In January 2016, the Central Bank of Kenya issued a circular advising commercial banks, micro-finance banks and mortgage finance companies to intensify scrutiny of cash transactions exceeding $10,000 (Sh1 million).
This was not news. The regulator was simply reminding financial institutions of Regulation 31 of the Proceeds of Crime and Anti-Money Laundering Regulations of 2013. It requires institutions to obtain written statements from customers, confirming that the nature of their business activities reasonably generates substantial amounts of cash to support large, frequent or unusual cash deposits or withdrawals.
Customers transacting huge amounts of money must state the source, use, beneficiaries and why the transaction cannot be done electronically.
This aims to reduce risks inherent in cash transactions, such as losses due to fraud and theft. This is because cash transactions are characterised by informality and anonymity.
If information provided by the customer is found untrue or fails to support the rationale behind the transaction, the bank immediately files a suspicious transaction report with the Financial Reporting Centre (FRC).
The Proceeds of Crime and Anti-Money Laundering Regulations require reporting institutions to submit to the FRC a report indicating the institution's level of compliance with the Act, Regulations, among others.
The report is submitted by January 31 the following year, unless the date is varied in writing by the FRC.
In March the regulator issued a guidance note on money laundering and terrorism financing. It requires banks to provide CBK with a report on results of their money laundering and terrorism financing risk assessment.
This raft of measures enables banks to do their due diligence in reporting suspicious transactions to the FRC. Banks have also sanctioned any employees culpable of abetting financial crimes.
When investigating financial crimes, authorities must check whether banks reported such cases or not. Did financial institutions follow transaction
procedures required by CBK? Did they submit annual monitoring reports to CBK and FRC as required?
Financial institutions must not, therefore, be the first reference points by investigating agencies outside the financial sector when tracking financial crimes.
The writer is CEO of the Kenya Bankers Association