Challenges faced by Central Bank of Kenya in combating money laundering
Toroitich, Edwin Kiplagat
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One of the economic cnmes that have adversely affected the level of economic development in Africa today is money laundering. Money laundering has the notorious tendency to discourage or frustrate legitimate business enterprise, corrupt the financial system and ultimately, the socio-political system. Money laundering diminishes government tax revenue and weakens government control over the economy and thus undermining the function and integrity of financial systems. Modern financial systems, in addition to facilitating legitimate commerce, permit criminals to order the transfer of millions of shillings instantly. Criminals have always endeavored to conceal the origin of illegally generated funds in order to erase all trace of their wrongdoings. This study sought to establish the challenges faced by the Central Bank of Kenya in combating money laundering in the country and determine how the bank is dealing with these challenges. The significance of the study will help the bank as the regulator in financial industry realize the areas of attention and where it needs to improve in order succeed on its objective in combating money laundering in Kenya. The researcher carried out a case study of Central Bank of Kenya to find out the challenges it faces in combating money laundering the respondents were senior bank managers and officers of Bank Supervision Department and Bank Fraud Investigation Unit who were required to respond to questions in an interview quide. Each section of the interview guide was aimed at answering each of the 2 objectives of the study. The study established that Kenya is faced with the challenge of the porous borders especially the war torn neighboring States which aid in human and drug trafficking and piracy combined with the extensive unsecured borders along these states. The findings indicated this as the sole agent through which money launders have taken advantage. Porous borders are also the source of terrorism financing through unreported foreign cash inflows not ascertained if related to money laundering. It is difficult for the regulator to trace or detect the proceeds of crimes either through aliens, hard cash smuggled in and v out of the country. The AML act empowers the Financial Reporting Centre to ensure compliance. The study identified the money laundering challenges as; lack of adequate laws, delay in implementation of the recently enacted AML Act, lack of laws to deal with money laundering in neighbouring countries, difficulty in monitoring the movements of people including terrorists, presence of cash couriers, ease of smuggling, corruption at the porous borders , unreported cash flows and legal and regulatory challenges. The study further found out that the big challenge for reporting institutions is to strike a proper balance between implementing the Act and maintaining client confidentiality for the case of the commercial banks and this will affect how CBK can effectively monitor and supervise them in combating the vice. The study concludes that that money laundering is a threat to both the integrity and stability of the banking sector and even the forex bureaus themselves. Further, with increased globalization, the Kenyan banking systems are increasingly under close scrutiny by its international trading partners particularly with regard to anti money laundering legal and regulatory frameworks. The study concludes that Kenya is vulnerable to money laundering particularly given it's mainly cash based economy. This is further aggravated by porous borders and weak institutions for enforcements of law. The study recommends that CBK should establish appropriate policies and procedures to ensure the effective prevention, detection and control of possible money laundering activities and terrorism financing and that the regulator institute strict measures on its Prudential Guidelines to all commercial Banks pursuant to the Banking Act on "Know Your Customer" and "Customer Due Diligence" procedures ensure adequate identification of customers, their source of funds and the use of the said funds. This is through strengthening of customer due diligence procedures. The study further recommends that the Proceeds of Crime and Anti-Money Laundering law, be implemented. This would place institutions, including casinos, real estate agencies, precious metals and stones dealers, and legal professionals and accountants under the scrutiny of CBK.