,
said the process will include reconfiguring automated teller machines
and currency counters, and coordinating with CBK in Nairobi as well as
at currency centres in Meru, Nyeri and Nakuru.
There are approximately 1,700 ATMs, 780 bank branches, and 66,000 bank agents countrywide.
“We
anticipate banks will have a structured replacement programme that will
ensure minimal disruption of regular services,” KBA spokesperson Nuru
Mugambi said in a statement.
LIMITS
The
KBA also asked banks, bank agents and retailers, as well as citizens,
to be especially vigilant during this period as there may be attempts to
launder illicit funds through the banking system, “particularly for
cash deposits in excess of Sh1 million”.
With all the
avenues of laundering the dirty money closed, criminals are likely to
resort to spending sprees, and hence flood the market with the unwanted
currency.
At the Nairobi Securities Exchange (NSE),
where the illicit cash could have been translated into shares, firms
indicated that they would stop receiving cash for transactions.
SBG
Securities Ltd, which buys shares on behalf of investors from the NSE,
told its customers that it will no longer be accepting direct cash
deposits into its accounts, as has been the case in the past, from July
1.
Instead, customers will transact business through bank transfers, mobile money and cheques.
SHARES
A customer care officer told the Nation on phone that the firm had resorted to changing policy to prevent it from falling victim to money launderers.
“We
are advising our clients to use these channels and not to deposit the
money directly to our accounts so that it is easy for us to trace the
source of funds,” the officer, whose identity the Nation is not revealing because he is not authorised to speak to the media, said on Tuesday.
Earlier
Tuesday, SBG Securities, a subsidiary of Stanbic Holdings, had sent a
text message to its customers communicating the change.
“From
July 1, 2019, you shall not be able to fund your CDS account by
directly depositing cash into our bank account,” the short message read
in part.
Currently, it is easy for money launderers to
clean their ill-gotten wealth by buying shares and selling them later
when the coast is clear.
This has for a long time been
viewed as one of the easiest ways to legitimise money at the stock
exchange, since one can easily walk into a bank and deposit the money in
the accounts of brokers to buy shares on one’s behalf, then later ask
the agents to sell the shares.
Forex bureaus in Nairobi
said they had not witnessed any “unusual activities” due to the
impeding removal of Sh1,000 notes from the economy.
FOREX BUREAUS
There
were no queues at counters yet and officials said it was too early to
tell. But they maintained that it will be hard for people with dirty
money to exchange the it in bulk without raising eyebrows.
“So
far, we have no alarm and we have no suspicious activities reported
from our people. You may check in two weeks,” Mr Mohammed Nur Ali, chief
executive officer of the Kenya Forex Bureaus Association (KFRA), told
the Nation.
The association, which represents
over 100 forex bureaus, said its members support the move to demonetise
the old currency and are ready to comply with the CBK directive.
Forex
bureaus have been asked to expeditiously report any transactions above
$10,000 (Sh1 million), as required by the law, to the Financial
Reporting Centre.
Mr Ali added that they will be on
the lookout for suspects who break the money into smaller amounts and
attempt to launder it by exchanging it for foreign currency.
“We had a meeting with the governor and he explained the procedures,” said Mr Ali.
Forex
bureaus and international remittance dealers have only two sources of
cash — commercial banks, where they are also customers, and
walk-in-walk-out customers.
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