Banks to access secret State database in money laundering fight

Financial institutions will soon be given access to a State database on covert owners of firms, enabling them to quickly identify and report transactions involving individuals who are abusing the anti-money laundering statute by employing proxies, acquaintances, and family.
This is a component of the anti-money laundering law revisions that are currently making their way to Parliament and which aim to lift the blinders that have hampered the efforts of banks to flag questionable transactions.
According to a source from the Office of the Director of Public Prosecutions, the amendment will fundamentally alter how the nation combats money laundering.
“Access by banks to the electronic registry will be important in tracking the money deposited by’smurfs’ on behalf of a beneficial owner,” the person said.
Money launderers who avoid detection by authorities by splitting up large transactions into a number of smaller transactions that are individually below the reporting threshold, in this case, $10,000 (Ksh1.4 million), are referred to as smurfs. The same law will be amended to raise this amount to $15,000 (Ksh2.1 million).
Banks have been discreetly advocating for direct access to the database of beneficial ownership. In its most recent assessment on Kenya, the International Monetary Fund (IMF) also disclosed the plan.
According to the IMF, legal modifications will give financial institutions access to an electronic registry of individuals who are the beneficial proprietors of corporations with addresses at the Office of the Attorney-General.
The State anticipates that banks will be better equipped to identify unusual transactions associated to covert business owners who are politically exposed (public servants) or criminals once they have access to the records of those who have ultimate control over the company, formally known as beneficial owners.
As the government steps up its fight against money laundering and terrorism financing, this is a part of a larger strategy to improve the Know-Your-Customer (KYC) regulations for lenders.
The State Law Office’s Business Registration Services (BRS), which displays the ultimate important owners of both private and public firms, created an online portal on beneficial ownership registers in 2020.
Banks are required under the Proceeds of Crime and Anti-Money Laundering (Amendment) Act of 2022 to identify the ultimate beneficial owners of firms or those who have significant control over the enterprise.
Names of the substantial shareholders, KRA PINs, copies of national IDs or passports, postal addresses, home addresses, occupations, telephone numbers, and the date the investor became a beneficial owner are all details that must be submitted for inclusion in the beneficial ownership registry.
In the case of publicly traded corporations, a considerable owner is one with a controlling position of more than 10%.
However, bank executives claimed that as of right now, only law enforcement organizations like the KRA, the Ethics and Anti-Corruption Commission (EACC), the Assets Recovery Agency (ARA), security agencies, and the Financial Reporting Centre (FRC) have access to the electronic register on beneficial ownership (BO) information.
The FRC keeps tabs on nefarious monetary transfers. The country’s anti-money laundering and combating the financing of terrorism (AML/CFT) system mandates that banks submit regular reports to the FRC detailing any suspicious cash transactions involving sums over Ksh1.4 million ($10,000).
The IMF reports that legislation changes are being made to allow banks access to electronic registers of beneficial owners of public and private enterprises. “Further legal amendments are underway to also grant access to the e-register by financial institutions for AML/CFT purposes,” according to the IMF.
These law changes, according to Bernard Kiragu, general partner at corporate governance consulting firm Scribe Services, “offer an extra layer of KYC for banks.”
“KYC, a method of removing the corporate veil of corporations, makes it significant. When assessing political risk, it is beneficial,” according to Mr. Kiragu.
Giving banks access to this registry, according to senior adviser Mohamed Wehliye of the Saudi Arabian Monetary Authority, has the effect of “lifting the veil on nominee shareholding to get to know the extent to which public servants or politicians and their families/cronies milk public funds.”
The majority of businesses, even those that are publicly traded, have not been revealing these facts. According to a mutual evaluation report on Kenya’s anti-money laundering and counter-terrorist financing efforts, they have also not been fined for non-compliance.
According to the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), a regional anti-money laundering organization, “BRS has not sanctioned any company for compliance, but used denial of service as an administrative measure to enforce compliance.”
Only 276,014 of the 690,222 registered private companies, or 40% of private firms, are in compliance with the requirement to maintain a list of beneficial owners, according to recent BRS data.