Why Cash transactions above Sh1m is a recipe for money laundering

By Steve UMIDHA

Last week’s directive to have rules relaxed for reporting bank transactions above Sh1 million, is a recipe for illicit financial dealings and money laundering, experts now weigh in.

“It is a bad idea, one that will open the financial market to banditry behavior. It is a populist way of doing things, whose thinking should be discouraged,” offered Dr. Samuel Nyandemo – an economist at the University of Nairobi.

He further believes that such a move could expose the economy to financial under dealings and may not augur well with officials sitting at the country’s apex bank.

“I doubt he (CBK Governor Patrick Njoroge) will consent to such calls,” stated Nyandemo.

President William Ruto directed the Central Bank of Kenya (CBK) to consent to large cash handlers depositing or withdrawing money from the bank to transact beyond the current limit of Sh1 Million.

“Many have reverted to storing money under their mattresses at great risk, which is clearly not the intention of the anti-money laundering regulations. I have been assured by the Central Bank that work on how to ease this burden without compromising the security of the financial system is underway,” said Ruto.

Adding that the existing regulation had proven burdensome to genuine business transactions.

Economists are convinced such an attempt which was also tried by former President Uhuru Kenyatta last October, goes against the Proceeds of Crime and Anti-Money Laundering Act (POCAMLA) of 2009 which was amended and gazetted in September last year, which seeks to censure money laundering activities.

“This will come with its fair share of challenges. Proper guidance by the Central bank and other stakeholders should be prioritized,” commented a lawyer and economic expert who sought anonymity.

“Unless he moves to amend the laws that put the limit in the first place, his declarations will not avail much. The Financial Reporting Centre is still there to look into the economic crimes bordering on money laundering. The Anti Money Laundering Agency is still in operation and it is a creation of the law,” commented Elijah Makambi, a Facebook user, while reacting to the announcement.

A similar order was issued by the then President Kenyatta in October 2021 to CBK which has been hesitant to implement it citing money laundering concerns and breach of international obligations.

Kenya is on the watch list of notorious countries helping individuals hide money from the rule of law, according to a 2020 EU Commission report which commenced legal actions against Luxembourg over laws to prevent money laundering and tax avoidance.

Those reports found that Kenya was among the notorious EAC countries assisting well-placed personalities siphoning public funds and moving them to offshore countries like Mauritius and Luxembourg with the help of western consulting firms.

The EU said two years ago that it had stepped up scrutiny of financial assets controlled by politicians and company owners in an effort to clamp down on money laundering.

EU legal actions were approved in May 2018 and could now lead to fines if member states do not apply common legislation. Kenya is a member country.

In March of the same year, the Tax Justice Network (TJN), said that Kenya’s financial sector was highly secretive, suggesting stolen funds were being tapped off from the nations they are meant to help and instead directed to tax havens such as Switzerland, Luxembourg, Cayman Islands and Singapore.

“Kenya’s financial sector is highly secretive,” said the Financial Secrecy Index by the organization, in which Kenya scored 76 out of 100 in terms of financial secrecy.

It remains to be seen whether or not the Central Bank governor Dr. Patrick Njoroge will heed those calls considering his averseness for fears he previously held, would ‘compromise’ the country’s financial system.

With Njoroge expected to exit the stage this year, his successor will brace for the challenge – a candidate who among other dynamics, will be trusted to keep the markets calm and deftly reassure the public that the country’s central bank would support the economy as Ruto begins his reign as the country’s fifth president.

CBK’s top leadership is spending its final days in office trying to reshape the country’s delicate economy and undertake last-minute adjustments to cushion fiscal policies amid weakening shilling value and rising inflation – both of which have exposed Kenyans to hard economic hardships.

The article was first published on People Daily