Effectiveness of Know Your Customer (Kyc) Policies Adopted by Commercial Banks in Kenya in Reducing Money Laundering and Fraud Incidences
Abstract
Fraud and money laundering have bceome rampant crimes in commercial banks which unless
controlled, will continue exposing the financial institutions to massive losses both in terms of
financial costs and loss of customers' confidence leading into loss of business. Bank fraud
includes all sorts of misappropriations, embezzlements, manipulation of negotiable instruments,
misrepresentations, impersonation, cheating, thefts, undue favors and irregularities. Introduced
under the Banking Act in the laws of Kenya in January 2006, prudential guidelines on proceeds
of crime & money laundering, which emphasised on know your customer (KYC), aimed at
reducing and finally eliminating altogether fraud and money laundering incidences. However,
with the crime having entrenchcd itself over the years and its methods of execution evolving
over time, it has become increasingly difficult to detect, prevent, investigate, and prosecute those
involved.
The objective of this study was to establish the current KYC practice, the level of compliance
and the general effectiveness of the policies in reducing fraud and money laundering cases in
commercial banks in Kenya. The research design was a survey with a population of 43 licensed
commercial banks targeted. Primary data was collected by use of a structured questionnaire
which was administered to risk and compliance managers and account opening officers, while
secondary data was obtained from the industry regulator's banking fraud prevention unit. The
data collected was analysed, and presented by use of graphs, pie charts, bar charts and tables.
In conclusion, the KYC strategies are in themselves sufficient to curb cases of fraud and money
laundering reported in commercial banks. However, the problem lies with compliance with
banks choosing what policies and procedures to comply with, and what to give little importance
if not ignore completely. The recommendations include putting in place mechanisms to ensure
full compliance, with the industry regulator - CBK, required to play a more active supervisory
role and imposing heavy penalties on non-cornpiiant banks. Establishment of a databank
containing information on those involved in fraudulent and money laundering activities will help
blacklist offenders, and prevent the fraudsters from opening fraudulent accounts with other
banks.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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