Macharia Kihuro 4 July 2011

http://allafrica.com/stories/201107050190.html

Nairobi — Money laundering continues to wreak havoc in the world's financial system and Kenya is no exception.

But recent claims by Transparency International that some Kenyans have stashed in foreign accounts proceeds of crime, drugs and money laundering in excess of Sh700 billion paints an ominous picture.

Globally, the fight against anti-money laundering and terrorism financing has gained momentum.

Any serious business must be on the lookout as abetting the vice has serious repercussions.

The warrants of arrest issued on former Finance minister Chris Okemo and former Kenya Power MD Samuel Gichuru for alleged involvement in money-laundering in a small island in the UK illustrates the gravity of the matter.

Before the dust settled, the US government slapped sanctions on two other Kenyans including Kilome MP John Harun Mwau, over alleged drug trafficking.

Money-laundering is the process by which illegally obtained money - for instance from drugs, terrorism, corruption or other crimes - is given the veneer of having originated from a legitimate source.

In technical terms, the stages of laundering money involve Placement, Layering and ultimately Integration.

Money laundering is a crime. But do people really know what can be classified as dirty money?

Sample this: a policeman receives bribes and deposits the 'tidy' cash in a personal bank account.

Does this constitute money laundering? Is the bank receiving the deposit abetting a crime?

And then how would the cashier at the bank know what is clean or dirty? This shows how the issue can be tricky.

In fact, this is the reason the buzzword in the banking world today is Know-Your-Customer (KYC).

Financial institutions must understand their customers well. Nothing illustrates this better than a recent case involving a bank in USA.

Wachovia Bank has admitted failure to identify, detect, and report suspicious transactions in third-party payment processor accounts.

About $420 billion in transfers went through the bank without adequate money-laundering detection systems in place.

Billions of dollars transferred from Mexican money exchange houses were used to buy planes for drug traffickers.

The bank paid $110 million to the US Justice Department and $50 million to the US Treasury in penalties. That is how serious the matter can get in some jurisdictions.

Institutions need to identify the real 'land mines'. These are activities highly prone to these activities.

The Financial Action Task Force (FATF) monitors and identifies jurisdictions that are less proactive in the fight against money-laundering.

Early this year FATF identified jurisdictions which have strategic deficiencies in tackling money laundering issues and Kenya is one of them.

Others in the list of shame include Pakistan, Paraguay, Morocco, Ghana, Ecuador etc.

To deal with this, a risk-based approach in the assessment of the range of factors which will affect the potential for money laundering within the firm is vital.

This will involve assessment of the inherent risks in the products a firm offers and the risks posed by the variety of delivery channels.

It is also important to understand if the customer - whether he is introduced by a third party as well as his geographical location.

FATF advises businesses to be careful while dealing with Politically Exposed Persons; people suspected to be in illegal drugs, piracy, and others.

Transactions involving technologically advanced channels such as wire transfers should be thoroughly vetted. Actually, there are enough ways to mitigate these risks.

At a click of the mouse, you can search a company or individual names in over 30 international sanction lists based on involvement in terrorism, drugs, corruption etc.

As a nation, we must sensitise the public of the contents of the Proceeds of Crime and Anti-Money Laundering Act as an ounce of prevention is worth a pound of cure.