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Banks in Kenya and anti-money laundering obligations: the conflicts of interests arising
Abstract
Purpose
Kenya is vulnerable to trade-based and other forms of money laundering. Banks are prime targets for money launderers since they can facilitate the processes of placement, layering and re-integration. Consequently, banks are key in fulfilment of the prohibitory and preventative anti-money laundering (AML) strategies. In executing these obligations, the potential for clashes between the bank following the law and obeying its contractual duties to the client arises. Hence, this paper aims to examine these potential conflicts of interests.
Design/methodology/approach
The examination is based on reviewing relevant literature, case law and analysing the Proceeds of Crime and AML Act and its attendant regulations. These form the core of the AML regime imposing obligations on banks.
Findings
The analysis indicates the provisions are robust and can assist in addressing money laundering risks faced by banks. Nonetheless, there are identified gaps since the primary AML legislation does not provide guidance on various issues. This can potentially lead to banks facing litigation from customers for failure to honour its duty of secrecy and customer’s instructions.
Originality/value
The paper seeks to make a practical and scholarly contribution in considering the issue and possibly filling this gap through advocating for statutory amendment. Subsequently, positive review of the law will help strike a balance between interference in the banker-customer contractual relationship and facilitation of banks fulfilling their prohibitory and enforcement of AML obligations.
... According to the report of Gikonyo (2020), a vacuum has existed in Kenya since the primary AML regulations lack guidance for addressing numerous concerns, potentially exposing banks to litigation from consumers for failing to uphold confidentiality requirements. Naheem (2023) noted that, notwithstanding the advancements achieved by the UAE, certain vulnerabilities remain that can be exploited by criminal and terrorist organizations. ...
Research aims: This study intends to investigate how Anti-money laundering (AML) regulations work and assess their effectiveness on a global level. Additionally, it also consigns to explain how technology has been adopted to prevent and treat money laundering.Design/Methodology/Approach: This study employed a systematic literature review method. The data, encompassing 63 reviewed articles, were derived from the Scopus database. This research underwent three phases: extraction, analysis, and synthesis process.Research findings: Archival emerged as the predominant method applied in the reviewed articles. These articles significantly impacted the effectiveness of AML regulations and the preparedness of all entities to put them into practice. However, in addition to the positive effects of AML, there existed adverse effects and risks. Accordingly, the utilization of technology could lessen negative impacts.Theoretical contribution/Originality: Notwithstanding the significance of worldwide AML regulations, there existed a lack of literary research on compliance and technological trends. The findings of this study are expected to impact policymakers, practitioners, and the public on the enhancements to the AML system and the augmentation of global security.Practitioner/Policy implication: Banks and other financial institutions implemented AML to prevent money laundering.Research limitation/Implication: This study focused solely on the effectiveness of AML, compliance with AML regulations, challenges, and the application of technology in AML.
Money laundering control is a complicated exercise that is not particularly well served by unequivocal assertions about its pernicious impacts. Drawing on the legendary demise of the Bank of Commerce and Credit International and four modern American tales of disciplinary action, this paper examines the threatening relationship between money laundering and financial institutions. Located in the context of the evolution of money laundering regulation, the examination finds that neither of the factual narratives confirm that money laundering necessarily harms banks. Having identified an ambivalent relationship, the paper recommends enhanced focus on individual liability as a locus for the control of money laundering.
Purpose
– The purpose of this paper is to analyze banking secrecy laws against the background of the Malaysian anti-money laundering laws. It has been argued that the anti-money laundering law makes greater inroads into the banking secrecy rule when compared to the common law or other statutes. Banks can disclose customer’s information on even grounds of suspicion of money laundering. Banking secrecy is a customer privilege, whereas combating money laundering is critical for public safety and security. Indeed, achieving a proper balance is a desirable goal. But how do we go about achieving such a balance is a question encountered by many law enforcement authorities. This paper looks into these issues.
Design/methodology/approach
– This paper mainly relies on statutes as its primary sources of information. As such, the relevant Malaysian laws that provide the banking secrecy rule will be identified and analyzed. It will be necessary to examine the banking secrecy rule in the Anti-Money Laundering and Anti-Terrorism Financing Act 2001 (AMLATFA) and other relevant statutes in detail, as these are the most important legislation for the purpose of this paper.
Findings
– On closer inspection, it is submitted that AMLATFA provides sufficient safeguards to ensure that the disclosure of customer’s information is carried out in a manner that is not prejudicial to the interest of legitimate customers. This is a positive approach that could protect the innocent customers from being mistreated by the law. Ultimately, it can be said that the growing threat of global money laundering and terrorism makes the overriding of banking secrecy justified because without a flow of information from the banks, the effective prevention of the menace is not possible.
Originality/value
– This paper analyzes the inroads into the banking secrecy rule under the Malaysian anti-money laundering laws. It would provide some guidelines into this particular area for academics, banks, their legal advisers, practitioners and policy makers, not only in Malaysia but also elsewhere.
Purpose
This paper aims to investigate how criminals launder money and finance terrorism through the financial system.
Design/methodology/approach
In total, 70 interviews were conducted with criminals and white-collar crime prevention experts, whose responses were subjected to qualitative content analysis. Based on the findings, a quantitative survey of 200 compliance officers was carried out.
Findings
The interviews and survey revealed concrete techniques of laundering money and financing terrorism through the financial services industry and its affiliates. Evidently, the compliance mechanisms aimed at preventing money laundering and terrorism financing can be easily circumvented.
Research limitations/implications
This study’s findings are limited to the perspectives of 70 interviewees. Hence, it is possible that a study with a larger sample conducted in different countries or at a different time could have yielded different results.
Practical implications
Identifying the concrete methods of laundering money and financing terrorism should provide both compliance officers and legislators with valuable insights into criminal activity. By better understanding the specific steps taken by criminals, compliance officers should be able to more effectively combat both money laundering and terrorism financing.
Originality/value
While prior literature focuses on the organizations and mechanisms involved in combating money laundering and terrorism financing, this paper instead explores how criminals avoid detection by taking into account existing compliance mechanisms and criminal perspectives.
Purpose
– The paper aims to examine the jeopardy of the bank in performing its varied functions to customers, the public and regulatory authorities. The bank’s overriding mandate is accepting deposits from its customer and to make payments as and when requested. However, banks also perform investment undertakings and other related functions. Banks have been applauded for facilitating the fight against crimes such as money laundering and financing of terrorism but they are times when they have also been vilified for not doing enough to prevent the foregoing crimes. There is evidence that banks have sometimes been exploited to facilitate commission of crimes either wilfully or recklessly. In this regard, banks which do not do enough to prevent commission of crimes have been perceived as either delinquents or villains for allowing themselves to be exploited for those inclined at committing money laundering and its predicate offences. The paper explores the varied situations in which banks have been caught up in both of these foregoing situations. They have done a plausible job in safeguarding the public and prevention of money laundering and terrorism offences. They have also been perceived as villains by allowing themselves to be exploited by criminals in perpetuating the foregoing offences. In both of the foregoing extremes, public opinion has been divided – there are those who support that banks do a good job and those who brand banks as villains. Those empathising with banks argue that by requiring banks to report suspected money laundering activities creates unfriendly business environment and hostilities in a particular bank. Apparently, this school of thought posits that over-regulation of banks potentially generates a hostile business environment and scares off potential business clients not to mention generating an anti-business climate in a particular bank. To them, banks should do just banking without being encumbered to provide overarching oversight responsibilities such as fighting money laundering and terrorism. The work of preventing crimes should be responsibility of oversight institutions and authorities, and banks should not be involved in executing of the foregoing responsibilities. As such, banks have been reduced to act as policemen. However, one wonders whether the foregoing thesis suggests that banks should just sit back and be exploited for criminal purposes or accept to acquiesce wrong doing or lawlessness simply for business expediency? This paper explores the jeopardy of the bank in delivering its mandate and to evaluate where the balance between its competing obligations needs to be drawn. Banks perform duties to the customer (emanating from their contractual relationship) and its responsibility to the regulatory authorities to safeguard the public. The paper provides an exposition of the modern business regulatory landscape within which banks operate in performing their competing duties towards the customer and the public. In the modern elusive global market environment, banks are in a jeopardy because people they would least expect to be involved in money laundering could be chief instigators of money laundering (ML) and predicate crimes. This includes presidents (e.g. Sana Abacha of Nigeria), minsters, judges and other elevated government figures could be the ones instigating the commission of money laundering offences in their countries. The jeopardy of the bank is that some of the foregoing political officials could be untouchable political figures on whose its survival depends. Banks need to remain fully alert bearing in mind that with globalised business environment in which they operate, circumstances can change very rapidly. It would also be overly unnecessary to blame banks for failures in the regulatory system beyond their control such as the global crisis – which they could not have foreseen or prevented. Finally, this paper articulates the fluid environment in which the modern bank operates and its attendant challenges.
Design/methodology/approach
– The paper was written by the analysis of both primary and secondary data sources focusing on vulnerability of banks in executing their mandate as financial institutions. The paper has also utilised case law on misfeasance of banks where courts have found banks for misfeasance and literally not doing enough in execution of their obligations to prevent financial crimes. This paper has also utilised some of the data utilised by the author in writing his PhD dissertation but done so in a distinctive manner to foster the objective of this paper. The author has harnessed and evaluated the foregoing data sources and adapted them in different contexts to address pertinent issues this paper was written on.
Findings
– The findings are not clear cut of whether banks qualify to be branded villains or heroes. The findings have demonstrated that the majority of banks are doing a plausible job to prevent money laundering and prevention of terrorism. There are also discerning situations where banks have been less valiant in prevention of crimes and in doing so they have put themselves in a negative spotlight. The paper has utilised different data sources generated on the role of banks in providing frontline services to the public and their failure to execute the foregoing mandate diligently.
Research limitations/implications
– The limitation of the paper is that it would have been better to evaluate the secondary data sources used in writing it by carrying out interviews on some issues it hinges. Due to some practicalities, it was not possible to carry out interviews or to send out questionnaires to banks and other financial institutions. As such, some of the data sources used could have been biased.
Practical implications
– This paper is of significant importance for banks, regulatory authorities, governments and those with a stake in the way banks are regulated and governed. I presume the foregoing stakeholder constituencies will find it a worth read and interesting. The paper also demonstrates that some the information written on banks in newspapers is not always true and urges caution in utilising newspapers as a source of generating data. It also underscores the need for banks to be more vigilant in execution of their mandate towards different stakeholder constituencies, so that they are not inadvertently exploited for criminal purposes.
Social implications
– The paper has far reaching implications for banks to be utilised in prevention of crimes in executing their mandate cautiously. It is important that much as financial institutions should be utilised in the foregoing respect, they should not be constrained by over-regulation, as this also means that they would pay dearly in compliance costs.
Originality/value
– The originality of the paper is manifested that while it has relied heavily on secondary and primary data sources, it was written in a distinctive way to foster the objectives of writing it. The paper was also evaluated in the context of empirical evidence where banks have used the influence to prevent crimes or where they have been less vigilant in doing so and they have been exposed to criminal exploitation. The foregoing experiences were evaluated carefully using reliable data sources such as case law and recent legislation.
This article aims to analyse the practical challenges faced by banks while filing ‘Suspicious Activity Reports’ required under the Proceeds of Crime Act 2002. The difficulty is analysed both against the lacunae in the law as well as challenges in its implementation. The recent judgment of Shah v. HSBC has made a considerable attempt to highlight and address these challenges. However, the author believes that although the judgment has clarified the consent regime (which surfaces after a disclosure of suspicion has been made), the concept of ‘suspicion’ in itself is still vague and amorphous, proving to be a negative effect on banks to effectively identify the proceeds of crime. As a result, the fundamental issues regarding over-reporting of suspicion by banks to escape legal consequences still remain.
Purpose
– The purpose of this article is to analyse financial intelligence units' (FIUs') approaches in enforcing compliance and how these units can ensure the application of the most effective enforcement mechanism to secure the best outcome of such regulatory action.
Design/methodology/approach
– Sources of information consisted of scholarly books, papers and published articles through the web.
Findings
– FIUs should not concentrate on adopting a purely cooperative style (in terms of soft sanctions) or take the opposite approach and be a tough regulator (applying harsh sanctions on non‐compliant reporting entities). Rather, a more qualitative approach should be adopted, individually tailoring the approach on the basis of an examination of the FIUs' findings on entity non‐compliance, and how it can best operate its mechanism so as to ensure those entities comply effectively with their AML/CTF obligations.
Originality/value
– This article serves as a fruitful analysis to educate FIUs' personnel, AML/CTF professionals, and reporting entities in terms of achieving the highest level of compliance with AML/CTF laws and regulation. Some studies have discussed FIU enforcement mechanisms generally but, to the best of the author's knowledge, the analytical study of different FIUs' enforcement mechanisms and how to achieve the most effective results to secure compliance is yet to be externally or independently researched and evaluated.
Purpose
A fundamental element of international anti‐money laundering (AML) systems is the requirement that financial institutions file suspicious transaction reports (STRs) with financial intelligence units. Although the Financial Action Task Force (FATF) has established global standards, there is a range of national laws, practices and experiences with STR systems. The purpose of this paper is to assess the effectiveness of national STR systems, by using Switzerland as a case study.
Design/methodology/approach
Primary source documentation, complemented by observations at FATF meetings, are relied on to evaluate STR systems.
Findings
The FATF ratings of a country's compliance with international standards are objective, expert driven and consistent in application, but are limited as performance measures in that they ignore the costs of AML and STR measures. The effectiveness of the Swiss STR system is questionable because of serious under reporting of suspicious transactions. The Swiss STR system is efficient to the extent that there is a high usage of STRs and that large amounts of money are automatically frozen under the mandatory reporting obligation.
Research limitations/implications
Evaluation of national STR systems is limited because of a lack of reliable statistics on the extent of money laundering.
Practical implications
This paper is addressed to policy makers who are concerned with assessing the effectiveness of STR systems. Future research would deal with STR systems in developing countries and the role of STRs in uncovering the financing of terrorism.
Originality/value
Insider/outsider description of the FATF mutual evaluation process. Compilation and interpretation of statistical data on STR systems, as performance measures.
Only in recent times has economic analysis developed a special focus on financial issues related to the study of criminal activity, thus far completely absent in the literature. The basic theoretical reason lies in the absence of special treatment of monetary and financial aspects within the traditional Becker model.In this paper I discuss a simple but hopefully useful frame-work to understand the mechanisms of money laundering. I will show how, from a microeconomic point of view, money laundering performs an illegal monetary function, responding to the overall demand for black finance services, expressed by individuals or groups that have committed income-producing crimes. The micro foundations of money laundering allow us to shed light on its macroeconomic effects (the money laundering multipler).
Guidance on submitting better quality suspicious activity reports (SARs)
- Nca London
The evolving EU anti-money laundering regime
Defensive SAR filing: an unnecessarily heavy burden on the AML field”, ACAMS-FCI White paper, available at: www.acams.org/defensive-sar-filing-an-unnecessarily-heavy-burden-on-the-aml-field
- Z Teng