Banks stare at a hike in fincrime as corona hits
Steve Umidha @UmidhaSteve
Kenyan banks are staring at a potential hike in coronavirus-related financial crimes, a pan-African research and advocacy organisation has warned.
Tax Justice Network Africa (TJNA) said as business operations continue to be disrupted, fraudsters could move to take advantage of the pandemic.
It said measures must be taken to avert the looming catastrophe as it may present a new challenge for banks to identify suspicious transactions.
“We urge the government to scale-up multilateral co-operation in combating illicit financial flows and ensure that multinational corporations pay their share of taxes where they do business,” the organisation said in a statement. Such procedures, TJNA added, should also integrate tax evasion and corporate tax abuse.
“What banks would flag as an ordinary business by lawful companies before the crisis, is feared may at this point in time be a money-laundering risk, mostly when it comes to sectors affected by lockdown restrictions,” it added.
Hard-hit sectors
Reduction in business opportunities particularly in the hard-hit sectors, the advocacy group said, will likely see companies turn to bribery to secure cash – with banks most likely to pay the price.
These desperate times, it added, are also likely to produce a major compliance challenge for the sector, with sales staff eager to cheat to win business, and managers pushed to cut compliance staff to improve the bottom line.
However, financial expert Peter Macharia, who also runs a lending firm Jijenge Credit said while these are possibilities the country has strong financial checks going on behind the scenes by Central Bank of Kenya.
Covid-19 pandemic has aggravated the country’s weak monetary and fiscal systems, with Kenya having limited fiscal capacity to respond.
East Africa’s largest economy is also experiencing reduced tax revenues due to reduced economic activities as a result of the loss of export earnings and commodity price collapses.
TJNA also urged countries to promote domestic and regional tax transparency measures to identify and curb illicit financial flows by promoting public country-by-country reporting for multinational corporations.
Dirty money continues to be a growing plague for Kenya, with several studies showing that the country continues to lose millions of dollars annually as officials, individuals, and corporations stash illegally acquired funds in highly secretive foreign banks abroad.
Financial flows
It is estimated that this has resulted in over $10.6 billion (Sh1.13 trillion) accumulated illicit financial flows between 1970 and 2017, making Kenya one of the worst offenders among Africa’s non-resource endowed countries.
A report by Emmanuel Letete and Mare Sarr in partnership with the African Development Bank Group in 2017 dubbed Illicit Financial Flows and Political Institutions in Kenya, for instance, shows that between 1984 and 1990, illicit financial flows were the highest.
During that period, political institutions were also weak as reflected by low levels of civil liberties and political rights protection.
