CBK fines five Kenyan banks for aiding $78m theft

The Central Bank of Kenya (CBK) has fined five commercial banks a total of Sh392.5 million ($3.89 million) in connection with the theft of $78 million belonging to the National Youth Service (NYS), a government organisation set up to train young people in important national matters and business skills.

The banking sector regulator accused the banks of failure to report large and suspicious transactions, proper due diligence on customers and approving large transactions without proper documentation. They had received a total of more than Sh3 billion from the NYS on behalf of their customers, the central bank said.

CBK said its findings have been discussed with the five banks — Standard Chartered Kenya, Equity, Diamond Trust, Co-operative Bank and KCB Group — and they pledged to comply with relevant laws in the future and plug gaps that were identified in future. It has also passed the findings of its investigations onto criminal detectives to assess whether they would bring any charges, adding that more banks will be investigated.

In May, Kenyan police arrested the head of NYS over the $78 million theft in a scheme involving senior government officials and ghost suppliers. Dozens of senior officials and business people were arrested as a result. According to a report by Reuters, Kenya’s chief prosecutor Noordin Mohamed Haji told a news conference at the time that he would examine the alleged role of banks in the scandal.

The corruption scandal, which was made known by suppliers who had not been paid. Investigations showed that multiple payments running into tens of millions of shillings were authorised from the Integrated Financial Management Information System (IFMIS), an automated system that is used for public financial management, to the involved companies’ accounts at intervals. The whole amount was released in less than an hour after it was requested.

Kenya has been plagued by corruption scandals despite President Uhuru Kenyatta’s promise to fight graft when he was first elected in 2013. According to a March report by the country’s auditor general, some $400 million of public funds could not be accounted for. However, Kenyatta has in recent times reiterated his commitment to ending corruption, appointing Noordin Haji to help stamp out the scourge. Under his watch, the fight against corruption in Kenya has gathered pace, with prosecutions and convictions reported more frequently. On Monday, the office of the Director of Public Prosecution announced that former Operations Manager with Kenya Industrial Estate Tom Dulla Odeny was fined Sh1 million by the court (or in default 2 years imprisonment) for soliciting Sh150,000 bribe in order to approve a loan.