A substantial uproar has arisen within Kenya’s banking sector as commercial banks voice their strong opposition to a government proposal aimed at raising the threshold for reporting significant cash transactions. The plan, which seeks to elevate the reporting threshold by 50 percent to $15,000 (Sh2.1 million), has ignited concerns among financial institutions regarding potential implications for money laundering and terrorism financing within the country.

The proposed change, approved by President William Ruto’s cabinet, intends to exempt bank customers from the obligation to disclose the origin, intended use, and beneficiaries of transactions amounting to $15,000 (Sh2.1 million) or less. The proposed adjustment would apply to the Financial Reporting Centre (FRC).

In a recent session of the parliamentary committee overseeing public participation on this matter, the Kenya Bankers Association (KBA) made its stance against the proposal crystal clear. The KBA emphasized that increasing the threshold from the existing $10,000 (Sh1.41 million) would raise the risks for Kenya, given its strategic geographic position in the Horn of Africa.

David Nyamato, Chairperson of the KBA compliance committee and head of governance, regulatory affairs & stakeholder relations at NCBA Bank Kenya, conveyed the association’s viewpoint. He advocated for retaining the current cash limit of $10,000, arguing that this approach aligns with the evolving exchange rate volatility and inflation rates.

The rationale behind this proposition is to maintain stability while addressing the possibility of money laundering and terrorism financing activities. Kenya’s participation in international frameworks aimed at combating such activities, including membership in the United Nations Security Council’s Anti-Money Laundering and Combating of Terrorism Frameworks and the Financial Action Task Force (FATF), adds a layer of significance to the banks’ concerns.

Nyamato pointed out Kenya’s pivotal role as a regional economic hub, coupled with its proximity to regions affected by terrorist activities. “Kenya’s status as the largest economy in the region and its transit hub position for Eastern Africa makes it susceptible to illicit commerce risks,” Nyamato emphasized. He cautioned against a uniform increase in the threshold due to its potential to inadvertently facilitate terrorist financing.

Drawing insights from various global examples, the KBA highlighted how other nations like the European Union (EU), the United States, Malaysia, China, South Africa, Tanzania, and Uganda have calibrated their cash reporting thresholds based on their individual risk assessments and economic conditions.

As discussions unfold within the National Assembly’s Finance and National Planning Committee, the fate of the proposed threshold adjustment hangs in the balance. If the amendment goes forward, the Financial Reporting Centre will potentially gain the authority to outline situations in which a reporting institution’s license could be revoked.

This isn’t the first time such a proposition has emerged. In October 2021, a similar effort was met with caution from the Central Bank of Kenya, reflecting concerns about potential economic repercussions. The ongoing debate underscores the delicate balance between economic stability and the imperative to combat financial crime. As stakeholders await the outcome, the resolution of this clash will undoubtedly shape Kenya’s financial landscape for the foreseeable future.

Photo Source: Google

By: Montel Kamau

Serrari Financial Analyst

21st August, 2023