Five Major Banks Penalized in State Funds Theft Case in Kenya

Kenya’s central bank has penalized five major commercial banks for handling stolen state funds in the corruption scandal involving the country’s National Youth Service and Ministry of Devolution and Planning. In addition, the banks’ CEOs and employees could face arrest, fines, and jail time.

Also read: 160 Crypto Exchanges Seek to Enter Japanese Market, Regulator Reveals

Handling Stolen State Funds

The Central Bank of Kenya (CBK) on Wednesday, Sept. 12, fined five major commercial banks for handling stolen state money. The banks were “used by persons suspected of transacting illegally with the National Youth Service (NYS),” the CBK wrote.

The NYS is an organization under the government of Kenya, established in 1964 to train young people in important national matters. In 2015, it became the focus of a corruption scandal involving the country’s Ministry of Devolution and Planning. The scandal led to the resignations of the then-Cabinet Secretary of the Ministry of Devolution and Planning, Anne Waiguru, and the NYS director at the time, Nelson Githinji.

Originally, at least 791 million Kenyan shillings (~US$7.65 million) were said to have been stolen from the ministry. However, in May, the Daily Nation reported a new 10.5 billion Kenyan shillings (~$104 million) NYS scandal. “Dozens of senior government officials and business people were charged in May with various crimes related to the theft of nearly $100 million from the NYS marking a new effort to crack down on widespread corruption,” Reuters added.

Five Banks Are Just the Beginning

The five commercial banks fined last week were the ones that handled the largest flows of funds received from the NYS, the central bank described.

They are Standard Chartered Bank Kenya, Equity Bank Kenya, KCB Bank Kenya, Co-operative Bank of Kenya, and Diamond Trust Bank Kenya. They handled a total of 3.58 billion Kenyan shillings (~$35 million) of funds received from the NYS, the CBK detailed, adding that they have been collectively fined 393 million Kenyan shillings (~$3.9 million).

Concerning NYS-related bank accounts and transactions, the banks were found to be in violation of some anti-money laundering and combating of terrorist financing (AML/CFT) regulations, the CBK elaborated.

They failed to report large cash transactions and undertake adequate customer due diligence. In addition to a lack of supporting documentation for large transactions, there were also lapses in the reporting of suspicious transaction reports to the Financial Reporting Centre (FRC).

Kenya’s central bank governor, Patrick Njoroge, was quoted by Citizen TV in May saying, “The issue is not regulations or lack thereof, the guidelines are there; the issue is not enforcement or lack of understanding of the regulations either. It is deliberately not following guidelines.”

CEOs and Employees Face Arrest, Fines, Jail Time

A day after the central bank fined the five banks, the Director of Public Prosecutions (DPP), Noordin Haji, told the Daily Nation in an interview:

Chief executives and employees of banks who helped ship out billions of shillings from the National Youth Service (NYS) will be arrested and prosecuted.

The publication explained that “Bank executives and persons who are convicted of handling illicit cash face a Sh1 million [~$10,000] fine and a three-year jail term, while institutions including banks, credit unions facilitating such deals could be fined up to Sh20 million [~$198,294] upon conviction.” Moreover, banks could also lose their licenses.

Penalizing five banks is the result of the first phase of the NYS-related investigation. In May, the authorities started investigating ten commercial banks for processing clients’ transactions from the NYS. For the next phase of the investigation, an additional set of banks will be identified and investigated, the central bank revealed.

Why are regulators going after crypto with so many problems in the banking system? Let us know your thoughts in the comments section below.

Images courtesy of Shutterstock and Fsd Kenya.

Need to calculate your bitcoin holdings? Check our tools section.