Govt targets Saccos in money laundering


By Munene Maina

The Government has moved with speed to avert money laundering within savings and credit societies.
At a time when several banks were implicated in the infamous National Youth Service scandal for violating the law leading to loss of billions of public money, the Government wants to seal all loopholes that may allow corrupt individuals to launder their dirty money through Saccos.
While presenting 2018-2019 budget estimates at the National Assembly, Treasury Cabinet Secretary Henry Rotich, proposed to include the Sacco Societies Regulatory Authority (SASRA) as one of the supervisory bodies under Proceeds of Crime and Anti-Money Laundering Act.
This is meant to give the authority a legal platform to monitor the compliance of Deposit-Taking Saccos in respect to prevention of money laundering and combating the financing of terrorism according to the CS.
In tightening the measures, Rotich recommended the amendment of the Proceeds of Crime and Anti-Money Laundering Act.
In case of violation, Saccos shall be liable to a monetary penalty not exceeding Sh25 million.
Further, Saccos that continually do not notify the regulator of suspicious money transactions are liable for an additional monetary penalty of Sh10, 000 per day, if such failure continues for a maximum period of one hundred and eighty days according to the Act.
Once the National Assembly gives the nod to the proposed changes, Saccos will be required to mandatorily report large transactions. All customer cash transactions valued at Sh1 million or more will be notified to the sector regulator SASRA for onward submission to the Financial Reporting Centre (FRC).
The anti-money laundering law requires the designated institutions to report all cash transactions exceeding $10,000 (Sh1 million) or its equivalent in any other currency to the FRC.
The inclusion of Saccos will see all gaps closed in the transactions of large amounts of cash without regulatory obligations. Previously, saving and credit co-operative societies were not legally bound to report such transactions.
The law applied to commercial banks, insurance, forex bureaus and remittance service providers. These are subject to this reporting requirement under the oversight of the Central Bank of Kenya (CBK).
Other oversight bodies mandated to report large and suspicious transactions are the Institute of Certified Public Accountants of Kenya (ICPAK), the Estate Agents Registration Board, the NGO Co-ordination Board and the Betting Control and Licensing Board.
Unregulated sectors such as motor vehicle dealerships, real estate, dealers in precious metals and stones also report to the FRC.
Reporting institutions are supposed to indicate in the report to the FRC the personal details of a customer, account details, descriptions of a transaction, amount involved and the currency of the transaction.
Experts point out the proposed requirement to Sacco will formalise them as financial institutions and in the long run, help them attract more deposits and investment.
SASRA Chief Executive Officer John Mwaka said that under the current rules, reporting of suspicious transactions to the FRC is optional, leaving the industry open to abuse by unscrupulous Saccos and depositors looking to avoid scrutiny when moving large amounts of money.
“For you to formally report, you need to be recognised by the law and that is what the amendment does. It means all Saccos will have to report to SASRA and as per requirements of the Act, and SASRA will report the suspicious transactions to FRC”, Mwaka stated.
The amendment brings all Saccos on fold; all will have to adhere to the law with regard to reporting on the source and use of deposits.
Sacco sub-sector has recorded rapid growth in recent years attracting moneyed Kenyans who for long had remained hesitant in joining the institutions which are largely considered to belong to low-income earners.
Recently, a bill tabled in Parliament proposed to bring on board social impact members as investors in Saccos pointing to high interest outsiders have developed in the sector.
The total asset base of Deposit-Taking Saccos stands at over Sh393.49 billion as at the end of 2016.
The proposals are, therefore, being seen as a timely measure that reduces the options available for corrupt individuals to move their loot around as they try to evade capture.
Rotich said Kenya has made significant steps towards improving its anti-money laundering measures and abiding by global standards on anti-money laundering and financing of terrorism.
“The Government continues to implement measures and reforms aimed at further deepening and strengthening the financial sector,” he said.
The CS said the financial sector has witnessed an upward growth trajectory over the last seven years with the proportion of the adult population having access to formal financial services increasing from 66.9 per cent in 2013 to 75.3 per cent in 2016.
“The efficiency of the financial sector has also generally been on an upward trend over the last ten years mainly driven by innovative financial service delivery channels. Similarly, financial stability has been boosted by enhanced credit risk management,” said the CS.
Under the Sacco Societies Act and the Regulations, Saccos are required to submit periodic statutory reports and other information to the SASRA on a monthly and quarterly basis.
Rotich said the reports are critical components and tools for the daily monitoring and evaluation of the financial performance of the Sacco societies, such as their liquidity status, capital adequacy, and asset quality among others.
“The authority has been progressively adopting a Risk Based Supervision (RBS) model of supervision, which is the internationally accepted supervision model for financial institutions,” he said.
The RBS model, the CS said, is heavily dependent on real-time and accurate data and other statistical information from the Saccos and proposed to amend SASRA Act to allow the usage of ICT in the submission of statutory reports.
Meanwhile, Sacco members will have to contend with reduced annual earnings as co-operative societies, other than credit and saving societies; will be subject to a corporation tax on total income of the year, deducting it from dividends and bonuses issued to members.
For a credit and saving co-operative society registered under the Co-operative Act, the income chargeable to tax will be the aggregate of all income, except interest from members. This implies that interest income from members will not be subject to corporate tax.
This is in accordance with the existing Act.
Interest income from other sources other than members’ interest will be subject to corporate tax.
This is a radical shift from the existing Act under which only half of interest income from non- members is subject to corporate tax.

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