The International Monetary Fund (IMF) has warned it will continue to put anti-money laundering conditions on its loans to limit theft of the funds, potentially putting it on a collision course with Kenya, which recently lifted some of the measures critical to fighting the vice.
Kenya last month lifted requirement for individuals or businesses to disclose in writing to banks the source and destination of withdrawals and deposits above $10,000 (Sh1.11 million).
This is despite Nairobi being a signatory to the United Nations Security Council’s (UNSC) Anti-Money Laundering (AML) and Combating Financing of Terrorism (CFT) frameworks that require amounts above this threshold to be reported.
President Uhuru Kenyatta said lifting of the restrictions is meant to help small businesses that heavily rely on cash transactions but whose day-to-day operations have been limited by the stringent reporting rules that are meant to curb money laundering.
The Head of State added that digitisation of banking has increased tracking of illicit financial flows, which was the main target of the rules, and that Kenya still remains committed to the AML/CFT resolutions.
But the IMF now says it will continue putting these stringent provisions into its funded programmes to ensure that the monies are well utilised by the recipient governments.
This is as Nairobi has grown its dependence on the international lender for budgetary support in recent months, having borrowed a total of Sh78.47 billion from the lender through the Extended Credit Facility (ECF) and Extended Fund Facility (EFF) programmes this year alone to plug a budget deficit.
“IMF staff continues to integrate tailored AML/CFT measures into fund-supported programs to help achieve the program objectives. These measures are aimed at tackling corruption and other predicate offenses, and fostering transparency and good governance,” the IMF said in response to Nation queries.
“In this regard, IMF staff continues to work with countries including Kenya to enhance effectiveness of implementation of the AML/CFT regime. Specific measures include increasing the transparency of beneficial ownership in public procurement, strengthening reporting and dissemination of financial intelligence and AML/CFT risk based supervision,” the lender said.
The IMF, in its June review of the Kenya programme, had asked Kenya to increase monitoring and supervision of transactions involving politically exposed persons and other high risk customers vulnerable to corruption. Kenya told the IMF it had increased monitoring of cash transactions involving large sums of money and flagged 3,000 suspicious transactions, which now contrasts sharply with the move to entirely lift cash transaction reporting.
“From a broader perspective, we have strengthened cash transaction monitoring and reporting by banks, enhanced our offsite and onsite surveillance through targeted AML/CFT onsite inspections. We have enforced administrative sanctions and penalties arising from AML/CFT violations identified during our inspections,” the Treasury told the lender.
This means legitimate business people and bank customers, corrupt politicians, thieves and potential terrorism financiers will now no longer file sources of their cash, what it will be used for and who the direct and indirect beneficiaries of the money are, for cash transactions above Sh1.11 million.
Previously, the Central Bank of Kenya (CBK) required banks to immediately file a suspicious transaction report with the Financial Reporting Centre (FRC) as provided for in the Proceeds of Crime and Anti-Money Laundering regulations, 2013.
The President did not set a new threshold of cash deposits and withdrawals for reporting, opening the floodgates for unlimited cash transactions in which involved parties will not be required to say where the money is coming from or where it is going.
For over a week, the CBK has not responded to Nation queries on if a new limit has been set at which large cash transactions will be reported, and the timelines for enforcement of the order.
Economists say the new move is set to stimulate business, especially in cash-intensive sectors such as retail and construction that had been restricted by the reporting measures, to come back into the banking system.
Mr Ken Gichinga, the chief economist at Mentoria Economics, says the Sh1 million reporting threshold for cash transactions had made bank transactions more tedious and lengthy, forcing business that handle large sums of money to keep it, thus restricting cash flow in the economy.
“This is a positive development because we have for long been seeing businesses that are cash-intensive go through lengthy processes when they want to deposit or withdraw cash at the bank. Many of them resorted to keeping the cash to themselves to save them from this trouble,” Mr Gichinga said.
“Now, we will see more of these businesses return to banking halls because the processes will be shorter and faster. This will also have a good effect on the economy because now we will get cash that has been lying out of the banking system into the system,” the economist said.
Among those who are also now donning broad smiles are politicians, who will sidestep the “nuisance” of disclosing the identities of their funders when millions of campaign shillings are being thrown around before the 2022 General Election.
This also comes as MPs are plotting to amend the law to keep secret campaign donors and election spending, dealing a blow to efforts to enforce accountability in election financing.
The MPs want to amend the Election Campaign Financing Act to ensure poll money handled by candidates and parties is confidential, through a Bill by the Constitution Implementation Oversight Committee (CIOC).
Kenya Bankers Association (KBA) Chief Executive Habil Olaka said banks are ready to implement the President’s order. However, he said it is too early to predict the effect of lifting the regulations, especially on concerns that it will aid money laundering.
“Banks are, of course, prepared to implement the new order. But it is too early to speculate on that (its effect of money laundering),” Mr Olaka told the Nation.