Banks in Kenya and anti-money laundering obligations: the conflicts of interests arising
| DOI | https://doi.org/10.1108/JMLC-01-2020-0008 |
| Date | 23 March 2020 |
| Pages | 425-437 |
| Published date | 23 March 2020 |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
| Author | Constance Gikonyo |
Banks in Kenya and anti-money
laundering obligations: the
conflicts of interests arising
Constance Gikonyo
Department of Law, University of Nairobi School of Law, Nairobi, Kenya
Abstract
Purpose –Kenya is vulnerable to trade-based and other forms of money laundering. Banks are prime target s for
money launderers since they can facilitate the processes of placement,l ayering 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 relevantliterature, case law
and analysing the Proceeds of Crime and AML Act and its attendantregulations. These form the core of the
AML regime imposingobligations on banks.
Findings –The analysis indicatesthe provisions are robust and can assist in addressingmoney 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 banksfacing litigation from customers for
failure to honourits 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
relationshipand facilitation of banks fulfillingtheir prohibitory and enforcement of AML obligations.
Keywords Bank, Suspicious transaction, Confidentiality, Money laundering
Paper type Research paper
Introduction
The banking system plays a central role in the collection and movement of funds in an
economy. At the customer level, “a bank’s overridingmandate is accepting deposits from its
customer and to make payments as and when requested”(Mugarura, 2015, p. 352). In
fulfilling this mandate banks face the risk for potential misuse by criminals for money
laundering purposes.The ultimate goal of a successful money launderingprocess is to allow
a lawbreaker to enjoy the illegal proceeds by consumption, investing or re-investing in the
legal economy. In the words of Masciandaro and Alldrige,the aim of money laundering is to
convert illegal proceeds into “useable purchasing power”(Masciandaro, 2007,p.2)or
“legitimate capital”(Alldrige,2003, p. 2).
Accordingly, banks can be used to facilitate any of the three money laundering stages.
Depositing criminal fundsinto a bank account facilitates the introduction of the moniesinto
the financial system enabling placement. Thereafter, the layering process is undertaken.
The funds can be moved around in complex financial transactions so as to cover up the
audit trail (Teichmann, 2019;FATF, 2018). The ultimate aim being to hide the true source
and ownership of the funds. Subsequently, the integration stage is arrived at. This allows a
criminal to enjoy the illegal proceeds by consumption, investing or re-investing in a legal
economy (Masciandaro,2007).
Anti-money
laundering
obligations
425
Journalof Money Laundering
Control
Vol.24 No. 2, 2021
pp. 425-437
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-01-2020-0008
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