Banks are yet to implement President Uhuru Kenyatta’s order to raise the limit for reporting large cash transactions from Sh1 million to Sh5 million, citing failure by the government to issue new guidelines.
The bankers fear that implementing the directive, which was intended to ease doing business for small and medium-sized enterprises whose transactions are predominantly done in cash, could attract economic sanctions against Kenya.
President Kenyatta, while issuing the order in his Mashujaa Day speech in October last year, said adoption of digital banking channels had made it easier to track illicit financial flows, hence necessitating relaxation of the stringent cash transaction reporting limits.
Financial institutions are by law required to report all cash transactions of $10,000 or above to the Financial Reporting Centre (FRC) to allow authorities to track illicit financial flows that have been blamed for illegal activities such as terrorism.
“I hereby further order the National Treasury, after consultations with other stakeholders, to immediately cause the upward revision of the cash transactions reporting threshold from the current mark of Sh1 million applicable to both withdrawals and deposits by customers,” said President Kenyatta.
He said the limit had restricted trade by cash-heavy micro, small and medium-sized enterprises (MSMEs) that transact huge volumes of money regularly, which had driven many businesses off official banking channels.
Nairobi is a signatory to the United Nations Security Council’s (UNSC) Anti-Money Laundering (AML) and Combating Financing of Terrorism (CFT) frameworks, which require the reporting of any cash transactions of $10,000 or more.
Kenya is a member of the Financial Action Task Force (FATF) that monitors countries across the globe in efforts to combat money laundering and terrorism financing, and, therefore, risks sanctions by multilateral lenders such as the World Bank, the International Monetary Fund (IMF) and bilateral lenders such as France and Germany that are FATF members.
FATF has so far blacklisted Iran and North Korea, which unleashed harsh economic sanctions on those countries over their lax anti-money laundering laws and financing terrorism activities. Other countries like Uganda are on FATF’s grey list, placing them under increased scrutiny from lenders. The IMF, for instance, told the Nation last year that it would continue to anchor its loans on tough anti-money laundering rules in a bid to tame corruption.
The lender has inked a 38-month $244 million (Sh283 billion) loan to Kenya disbursed periodically on attainment of the set conditions.
“IMF staff continues to integrate tailored AML/CFT measures into fund-supported programmes to help achieve the programme objectives. These measures are aimed at tackling corruption and other predicate offences, and fostering transparency and good governance,” the IMF said in response to Nation queries.
Kenya Bankers Association (KBA) chief executive Habil Olaka on Wednesday told the Nation that CBK is yet to issue directions to banks to raise the limit in line with the President’s directive.
Mr Olaka said lenders have maintained the requirement to report all cash transactions worth $10,000 (Sh1.16 million) in line with the existing laws, until the regulations are reviewed to reflect the Head of State’s directive.
“I doubt that banks have received any directive (from CBK) to that effect (raising the reporting limit). They comply with the existing regulations until amended,” said Mr Olaka.
The CBK did not respond to emailed questions on the subject.
The Head of State’s directive came just months to the General Election set for August, which commentators said would have opened the floodgates for money laundering at a time politicians are splashing fortunes on campaigns.
It is unclear if the government made an about-turn on the implementation of a higher reporting limit on the back of a predicted spending frenzy by well-oiled politicians, which could threaten the integrity of the polls.
Interior CS Fred Matiang’i this week warned that money launderers could take advantage of Kenya’s already lax financial regulations to manipulate the electoral process.
Dr Matiang’i said that the government had identified weak regulations on the amount of money politicians can spend and their source as a major threat to the credibility of the August 9 elections.
“We could end up laundering criminals of unprecedented standards into our elective offices. We might have ‘wash wash’ gangs and other criminals bribing their way in the coming elections,” Dr Matiang’i said.
Mr Ken Gichinga, the chief economist at Mentoria Economics, told the Nation earlier that the current limit has made bank transactions more tedious and lengthy, forcing businesses that handle large sums of money to keep it, thus restricting cash flow in the economy.