Legal Responses Towards Tackling Financial Crime in Kenya's Banking Sector: is It Enough?

Abstract

This study seeks to establish whether the legal and institutional framework in Kenya is sufficient for the prevention of financial crime in the banking sector. This study was motivated by the placing of three banks (Chase Bank, Imperial Bank and Dubai Bank) in receivership in a period of less than one year, which raised fears of a banking crisis in the country. The three banks were placed under statutory management due to financial impropriety. This study established that there was no prosecution of persons responsible for the collapse of banks in Kenya before 2016. Following the collapse of Chase Bank (In Receivership) and Imperial Bank (In Receivership), the first such prosecutions were initiated against the directors and officers believed to be culpable in the failure of the two banks. This study established that the charges preferred against the said directors and officers were not comprehensive and the penalties likely to be imposed on accused persons are too lenient in light of the significance of the collapse of a bank (the cases are still in court). Such lenient penalties are unlikely to play a deterrent role in the fight against banking crime. The study further established that although the law and institutions established to regulate banking have developed over time, they have not been sufficient to prevent bank failures in Kenya. The law has not been enforced effectively through prosecution and conviction of persons responsible for failure of banks. The low conviction rates point to, among others, the quality of investigations and delays in concluding court cases. This study recommends stricter penalties for banking sector crimes in order to adequately punish offenders and deter potential offenders. It also recommends the enhancement of the asset forfeiture regime through elaborate criminal and civil procedures. Further, the study recommends the encouragement of whistle blowing through rewards, statutory requirement for corporations to establish safe whistle blowing channels and enhanced protection of whistle-blowers. Finally, the study recommends the strengthening of institutions such as the Banking Fraud Investigations Unit and the Assets Recovery Authority in order to make them more effective