CBK stays put in large cash transactions row with MPs


The Central Bank of Kenya has defended its decision not to publish regulations on the limitation of large cash transactions.

Photo credit: File | Nation Media Group

The Central Bank of Kenya (CBK) has defended its decision not to publish regulations on the limitation of large cash transactions as MPs breathe fire over the bank’s controversial circulars.

What has infuriated legislators the most is the fact that CBK has chosen, without parliamentary approval, to rely on its circulars requiring the local financial institutions not to receive money exceeding Sh1 million without the customer providing its source.

Financial institutions have also been barred from authorising withdrawals above Sh1 million without explanation for the intended use of the cash.

The requirement for the publication by CBK Governor Patrick Njoroge of regulations governing large deposits and withdrawals are in line with Section 33 of the Banking Act that became effective on October 1, 2018.

However, Dr Njoroge notes that it is impractical to implement Section 33 of the Banking Act in a document presented in Parliament, saying it will be difficult to check illicit financial flows like money laundering and terrorism financing. He further faults the law, saying it attempts to override other requirements on deposits and withdrawals that may be set by banks for their customers in terms and conditions and conflicts with the Proceeds of Crime and Anti-Money Laundering Act.

“The law does not ensure the safety and soundness of bank transactions. The current processes were intended to strengthen the safety and soundness of bank transactions benefitting from experiences in other countries,” says CBK.

Legal provision

Section 33 of the Banking Act requires CBK to develop regulations prescribing conditions on deposits and withdrawals within 30 days from the date of coming into force of Section 65 of the Finance Act. The law came into force on October 31, 2018.

“No other persons other than CBK can issue regulations on deposits and withdrawals. All existing guidelines or regulations on deposits and withdrawals by customers would become null and void within 14 days of the coming into force of the Banking regulations,” the Banking Act states.

The law further compels the CBK boss to comply with the Statutory Instruments Act of 2013 when preparing the regulations.

To enforce the CBK Circulars, those who want to make large cash withdrawals are required to fill out a form issued by their banks explaining where the money is being taken or where it has come from.

But even as MPs protest, the CBK has maintained that complying with Section 33 of the Banking Act is akin to annulling the United Nations Security Council Resolutions on Anti-Money Laundering and Counter-Terrorism Financing (AML and CFT) of which Kenya is a signatory, hence duty-bound. The AML and CFT standards are set by the Financial Action Task Force that Kenya signed in 1999.

CBK’s Banking Circular Number 1 of 2016 (Additional Guidelines on Large Cash Transactions) reminded banks and other financial institutions of the requirements in the Proceeds of Crime and Anti-Money Laundering Act and its regulations on the legitimacy of funds and keeping track of large cash transactions. The circular was informed by findings from target inspections, which revealed that large corruption proceeds had been transacted as the country recorded huge financial scandals. In tackling the issue, CBK sought compliance with international best practice.

Section 44 (3) of anti-money laundering law provides for the reporting of all cash transactions above a specified threshold to Kenya’s Financial Reporting Centre (FRC). The Proceeds of Crime and Anti-Money Laundering Regulations require reporting all cash transactions of $10,000 and above to the FRC whether they are suspicious or not.

But Ainabkoi MP Samuel Chepkonga accused the CBK boss of violating Article 94 (5) of the Constitution: “no person or body, other than Parliament, has the power to make provisions having the force of law in Kenya except under authority conferred by this Constitution or by legislation.”

He accused Dr Njoroge of failing to publish the banking regulations and have them approved by Parliament and instead confining himself to issuing circulars to financial institutions.