(FULL STATEMENT) CBK penalizes Equity and Cooperative banks over NYS fraud web

(FULL STATEMENT) CBK penalizes Equity and Cooperative banks over NYS fraud web

- in Business, News

The Central Bank of Kenya (CBK) has, with other investigative agencies, been
investigating banks that were used by persons suspected of transacting illegally with the
National Youth Service (NYS). This followed the serious concerns that came to light in
May 2018, related to the channelling of NYS funds.

CBK announces the conclusion of the first phase of the investigation of the banks that
were used by these persons in transacting the NYS funds. The investigations prioritised
banks that handled the largest flows, namely; Standard Chartered Bank Kenya Ltd, Equity
Bank Kenya Ltd, KCB Bank Kenya Ltd, Co-operative Bank of Kenya Ltd, and Diamond
Trust Bank Kenya Ltd.

The main objective of the investigations was to examine the operations of the NYS-related
bank accounts and transactions, and in each instance assess the bank’s compliance with
the requirements of Kenya’s Anti-Money Laundering/Combating Financing of Terrorism
(AML/CFT) laws and regulations. Violations were identified, principally related to the
following:

 failure to report large cash transactions,
 failure to undertake adequate customer due diligence,
 lack of supporting documentation for large transactions, and
 lapses in the reporting of Suspicious Transaction Reports (STRs) to the Financial
Reporting Centre (FRC).

CBK has assessed monetary penalties for each of the five banks in accordance with the
extent of the violations that were identified and pursuant to CBK’s powers under the
Banking Act and the Central Bank of Kenya Act. These penalties are detailed below.

2Commercial Bank Amount received from NYS
(Ksh. million)

Assessed monetary penalty
(Ksh. million)

Standard Chartered Bank
Kenya Ltd. 1,628 77.5
Equity Bank Kenya Ltd. 886 89.5
KCB Bank Kenya Ltd. 639 149.5
Co-operative Bank Kenya Ltd. 263 20.0
Diamond Trust Bank Kenya
Ltd. 162 56.0

CBK has discussed the detailed findings with Boards of Directors and Senior Management
of each of the banks. Each has expressed their strong commitment to be fully compliant on
all aspects of the law, and addressing the identified lapses through time-bound Action
Plans. These Actions Plans will be submitted to the CBK within fourteen (14) days and
CBK will closely monitor their implementation. More generally, CBK will work with all
other banks to ensure that these findings are also applied to strengthen all AML/CFT
frameworks.

The second phase of the investigations will involve use of these findings by other
investigators, inter alia, assessment of criminal culpability by the Directorate of Criminal
Investigations (DCI) and the Office of the Director of Public Prosecution (ODPP). CBK
has shared the findings with the relevant investigative agencies for their appropriate
action. Further, an additional set of banks will also be identified and investigated.
The actions taken by CBK and subsequently by other agencies are aimed at safeguarding
stakeholders’ interests and maintaining a healthy financial sector. CBK will continue to
ensure that the banking sector’s legal and regulatory framework, including for AML/CFT,
is aligned to best practices. We will also continue to enforce strict adherence to the
applicable laws and regulations, as the interests of the public, investors, and other
stakeholders will be protected only in any environment that is governed by the rule of law.

CENTRAL BANK OF KENYA
September 12, 2018

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