CBK bank fines grow 20 times on NYS scam

Central Bank of Kenya (CBK) kitty that holds fines paid by banks in breach of regulations swell 20 times on the back of penalties lenders paid for hiding suspicious in connection with the theft of funds at the National Youth Service (NYS).

CBK financial statements, which was released Friday, indicate that fines kitty had Sh420 million in the year to June 2019.

Penalties totalling Sh392.5 million were imposed on Standard Chartered Kenya #ticker:SCBK, Equity #ticker:EQTY, Diamond Trust #ticker:DTK, Co-operative Bank #ticker:COOP and KCB Group #ticker:KCB in September 2018 for failing to report suspicious transactions.

This means that the NYS fines accounted for 93 percent of the cash that flowed into the kitty in the year to last June.

“Penalties from commercial banks and foreign exchange bureaus was Sh420 for year ended June 2019 from Sh21 million in 2018” CBK said in the published financial statements.

“The Act has been empowered to administer fines, penalties on institutions as well as individuals who have violated the Proceeds of Crime and Anti-Money Laundering Act,” said the regulator separately.

The NYS payment helped to boost CBK non-core revenues to Sh1.37 billion from Sh644 million in the year to June 2018.

The non-core revenue comes from items like licence fees from commercial banks and foreign exchange (Sh281 million), Sh371 million from tuition fees and hospitality services from the Kenya School of Monetary Studies and tent income from Thomas De La Rue Kenya Limited (Sh2 million).

Dozens of senior government officials and business people were charged in May 2018 with various crimes related to the theft of billions of shillings from the NYS, which was billed as a new effort to crack down on widespread corruption.

The regulator said that the banks had failed to report large transactions and to undertake proper due diligence on customers. It also accused them of approving large transactions without proper documents.

The banks had received a total of more than Sh3 billion from the NYS on behalf of their customers Findings of CBK’s inquiry had been passed to criminal detectives to assess whether they would bring any charges.

In March, the Director of Public Prosecution (DPP) fined the five banks a total of Sh385 million to defer prosecution for not reporting the suspicious transactions under anti-money laundering laws.

Chief Prosecutor Noordin Haji said he was deferring prosecuting the banks to see if they met a deadline to improve their practices.

“Prosecution is not necessarily the only solution to the problems we are faced with, especially when it comes to the issue of graft and money laundering,” he said.

“The banks had failed to report suspicious transactions. They were not part and parcel of the corruption crime or the graft crime itself.”

Globally, regulators publicly slap banks with huge fines for breach of rules set to combat money laundering and the financing of terrorism.

In 2019, global penalties for non-compliance with money laundering rules and know-your-customer (KYC) requirements hit a total of Sh3.8 trillion ($36 billion) according to Fenergo, a global firm that audits clients for banks.

Some of the biggest fines in the past decade include the Sh270 billion ($2.5 billion) fines against Citicorp, JPMorgan Chase & Co., Barclays PLC, The Royal Bank of Scotland plc and UBS AG for manipulating the price of US dollars and Euros at the spot market known as the Libor scandal.