The Central Bank of Kenya (CBK) has defended its decision not to publish regulations limiting large cash transactions, as MPs deride the bank’s contentious circulars.
What has enraged legislators the most is that the CBK has chosen, without parliamentary approval, to rely on circulars requiring local financial institutions not to accept money in excess of Sh1 million unless the customer provides the source.
Financial institutions have also been prohibited from approving cash withdrawals in excess of Sh1 million without providing an explanation for the intended use of the funds.
The requirement for CBK Governor Patrick Njoroge to publish regulations governing large deposits and withdrawals is in accordance with Section 33 of the Banking Act, which went into effect on October 1, 2018.
However, Dr. Njoroge notes that implementing Section 33 of the Banking Act in a document presented to Parliament is impractical because it will be difficult to control illicit financial flows such as money laundering and terrorism financing. He also criticizes the law, claiming that it attempts to override other deposit and withdrawal requirements set by banks for their customers in terms and conditions, and that it conflicts with the Proceeds of Crime and Anti-Money Laundering Act.
“The law does not guarantee the security and soundness of bank transactions.” The current processes were designed to “improve the safety and soundness of bank transactions by drawing on experiences from other countries,” according to CBK.
Section 33 of the Banking Act requires the CBK to develop regulations governing deposit and withdrawal conditions within 30 days of the effective date of Section 65 of the Finance Act. On October 31, 2018, the law went into effect.
“No one else can issue regulations on deposits and withdrawals except the CBK.” “Within 14 days of the Banking regulations coming into force, all existing guidelines or regulations on customer deposits and withdrawals would become null and void,” the Banking Act states.
The law also requires the CBK boss to follow the Statutory Instruments Act of 2013 when drafting regulations.
To enforce the CBK Circulars, those who want to make large cash withdrawals must fill out a form issued by their banks explaining where the money is coming from or going.
Despite the protests of MPs, the CBK has maintained that complying with Section 33 of the Banking Act is tantamount to nullifying the United Nations Security Council Resolutions on Anti-Money Laundering and Counter-Terrorism Financing (AML and CFT) to which Kenya is a signatory and thus duty-bound. The Financial Action Task Force, which Kenya joined in 1999, establishes AML and CFT standards.
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 amounts of corruption proceeds had been transacted as the country experienced massive financial scandals. In addressing the issue, CBK sought to adhere to international best practices.
Section 44 (3) of Kenya’s anti-money laundering law requires all cash transactions exceeding a certain threshold to be reported to the Financial Reporting Centre (FRC). The Proceeds of Crime and Anti-Money Laundering Regulations require the FRC to report all cash transactions of $10,000 or more, whether or not they are suspicious.
However, Ainabkoi MP Samuel Chepkonga charged the CBK boss with violating Article 94 (5) of the Kenyan Constitution, which states that “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.”