Experts caution against relaxing Ks1M cash cap

The directive to have rules relaxed for reporting bank transactions above Sh1 million, is a recipe for illicit financial dealings and money laundering, experts warn.

Samuel Nyandemo, an economist at the University of Nairobi described it as a bad idea and one that will open the financial market to “banditry behaviour”.  He believes that such a move could expose the economy to financial under-dealings and may not augur well with officials sitting at the country’s apex bank.

“I doubt he (CBK Governor Patrick Njoroge) will consent to such calls,” said Nyandemo. President William Ruto, while issuing the directive in his inauguration  speech on Tuesday said Central Bank of Kenya (CBK) should relax the rules for reporting transactions beyond Sh1 million without further delay, citing ongoing hindrances to small businesses.

Onerous burden

“In our engagements, traders also complained about the onerous burden involved in cash transactions exceeding Sh1million,” he said, adding that many traders have reverted to storing money under their mattresses at great risk, which is clearly not the intention of the anti-money laundering regulations.

Ruto said he had been assured by the Central Bank that work on how to ease the burden without compromising the security of the financial system is underway.

However, economists are convinced such an attempt which was also tried by retired President Uhuru Kenyatta last October, goes against the Proceeds of Crime and Anti-Money Laundering Act (POCAMLA) of 2009 which was amended and gazetted in September last year, which seeks to censure money laundering activities.

“This will come with its fair share of challenges. Proper guidance by the Central bank and other stakeholders should be prioritised,” said a lawyer and economist who requested to remain anonymous.

 Another Facebook user, Elijah Makambi, while reacting to the directive said unless the president moves to amend the laws that put the limit in the first place, his declarations will not avail much.

“The Financial Reporting Centre is still there to look into the economic crimes bordering on money laundering. The Anti Money Laundering Agency is still in operation and it is a creation of the law,” he added.

Financial institutions are by law required to report all cash transactions of $10,000 or above to the Financial Reporting Centre (FRC) to allow authorities to track illicit financial flows that have been blamed for illegal activities such as terrorism.

CBK has been hesitant to implement such directives intended to ease doing business for small and medium-sized enterprises whose transactions are predominantly done in cash, over fear of attracting economic sanctions against Kenya.

Kenya is on the watch list of notorious countries helping individuals hide money from the rule of law, according to a 2020 EU Commission report which commenced legal actions against Luxembourg over laws to prevent money laundering and tax avoidance.

Those reports found that Kenya was among the notorious countries assisting well-placed personalities in siphoning public funds and moving them to offshore countries like Mauritius and Luxembourg with the help of western consulting firms.

The European Union said two years ago that it had stepped up scrutiny of financial assets controlled by politicians and company owners in an effort to clamp down on money laundering.

It legal actions were approved in May 2018 and could now lead to fines if member states do not apply common legislation. Kenya is a member country.

In March of the same year, the Tax Justice Network (TJN), said that Kenya’s financial sector was highly secretive, suggesting stolen funds were being tapped off from the nations they are meant to help and instead directed to tax havens such as Switzerland, Luxembourg, Cayman Islands and Singapore. “Kenya’s financial sector is highly secretive,” said the Financial Secrecy Index by the organisation, in which Kenya scored 76 out of 100 in terms of financial secrecy.

It remains to be seen whether or not the Central Bank Governor Patrick Njoroge will heed those calls considering his the fears previously held that such a move would “compromise” the country’s financial system.

Support the economy

With Njoroge expected to exit the stage this year, his successor will brace for the challenge – a candidate who among other dynamics, will be trusted to keep the markets calm and deftly reassure the public that the country’s central bank would support the economy as Ruto begins his reign as the country’s fifth president.

The top leadership of the banking sector regulator is spending its final days in office trying to reshape the country’s delicate economy and undertake last-minute adjustments to cushion fiscal policies amid weakening shilling value and rising inflation – both of which have exposed Kenyans to hard economic hardships.