Parliament stops banks from inquiring the sources of cash deposits of at least Sh1.5 million from clients

Parliament has eliminated the requirement for customers to disclose the source, purpose, and beneficiaries when seeking clearance from banks to deposit or withdraw at least $10,000 (Sh1.5 million) in cash.

Speaker of the National Assembly Moses Wetang’ula declared that the regulations for large cash transactions, implemented by the Central Bank of Kenya (CBK) in 2016, were illegal as they were not approved by Parliament.

Individuals and businesses with significant financial resources have long protested the strict checks, claiming they have impeded their ability to conduct smooth transactions.

This led President William Ruto and his predecessor, Uhuru Kenyatta, to advocate for the relaxation of these rules, due to concerns about money laundering and financing of terrorism. In recent years, commercial banks have been more strictly enforcing these rules, after several of them were slapped with heavy fines for facilitating transactions involving proceeds of crime in government procurement deals.

Kenya passed anti-money laundering legislation in 2009, and subsequently implemented several regulations, including one requiring commercial banks to report all suspicious cash transactions above Sh1.5 million.

The additional guidelines, which have now been nullified, mandated that individuals depositing at least $10,000 must reveal the source of the cash and provide a justification for why the transaction couldn’t be conducted electronically.

Customers were also expected to disclose the destination of the money being withdrawn, the purpose of the funds, and the direct and indirect beneficiaries. The nullification of these rules on a technicality raises questions about the limits of autonomous institutions issuing directives through circulars without encroaching on the law-making powers of Parliament.

“Any instrument said to be made pursuant to a power granted by an Act of Parliament must be brought before Parliament for scrutiny,” said Mr Wetang’ula.

“I, therefore, guide as follows — that Article 125 of the Constitution and Standing Order 191(1) of the National Assembly Standing Order allow the Committee on Delegated Legislation to call up for scrutiny of any instrument said to be made in exercise of powers granted under an Act of Parliament.”

The Speaker ruled that the CBK’s 2016 regulation for large cash transactions was illegal, as it was not approved by Parliament. This was in response to concerns raised by Ainabkoi MP Samuel Chepkonga about statutory instruments made by bodies without first being approved by Parliament.

The Speaker stated that the regulation was in violation of the Statutory Instruments Act, 2013, which governs the creation, review, and enforcement of statutory instruments. The CBK had stated in a January 5, 2016 circular that large cash transactions were prone to informality and anonymity, making the banking sector vulnerable to money laundering and terrorism financing.

The CBK had issued guidelines to strengthen Regulation 31 of the Proceeds of Crime and Anti-money Laundering Regulations, 2013, which require financial institutions to obtain written confirmation from customers that the funds match their activities.

Banks are also required to keep records of cash transactions over $10,000 and report suspicious deals to the Financial Reporting Centre, which combats money laundering and financing of terrorism.

There has been increasing pressure on CBK Governor Patrick Njoroge to change the regulations that are said to be hindering the growth of micro- and small-sized businesses that primarily handle cash.

In 2010, Kenya was placed on a “grey list” of high-risk countries by a watchdog for failing to combat money laundering, drug trafficking, corruption, and terrorism.

After making significant progress in protecting financial transactions, Kenya was removed from the Financial Action Task Force (FATF) list of countries with high risk for money laundering and terrorist financing in 2014.