CBK links unreturned Sh7bn old currency to illicit finances

About Sh7.3 billion of the older Sh1,000 notes was not returned to the banking system ahead of the Tuesday deadline, which could be a pointer that the money could have been part of illicit financial flows.

Central Bank of Kenya governor Patrick Njoroge Wednesday revealed that Sh209.6 billion worth of the old Sh1,000 notes were returned although there was Sh217 billion worth of the currency in circulation as at June 1 when the withdrawal notice was issued.

The older notes were declared invalid after Monday midnight following the introduction of new currency on June 1. The Sh7.3 billion was equivalent to 3.5 percentage of the older notes in circulation before of the withdrawal notice.

While describing the share of the returned older notes as a success, Dr Njoroge said: “The anti-money laundering measures we put in place were a success.” He was addressing a press conference yesterday to give an update on the demonetisation of the old currency.

“Whoever is holding this (unreturned money) is poorer. They are holding paper that they stole from somewhere. Their net wealth is diminished by the full amounts,” Dr Njoroge said.

The older versions of smaller denominations will remain in circulation alongside the new ones launched June 1.

Dr Njoroge said 3,172 accounts were flagged for suspicious transactions by banks when exchanging the Sh1,000 notes.

“The DCI (Directorate of Criminal Investigations), KRA (Kenya Revenue Authority (KRA), EACC (Ethics and Anti-Corruption Commission) and the FRC (Financial Reporting Centre) have information that is pertinent to their mandate that they can act on. That is ongoing,” he said. “This provides a good start for tax enforcement.”

The returned money, which can fit into five 40-feet containers according to the CBK boss, will be shredded and turned into briquettes.

As of September 30, about 149.6 million pieces of the new generation Sh1,000 notes had been released into the banking system to replace the older notes.

CBK data indicates that 83 percent of the Sh217 billion in circulation as at end of May, when the old currency withdrawal notice was issued, were Sh1,000 notes.

Under the withdrawal rules, those seeking to exchange more than Sh5 million required CBK approvals where a basic assessment was done on its source and ownership before authorisation could be granted. The central bank nod was also required for those seeking to exchange at least Sh1 million and had no bank accounts. Those with less than Sh1 million and in need of the new currency were required to deal at bank branches.

According to some sources, an average of 20,000 transactions were being flagged as suspicious every week during the period between June 1 and September 30.