As the September 30 deadline for the phasing out of Kenya ’s old Sh1000 notes draws nearer, a point would simply be that those who have bitten more than they could swallow from the old currency would be looking for where to deposit their impending liabilities.
“With the September 30 deadline approaching, financial institutions should be even more careful of attempts to circumvent the Anti-Money Laundering requirements, in exchanging or depositing old Sh1,000 notes,’’ CBK has warned in statement to banks,’’ Kenya’s Central Bank has already warned in statement.
Here Is How The New Currency Policy Has Pushed Some Kenyans To Tight Corners
Under Kenya’s new currency regime, some of the country’s currency would be replaced with a new generation of banknotes. To that effect, Kenyans must return their old 1,000 shillings ($10; £8) notes to banks before 1 October, 2019 in a bid to fight money laundering, counterfeits, and corruption).
To effectively implement the new policy, the Central Bank of Kenya has issued some tough guidelines on how to exchange the old Sh1000 currency for new notes.
- To this effect, those without a bank account are not able to exchange more than Sh1 million of old currency with the new notes without CBK’s approval.
- Even with a new bank account, it is reported as a suspicious activity if the holder all of a sudden credits his account with more than Sh1 million, or seeks to exchange it in cash and walk away without proper documentation on proof of source of funds.
There is an alleged feeling of desperation among those suspected to be hoarding money acquired illegally and who are hence unable to bank it as they cannot openly declare its source. Such individuals are faced with the challenge of losing the money when it is devalued on 1st October as Kenya officially moves on to the new currency as is dictated by the 2010 Constitution, reports Kenya’s Investment Company Soko Directory.
New Guidelines Warning Stakeholders By CBK
In its most recent circular, KCB warned it would take action against any commercial bank that fails to, neglects or omits to comply with relevant regulations.
The regulator reminded lenders of their obligation under the Crime and Anti-Money Laundering Act, 2009, saying they should undertake due diligence on customers’ transactions and ensure effective monitoring of all accounts and transactions.
In March 2019, CBK also directed all commercial banks, microfinance institutions, and mortgage finance companies to nominate “an independent and competent external third party” to evaluate the institution’s compliance to anti-money laundering and combating the financing of terrorism programs.
The appointed parties evaluate the institution’s customer due to diligence measures, its risk assessment for cases of money-laundering and terrorism financing, check the firm’s internal controls against such financial crimes, and their monitoring process.
The fight against money laundering was one of the Kenya ’s reasons to phase out old Sh1000 notes, which CBK said was becoming increasingly easier to imitate.
Speaking during the Madaraka Day celebrations, CBK governor Patrick Njoroge said the new Sh1,000 notes will help address the growing concerns of illicit financial flows in the country.
The Most Direct Implication of This Is That By October This Year, All Those In Possession of The Old Ksh1000 Notes Will Not Be Able To Use Them
This is directive of the Central Bank of Kenya. CBK governor Patrick Njoroge also revealed that 100 million pieces of the old Sh1,000 note had been returned by end of August 2019 out of 217 million pieces or Sh217 billion in circulation.
This means the public has only 10 working days to exchange some of the remaining bulk.
With the deadline fast approaching, businesses have started blocking usage of the old Sh1000 notes.
Read also: What Kenyan Businesses Need To Know About The New Currency Policy In Place In The Country
Countries That Once Toed Kenya’s Footsteps
In 2016, India changed almost all of its cash overnight, which some critics claim caused long-term financial problems. The Indian government said it was a necessary move to tackle tax evasion and terrorism funding, and in a country where 90% of transactions are in cash, to move towards a cashless society.
Nigeria introduced a similar ban on old notes in 1984 in an attempt to crack down on corruption, as did Ghana in 1982 to help with tax evasion.
This may be a big-time signal for businesses in Kenya to consider storing their cash in foreign domiciliary accounts going forward.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world