LAUNDERING

Bars, restaurants targeted in rush to beat CBK Sh1,000 deadline

The 1000 shillings note will not be legal tender after October 1

In Summary

• The fast cash-generating businesses are used by illegal cash holders to bank their money as proceeds from the legit business.

• Churches are also being targeted as conduits to bank the illegal cash as they raise millions weekly.

A bunch of the old generation currency. The Sh100 notes will be illegal after October 1 / COURTESY
A bunch of the old generation currency. The Sh100 notes will be illegal after October 1 / COURTESY

Mattress millionaires are now targeting businesses that generate rapid cash to beat the October 1 deadline for the phasing out of the old Sh1,000 bank notes.

This comes even as the Central Bank of Kenya(CBK) remains mum on the impact of the ongoing demonetization which seeks to introduce a new currency into the market.

A local economic think-tank and advisory group yesterday said restaurants, bars, night clubs and other entertainment businesses are the most used by such people to bank huge sums of money, riding on their frequent banking patterns.

 

They said churches and other religious institutions are also being targeted as conduits to bank the illegal cash as they raise millions weekly.

It said this is a shift from the previous trend of investing in real estate and property which are easily traceable.

“High net businesses stand out as the most vulnerable. I am not teaching anyone to launder money but the fact is people will always go for businesses that can generate cash quickly,” said Sahil Shah, project lead at the Kenya Business Guide.

He said the rush to beat the deadline has further increased liquidity in the market, an aspect that could lead to a rise in illegal dollar acquisition businesses.

“There are risks people could pay a premium in the black market in exchange for dollars,” said Shah.

Cross border trade, especially with Uganda, has also taken a hit as Kenyan traders remain stuck with the local currency, KBG analysts said yesterday during a media briefing on demonetisation.

Demonetisation is the act of stripping a currency unit of its status as a legal tender which is done during a currency change regime.

 

After CBK's June 1, announcement on the withdrawal of the 1,000 old generation notes, East African Community (EAC) member states led by Tanzania and Uganda stopped the use of Kenyan currency in an effort to cushion their banks from being used to launder stolen money back into Kenya.

The ongoing process has increased liquidity which could also affect commodity prices and businesses.

“There is too much money chasing few goods. In the last three months, CBK has created a buyer-seller problem,”said Ken Gichinga, chief economist-Mentoria Economics.

The central bank has partly been retaining the old generation notes as it injects the new currency into the market.

The government is also using the currency change to net corruption lords who have stashed billions in homes. 

Within a month after Governor Patrick Njoroge announced the phasing out of the old notes, a massive Sh25 billion resurfaced into circulation.

Industry data estimates Kenya loses about Sh40 billion to illegal financial flows annually.

Currently, about Sh540 billion is in circulation as opposed to the expected Sh1.2 trillion, meaning about Sh700 billion is in people's hands or frozen assets. Of these, 83 per cent is in Sh1,000 denomination.

The 500 notes account for 5.9 per cent of liquidity, Sh200 notes(4.2 per cent), Sh100 notes(4.8 per cent) while Sh50 notes account for 1.9 per cent of the money in circulation.

You will not be able to use the 1000 note after October 1.  The rest will however remain in circulation as the regulator slowly introduces the new currency.

There have been numerous instances where people, especially top government officials and business people, have been found with large sums of money in their homes suspected to be illegally acquired.