Banks hit back at MPs on large cash transfers

MPs have termed the Central Bank regulations requiring disclosure of sources of cash prohibitive. [File, Standard]

Banks have taken on Parliament over the stringent measures by the Central Bank requiring full disclosure on cash transactions exceeding Sh1 million.

Kenya Bankers Association (KBA) in its reply to a case challenging section 65 of the Finance Act, 2018 claims the section was sneaked into the Bill and passed at the third reading without having gone through a public hearing.

The case was filed by a lobby - Wajibika Society.

The amendment of section 65 of the Act was done through clause 58A of the same Act, which then introduced section 36C of the Banking Act.

The contested section limits withdrawals and cash deposits to Sh1 million daily. If a bank customer has to transfer or deposit more than the amount, they are expected to explain where the money is being channelled to and how it was obtained.

Lenders are also required to alert authorities on suspicious transactions, a move that is meant to tame money laundering and terrorism financing.

But MPs have opposed the Central Bank of Kenya (CBK) regulations, claiming they have inconvenienced many, prompting some to avoid banking the cash.

They also say some of the banking regulations are illegal as they did not have Parliament’s approval as required by law.

KBA in its reply filed before Justice Weldon Korir, however, explains that failure by Parliament to give an ear to the lenders and banking industry players before enacting the law was unfair and resulted in an unconstitutional amendment.

“Failure by the second respondent ( Parliament) to give the second interested party ( KBA) an opportunity  to give its comments on the process of amendments was a breach of one of the tenents of the Constitution of public participation and a mandatory requirements of the lawmaking process,”  the reply by KBA Chief Habil Olaka read in part. The bankers also faulted Parliament for allowing the amendment in a Finance Bill which deals with taxes and revenue-raising measures instead of introducing the same in the Banking Act.

KBA quoted in its reply Suba South MP John Mbadi who questioned his colleagues for passing the amendments without involving the public. Several banks have fallen victims to the contested section for handling the National Youth Service (NYS) scam cash.

A  Diamond Trust Bank manager was also charged for failing to report on transactions that allegedly facilitated the recent Dusit D2 terrorist attack.

It emerged that on October 26, last year, Central Bank Governor Dr Partrick Njoroge had raised concern over the contested amendment to the Attorney General.

“As we have explained at the September 28 meeting, we have serious concerns about the import of this amendment to the Banking Act, and in particular, on the anti-money laundering and combating financing framework. We have also commenced the process of developing regulations but have already met with significant difficulties,” the letter by Dr Njoroge which is part of court documents reads in part.

He was of the view that there were other several laws on deposits and withdrawals which needed to be wrapped together or be superseded by section 33 C of the Banking Act.

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