CBK to unmask shadowy bank owners in anti-dirty cash rules

Opening of the Vault door in a Bank. [Getty Images]

The identity of the elusive magnates and shadowy tycoons who own some of Kenya's lucrative lenders and microfinance banks will soon be unveiled to the Kenyan public, thanks to the implementation of strict new regulations by the banking regulator.

In a letter addressed to all banks and microfinance banks, the Central Bank of Kenya (CBK) has warned of potential fines of up to Sh20 million for non-compliance with the mandate to disclose the true owners of financial institutions.

This recent legislation aims to safeguard Kenya's financial sector from being exploited as channels for corruption, money laundering, and even the funding of terrorism.

Banks are among the most profitable outfits in Kenya providing a lucrative and convenient  conduit through which money (including laundered money) flows.

Money laundering is a tool that is used by people involved in illegal activities, such as drug trafficking, organised crime, tax-evading, political bribery and above all, corruption.

In 2020, five top Kenyan commercial banks were fined a total of Sh385 million to defer prosecution of the lenders and their executives for violating anti-money laundering laws.

The charges related to the theft of billions of shillings from the National Youth Service (NYS) via fictitious supplies.

“The said amounts were paid into the Prosecutions Fund Account and will be restituted to the public following the existing laws and procedures,” said then Director of Public Prosecutions Noordin Haji who now heads the National Intelligence Service (NIS) at the time.

The CBK now reckons that the new CBK rule on unmasking the true owners of a bank will help ascertain the true beneficiaries who ultimately possess or control the lenders and benefit from its activities. 

“The CBK Act, Banking Act, Microfinance Act, and the National Payment System (NPS) Act have been amended to provide for a definition of "significant shareholder" to include a beneficial owner,” says CBK head of supervision Gerald Nyaoma in the circular to financial institutions.

Nyaoma said beneficial owners who seek to become significant shareholders in financial institutions have to be vetted by the CBK and that under the new rule, a lender’s management must identify verify, and reveal the "beneficial owner."

“The CBK Act, Banking Act, Microfinance Act, and NPS (National Payments System) Act have been amended  to introduce a new definition of "beneficial owner" as follows "the natural person who ultimately owns or controls a legal person or arrangements or the natural person on whose behalf a transaction is conducted, and includes those persons who exercise ultimate effective control over a legal person or arrangement," said Nyaoma.

As of December 31, 2022, there were 38 Commercial Banks, 10 Representative Offices of foreign banks, 14 Microfinance Banks (MFBs), three Credit Reference Bureaus (CRBs), 19 Money Remittance Providers (MRPs), eight non-operating bank holding companies, 10 Digital Credit Providers (DCPs) and 72 foreign exchange (forex) bureaus. Of the 39 banking institutions, 37 were privately owned while the Government had majority ownership in two.

Of the 37 privately owned banks, 20 were locally owned (the controlling shareholders are domiciled in Kenya) while 17 were foreign-owned.

The 20 locally owned institutions comprised 19 commercial banks and 1 mortgage finance company. Of the 17 foreign-owned institutions, all are commercial banks with 14 being local subsidiaries of foreign banks and three are branches of foreign banks.

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