Firms that do business with the Government have been classified as high risk by banks as they move to tighten scrutiny on their accounts.
This is in the wake of the latest National Youth Service (NYS) scandal that saw the regulator fine five banks — KCB Group, Equity, Standard Chartered, Cooperative and Diamond Trust (DTB) — Sh392.5 million for handling proceeds of one of the biggest scams in government.
KCB Group — the biggest bank in the country by asset base — said it had increased vetting on account opening as well as monitoring of transactions by firms contracted by the Government.
“We are now saying bring everything, tick everything and when you are ready to go we open the account. So that is the course we are taking because now we are being fined and we also have to protect the shareholders,” said KCB Group Chief Finance Officer Lawrence Kimathi.
In upholding the fines, Central Bank of Kenya said the lenders had not done enough to stop the looting, citing lapses in their systems.
“CBK has reviewed each bank’s response to the penalty assessment and has concluded that the submissions were not sufficient to alter the findings of the investigations and the penalties assessed. Consequently, CBK has levied the penalties as assessed,” said Governor Patrick Njoroge.
In its defence, KCB said from 2015 to August last year, it had flagged and made 653 reports on suspicious transactions, among them the NYS transactions, but it has never received any feedback from the regulator.
KCB Group Chief Executive Joshua Oigara said banks are not perfect and that money laundering is a global challenge which the bank is working to tackle.
“One of our biggest risks right now is government transactions so we have made improvements on an action plan and we are working with the CBK to ensure the processes are followed,” he said at the time.
In a previous interview, Kenya Bankers Association Chief Executive Habil Olaka said the fines were not just about reporting but for deficiencies in the banking systems that allowed the fraud to occur.
“It was not just issues of reporting but for specific deficiencies in their systems. What is critical is that banks will be more vigilant in compliance with various laws, regulations and prudential guidelines,” said Mr Olaka.
CBK had said the fines were based on the lenders’ failure to report large transactions that would have raised a red flag to relevant investigating authorities.
The banks also seemed to have done little or no due diligence on the customers, sometimes handing over large sums of money without appropriate documentation.
It was reported that some of the companies under investigation opened accounts a few hours before the NYS money was credited to their accounts, meaning insiders could have aided the suspects in the fraud.
The banks, which have a duty to report large transactions, CBK said, contravened their mandate by not reporting transactions that exceeded Sh1 million to the Financial Reporting Centre.
The investigations started in May last year after concerns were raised over the second round of plunder at NYS, which was estimated at Sh9 billion.
CBK has also come under criticism on its policing of the sector, with some alleging that some of its officers were directly linked to the troubles of collapsed Imperial Bank.
Imperial Bank staff for years allegedly gave CBK officials loans and even school fees in exchange for helping hide unauthorised debt, according to documents filed in court by various parties seeking to recover their money.
Reports by news site Bloomberg also pointed to collusion between staff at CBK and Imperial Bank.
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