Money laundering in the banking sector: a critical analysis of the enforcement procedures in Kenya

Mochere, Shalline Nyaboke
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Strathmore University
Financial crimes in the banking sector have caused the downfall of several banks in Kenya. The success rate of prosecutions and the ability of regulators, as well as law enforcement to curtail financial crime has been under challenge. This is true despite various enacted comprehensive legislation and institutions at their disposal, to curtail financial crimes. This study focuses on money laundering in the banking sector. The objectives of the study are to establish the causes of money laundering in the Kenyan banking sector; the challenges hindering effective enforcement of money laundering laws and regulations in the banking sector; on one hand, and the other to suggest possible measures that would help deter the crime. The study applied qualitative research methods and examination of relevant case laws. The study was able to identify the enforcement measures against money laundering in the banking sector to include a series of correlative measures composed of both preventive and law enforcement procedures. The preventive measures are carried out by the banking institutions to inhibit the infiltration of illicit money into the system. These include; carrying out customer due diligence, reporting any transactions that appear to be suspicious to the FRC and keeping financial transaction records. Law enforcement agents, on the other hand, step in to complement these preventive procedures by using measures such as financial sanctions, investigating predicate offences, confiscating assets acquired through illicit proceeds, and prosecuting banks found to be culpable. The study identified some of the problems facing the enforcement measures against money laundering to include: voluntary and involuntary violations of the AML legislation by banks, corruption, discretionary powers of the different enforcement agents, lack of resources that would help in the investigation and prosecution of the offence, presence of rogue banking officials in the banking sector and the multiplicity of agents in the enforcement process. The study analysed the different laws mandated to fight the offence in Kenya, such as the Proceeds of Crime and Anti-Money Laundering Act, the Anti-Corruption and Economics Crime Act, the Banking Act, and the Central Bank Act. From the examination of the law, the study established that some loopholes in the law that have caused enforcement to be at a minimal pace despite the efforts of the legislators in ensuring that the anti-money laundering laws are in tandem with the international best practices, such as the FATF Recommendations. The study concluded that, Kenya appears to have the proper mechanisms to combat and prevent money laundering, which if observed to would ensure prevention of the offence, nonetheless, the identified challenges bring about problems in the enforcement of the law and its measures. The findings suggest what could be done to improve the enforcement procedures regarding money laundering. These include, banks refraining from superficial compliance of the law, the provision of adequate resources to the enforcement agents, use of alternative sanctions to complement the monetary fines, prosecution of banks found culpable and sealing of the various loopholes in the law that hinder the effective implementation of the law.
A Thesis submitted in partial fulfillment of the requirements of the Degree of Master of Laws, at Strathmore University
Money laundering, Banking sector, Enforcement procedures_Kenya