No questions over million shilling transactions opens taps for campaign billions

ODM Leader Raila Odinga duyring his Azimio la Umoja roadside campaign in Ruiru Kiambu County. [Samson Wire, Standard]

The directive by President Uhuru Kenyatta to relax part of the stringent anti-money laundering rules might allow dirty money to flow into and out of politicians’ accounts.

This will frustrate the country’s hard-fought war against illicit finances that has stemmed the uninhibited flow of funds from drug trafficking, tax evasion and terrorism financing into the country.

In his Mashujaa Day Speech on Wednesday, the Head of State directed the National Treasury to review upwards the Sh1 million cash transaction limit in which bank customers are required to explain the source and use of the funds whenever they withdraw or deposit.

“The financial institutions will retain their reporting obligations to the Financial Reporting Centre,” said Kenyatta.

The Head of State noted that the review would benefit Micro, Small and Medium Enterprises (MSMEs), with more than 80 per cent of their financial transactions still being cash-based.

MSMEs are critical engines in the recovery of Kenya’s economy which has been badly battered by the Covid-19 pandemic.

But critics fear this might be counterproductive. With the hurdles against money laundering schemes lifted, dirty money may be introduced into the system without raising suspicion.

Money laundering is a scheme to conceal the source of illegal proceeds so that the money can be used without detection of its criminal source.

That the directive comes up as the campaign season heats up raises eyebrows, said Sheila Masinde, the Executive Director, Transparency International Kenya.

It does not help that lawmakers have already scuttled efforts to regulate campaign financing and spending limits, says Masinde.

“Politicians are likely to abuse such financial leeway, fail to disclose the sources or the use of money they withdraw, and may use such funds for voter bribery and intimidation, sponsor violence and other electoral malpractices,” said Masinde, adding that such funds can also perpetuate the culture of hand-outs.

“As a result the elections could produce leaders of dubious integrity that fall below the leadership and integrity standards set by our Constitution.”

Fearing that campaigns might be turned into conduits for cleaning illegally earned cash, the Independent Electoral and Boundaries Commission (IEBC) came up with stringent campaign financing rules.

However, in October lawmakers pushed IEBC into revoking an earlier notification on campaign contributions and spending limits in the 2022 General Election.

The lawmakers were opposed to the regulations requiring them to open specific bank accounts for campaign cash which would be managed by a campaign expenditure committee.

The regulations, contained in the Election Campaign Financing Regulations 2021, had capped spending for presidential candidates at Sh4.4 billion over the campaign season while political parties were given up to Sh17.7 billion in the campaigns.

In a country where election campaigns are often a contest on who will give voters the most bribes, critics reckon that it is the aspirants for the various electoral seats that will be smiling from the bank.

“The managers or the executives…or what you may call the state managers are the only ones that can afford such money,” said Ford Asili Secretary Njeru Kathangu.

Mr Kathangu noted that every time there is an election, there is a push by well-heeled politicians to access to inordinate amounts of money.

“And that is for nothing else but to bribe the voter,” added Kathangu.

Indeed, data from the Central Bank of Kenya (CBK) shows that over 99 per cent of the deposit accounts in Kenyan banks have less than Sh100,000.

Dr Abraham Rugo, the country manager for the International Budget Partnership, a non-governmental organisation, reckons that while the paperwork has been off-putting for MSMEs transacting in little sums, the government would have considered the risk of dirty money being used to fund campaigns. “The solution is not to try and make it easier for money laundering. The rules should be tightened,” said Rugo, adding that it is still very difficult to track where people are getting their campaign money.

Data available shows that cash outside of banks has tended to surge during the election period, but has not necessarily resulted in increased output with jittery investors putting off their investment plans.

And the requirement for banks to implement tough know-your-customer (KYC) regulations have left local politicians with a long face. These KYC rules came in place in 2016 spoiling the party for politicians as banks put hurdles aimed at stopping dirty money into the system.

The peak of the fight against illicit cash became apparent in early 2019 when, suddenly, Members of Parliament and a ‘prominent’ businessman started throwing barbs at CBK Governor Patrick Njoroge, for instituting what they insisted were harsh KYC regulations.

These regulations require anyone withdrawing or depositing more than Sh1 million to fill in a special form stating where the money is from or going to, who they are paying or receiving the money from and for what purpose. This is to guard against money-laundering and terrorism financing.

“When I received my mortgage, Barclays Bank asked me to explain where the money came from. When you sell your three camels, you are asked where the money is coming from,” said the then Majority Leader Aden Duale in September 2019.

Perhaps as a result of these tough KYC rules, cash domiciled outside of banks registered its slowest growth in a decade in 2018 after CBK instituted the stringent rules against withdrawal of large sums of cash.

While a lot of this cash might have gone into mobile money wallets instead. But that was okay to CBK as money in M-Pesa is money in the banks, some might have remained under the mattress accounts.

Unlike in the previous elections when the campaign period would be associated with a lot of money leaving banks in various notes and coins, official data paints a different picture.

Currency outside of banks grew at a normal pace of 7.2 per cent as of December 2017. This represented an addition of Sh15.2 billion to the stock of currency outside the banking system. Compared to the previous elections, the 2017 increase was not significant, perhaps due to a combination of new digital channels and the stringent KYC rules.

Currency outside of banks would spike by more than a third in an election year before, official data shows.

On average, about Sh20.8 billion worth of notes and coins would be pumped into the economy as politicians and financiers went on a spending spree after drawing down their bank savings or foreign currency deposits.

But Dr Njoroge, the CBK governor, came up with the stringent KYC rules and spoiled the cash-party, according to lawmakers. By the end of January 2019, the growth of currency outside of banks increased at a snail pace of 1.6 per cent.

Flamboyant businessman Paul Kobia is among the individuals that were declared persona non grata by one of the local banks.

But the arrival of Njoroge at the helm of CBK might have stopped the cash-party for Kobia who has a penchant for flaunting his riches.

Soon, visits to banks by Kobia became dreadful. Instead of the pampered reception that characterised his earlier visits, his appointments turned into an irritating inquest on the source of his wealth.

“I am writing to advise you that following a review of our business, a decision has been taken to cease our provision of banking/investment services to you. As a result of this decision, your accounts/products will be closed with effect from January 14, 2019,” said Joan Kiragu, Premier Relationship Manager at Barclays Bank of Kenya, now Absa Kenya, in a letter to Kobia.

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