To curb illicit financial flows, regulate the payments system

There are much more serious and broader policy issues at stake. Good policy must have legitimacy — not just legality.

If anything, the designs announced on Saturday were subjected to public participation way back in 2013, when the public was invited to suggest the design elements they wanted on a redesigned Kenyan currency.

From my archives, I found a Cabinet paper that shows that the designs were discussed and signed off in August 2013.

The move is an attempt at combating money laundering, proliferation of counterfeit currency and terrorism financing.

Recent newspaper headlines have been on incidents such as the netting in February by the Special Crimes Prevention unit of a huge cache of fake foreign currencies in the amount of a whopping Sh32 billion in Ruiru, just outside Nairobi.

Then there was the recent discovery of Sh2 billion of counterfeit US dollar notes and fake gold bars at Barclays Bank’s Queensway House branch in Nairobi.

You will not be mistaken if you concluded that we are about to lose the future of our economy to the underworld.

I maintain that government policy has yet to respond to these worrisome trends through firm and appropriate action, bold decisions and sense of urgency.

I’m yet to see clever and resolute moves to seal the loopholes and black holes in our national payments system and prevent money laundering and terrorism financing.

We all know that M-Pesa is a critical part of the national payments system that moves billions of shillings, having evolved into what wonks describe as a systemic payments and financial markets infrastructure (SFI).

But who regulates mobile money, and where is the oversight capacity and capability for it? Yet, we all know that money laundering and terrorism financing is real.

Indeed, it’s this platform that terrorists used to plan the attack on DusitD2 Hotel.

The evidence may be anecdotal, but there are clear indications and trends to suggest that the preferred banknote of the political elite for laundering proceeds of corruption is the Sh1,000, kept under the mattress.

When a flashy, flamboyant and rich politician docks at your church or funeral gathering to donate millions of shillings and opulently display thick wads of cash, is it not just obvious that the money did not come from the inside of a bank — and, therefore, it most likely originated from proceeds of corruption?

Were the thick wads of banknotes donated to schools and churches coming from a bank and sourced from genuinely acquired wealth, these benevolent elite would be writing cheques to these churches, wouldn’t they?

You have the alternative of channelling the payment through Real Time Gross Settlement Systems (RTGSS), which has the capability of transferring the money from your bank straight to the bank of the church or school you are helping.

Even M-Pesa can do it. You just give your bank a list of beneficiaries and instruct it to credit their accounts. Indeed, Kenya has one of the most advanced mobile payments platforms in the world.

There is also PesaLink, a bank-based platform that facilitates payments between banks. And all banks have mobile banking platforms.

With the demonetisation of the Sh1,000 banknote, those regulators will now be in a better position to flag suspicious transactions.

Indeed, we have a national payments system that is weak and repeatedly falls prey to narcotic, cross-border charcoal trade and terrorist financing.

Even though we have a fully fledged Financial Reporting Centre working independently of the Central Bank, its mandate is basically to report — not to prevent — illicit financial flows.

Worse, it’s chronically underfunded and, therefore, does not have the capacity and capability to analyse the data it collects in real time.

But perhaps the payments system’s blackest holes are the foreign exchange bureaus.

According to statistics from the CBK’s supervision department, Nairobi has 94 licensed forex bureaus with Mombasa coming a distant second by hosting 10.

From little businesses handling small transactions, forex bureaus in Nairobi have grown into large businesses capable of handling large volumes of cash transactions.

We need to introduce a strong body to provide oversight to the national payments system. And what became of the National Payments Council idea?

We need systems where most cash in the economy can be tracked and traced. If we don’t control money laundering, the underworld will take over the country.