BANK customers who give false account on why they are depositing or withdrawing more than Sh1 million in cash risk being locked out of the financial system, besides criminal prosecution.
The Central Bank, the regulator, has directed banks to take immediate action on such customers, including closing of their accounts, in a renewed war on money laundering in the system.
This comes in the wake of an alleged loss of Sh791 million from the National Youth Service – cash which was first channeled through mid-tier Family Bank's KTDA branch before being routed to other accounts and banks.
“If a customer or a person acting on behalf of a customer provides false information, an institution should take appropriate action against such a customer and this could include terminating the relationship between the institution and the customer,” reads a prudential guideline enforced on January 5.
The guideline is a further directive on implementation of regulation 31 of the Proceeds of Crime and Anti-Money Laundering Regulations of 2013. The clause obligates banks to “obtain written statements from customers confirming that the nature of their business activities normally and reasonably generates substantial amounts of cash to support large, frequent or unusual cash deposits or withdrawals”.
The circular by CBK's Bank Supervision Department's assistant director Matu Mugo to the chief executives of 41 banks, 12 micro lenders and Housing Finance – the country's sole stand-alone mortgage financier – requires them to question transcations from $10,000 (Sh1.02 million) just like in the US.
Customers should disclose why the cash transaction is necessary, why it cannot be done electronically, the immediate recipient, how it will be spent, whom it will benefit directly and indirectly and their identity as well as the source.
“Where a customer is unable to provide this information or facts given fail to support the rationale behind the transaction, the institution should immediately file a suspicious report with the Financial Reporting Centre,” Mugo reiterated.
The Kenya Bankers' Association chief executive Habil Olaka and his counterpart at Association of Microfinance Institutions of Kenya Benjamin Nkungi were copied.
“It is not a new requirement but more of a clarification in terms of responsibility of the banks,” Olaka said yesterday. “The new rule clarifies that while previously we have been reporting these transactions in cash of over Sh1 million in terms of the customer's full names and account details, now we will have to go a step further and get information on who the recipient of the money is and their full details for easier follow up by the FRC.”
The directive to banks to report suspicious transactions to the FRC – installed on April 12, 2012 to fight money laundering and terrorist financing– has been in place since October 10 of that year.
There were reports early last year some of the US banks were not honouring cash cheques for some of local lenders which had not fully complied with international anti-money laundering and know-your-customer best practices, for fear of heavy penalties.
The CBK imposes sanctions on lenders that fail to comply, the latest being Family Bank where nine managers were sacked last month. CEO Peter Munyiri is also set to leave upon expiry of his four-year contract in June.