CBK Bank Penalties Associated With NYS Scandal Grow Fines Kitty By 20 Times

CBK monetary policy framework
Central Bank of Kenya (CBK). [Courtesy]

Fines imposed on banks associated with the National Youth Service (NYS) scam grew the Central Bank’s kitty by 20 times. The kitty holds penalties imposed on banks that breach regulations.

The CBK financial report released last week showed that the fines kitty held Sh 420 million in the year to June 2019. Standard Chartered Bank, Equity, Diamond Trust Bank, Cooperative Bank and KCB group paid Sh 392.5 million as a penalty for failing to report suspicious activity in the bank. This demonstrated that NYS fines accounted for 93 percent of the monies paid to the CBK kitty in the year ending June 2019.

“Penalties from commercial banks and foreign exchange bureaus was Sh 420 million for the year ended June 2019 from Sh 21 million in 2018,” the CBK statement read.

“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,” CBK said.

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The NYS fines helped to boost non-core revenues from 644 million in 2018 to 1.37 billion in the year to June 2019. Non-core revenues are collected from items such as license fees from commercial banks, Sh 281 million collected from the foreign exchange, Sh 371 million from hospitality services and tuition fees from the Kenya School of Monetary Studies and Sh 2 million collected on rent from De La Rue Kenya Ltd.

In May 2018, in the government’s efforts to crack the whip on corruption, senior government officials and a number of business people were charged with various crimes related to the theft of millions in NYS.

The banks were fined for failing to report large transactions and for failing to undertake proper and due diligence on customers. They also failed to report large transactions without the proper documents. The banks are reported to have received a total of Sh3 billion from the NYS through their customers.

The CBK inquiry findings were forwarded to criminal detectives to assess whether they could initiate any charges.

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The Director of Public Prosecutions (DPP) decided to fine the banks Sh 385 million in lieu of prosecuting them for not reporting suspicious transactions under anti-money laundering laws.

Chief prosecutor Noordin Haji said he was deferring to prosecute the banks to see whether they could meet 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.”

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Regulators worldwide normally impose huge fines on banks for breach of set rules to curb money laundering and acts of financing terrorism.

Fenergo, a global firm that audits clients for banks reported that the global penalties for non-compliance with the money laundering rules and Know-Your-Clients (KYC) had amounted to $36 billion (Sh3.8 trillion)

The past decade saw some of the biggest fines imposed on banks for similar incidents. Case in point is the Sh270 billion fine imposed on Citicorp, JP Morgan Chase & Co., Barclays PLC, The Royal Bank of Scotland PLC and UBS AG for manipulating the prices of Euros and US dollars at the Spot Market commonly known as the Libor Scandal.

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Written by Vanessa Murrey

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