The Central Bank of Kenya. FILE PHOTO | NMG The recent hefty fines imposed on five banks for failing to flag cash transfers linked to theft of funds at the National Youth Service (NYS) sends a strong message that the institutions must not relent in their delegated role of policing suspicious transactions.
It is a fact that payments from the government and its agencies have to go through the banking system. The State does not pay its suppliers in physical cash and all the other payment options including cheques and RTGS involve accounts that should be opened and maintained on a Know Your Customer (KYC) basis.
Banks, which are issued with operating licences to offer a public service, are expected to make sure that they only aid honest individuals and organisations to conduct business.
The transfer of Sh3.5 billion allegedly stolen from NYS through the five banks, therefore, amounted to a serious dereliction of duty.
Some of the cash was transferred to accounts of individuals and companies that had opened multiple accounts at the same banks with slight variations in the trading names.
It was therefore fitting that the Central Bank of Kenya (CBK) and the Office of the Director of Public Prosecutions (ODPP) imposed fines totalling Sh777 million on the institutions.
This is the largest fine on banks to ever be made public, indicating that lenders will take financial hits when they fail to flag money launderers, fraudsters and other criminals.
It is noteworthy that the DPP had planned to launch criminal prosecution of the banks’ employees and only later decided to settle the matter through the fines.
In developed economies, misconduct by banks is punished through both fines on the institutions and criminal prosecution of individual bankers.
The gatekeeping failure witnessed in the NYS scandal must not be repeated. It was established that the transactions that landed the banks in trouble flouted anti-money laundering laws and other banking regulations.
CBK says the institutions were penalised for breaking banking laws including failure to report large cash transactions, failure to undertake adequate customer due diligence and lack of documentation for large transactions.In the wake of the fines, the banks said they are tightening their internal controls to avoid the recurrence of such incidences. That is a promise they must keep –for their own good and for the sake of the entire country.