Kenya needs to urgently stamp out an upsurge of suspicious transactions in its financial sector that imperil future commercial activities and economic growth, Patrick Njoroge, the central bank governor, said on Monday
The East African nation is favoured by foreign investors mainly due to its diverse, fast-growing economy, but its reputation has long been tainted by widespread graft and weak application of anti-money laundering laws.
The government had decided to deal with the problem “quickly and conclusively”, with the first step being the planned invalidation of the older version of its 1,000 shillings note, the governor said.
President Uhuru Kenyatta promised to stamp out graft when he was first elected in 2013, but critics say he has been slow to pursue top officials and there have been few high profile convictions since he took office.
The central bank has not quantified the volume of illicit flows but there had been enough evidence to force the authorities to act, he said.
“You don’t wait until the house is really burning before you use the fire extinguisher. When you begin to smell smoke, grab that fire extinguisher and begin to deal with it,” he said.
Domestic media outlets are routinely filled with lurid tales of financial scams and the discovery of billions of shillings in counterfeit notes in private residences and even in the safe deposit boxes of leading commercial banks.
Back in 2013, the government imposed strict banking rules that are aimed at preventing money laundering and the financing of terrorism. The rules require all banks to record and transaction above 1 million shillings ($10,000).
Some parliamentarians have called for the amendment of laws to relax those rigorous reporting requirements, to facilitate faster flows of funds in the financial system.
Njoroge said there would be no turning back on the efforts to stem the flows from money laundering, financing of terrorism and proceeds from crime.
“Will this country become a country of thieves, (people who) transact illicit flows, that sort of get rich (quick) stuff? I would submit that it is not,” he said.
“We are taking this step to clean all those illicit flows… let them go elsewhere.”
Kenya had considered the lessons from India’s 2016 move to scrap high-value currency notes, known as demonetization, hence the four months window given to allow people to exchange the old notes with new ones, Njoroge said.
The central bank would defend itself in a suit filed by a private citizen at the High Court challenging its decision to demonetize the old 1,000 shilling banknote in October, Njoroge added.
Given Kenya’s status as the most advanced economy in the region, the central bank will co-ordinate the move to scrap the banknote with its counterparts in the region, where the Kenyan currency is widely accepted and used for payments.
“The illicit flows are spread around neighbouring countries. The Kenyan currency is the regional U.S. dollar,” Njoroge said.