Category Archives: AML

Getting Paid for e-commerce in Africa

When it comes to support, from PayPal’s perspective, your value is worthless. PayPal is a terrible company to deal with; they will withhold money for quasi-fraudulent reasons, that have long been suspected to be pools that are linked to high interest-earning fixed deposit accounts or something along that line. When they withhold your money, they are actually playing monopoly with your money, and the reasons are always obscure. Your account will be shut down for even more obscure reasons.

PayPal deleted this tweet

PayPal never points to a specific issue, and since they are a near-monopoly, they are above the law, and you, in a third-world country, can only wait and pray. PayPal can act with impunity and there are no mechanisms for third-world individuals to hold PayPal accountable, and they know this, so it’s not implausible for them to take advantage. They do.

Stripe on the other hand is the king of double standards. When it comes to engagements with Westerners, Stripe is your friend through and through, but the minute you, a third-world resident, control a USA entity, the double standards come out. You can’t do certain things that other Western companies are free to do, and if you have a chargeback as a foreign-held entity, Stripe will hold and eventually shut down your account because it is deemed as high risk, even though you or your company might be a target of fraud.

Again, Stripe takes advantage of the lack of accountability. If you acquire Stripe through a 3rd party like Shopify or Woocommerce, then you will NEVER get your account approved, regardless of however clean and legitimate your paperwork is. They will always say their risk department is assessing your paperwork, and if that goes past 3 months, you will almost certainly give up. They want that. However, the double standard is worse, since Stripe is financing Westerners to come build fintech in Africa (e.g. Wave).

As for Flutterwave, it is a better experience. You are treated like an actual human being. You talk to people who speak your language, understand your problems, help you solve them and treat you like an actual human being. You have an actual telephone number you can use and talk to someone who will actually be concerned and help you overcome your hurdles. Flutterwave makes you feel like you belong, and it might be business at the end of the day, but it’s how it’s supposed to be done. With empathy!

Comment by a company founder who moved to Flutterwave.

Kenya unveils new currency banknotes with a demonetization shock

The President of Kenya unveiled new generation currency notes at the 2019 Madaraka Day Celebrations in Narok on June 1.

This was after a speech by the Governor of the Central Bank and comes after a case last year cleared the way for bank notes to be printed and also a few months after new coins had been unveiled. The Governor mentioned that there had been extensive public participation in the process which led to the themes of green energy, agriculture, social services, tourism and governance (an image of Parliament!) on the new notes.

The Governor also mentioned that Central Bank had observed that the Kshs 1,000 note (equivalent to about $10) was being used to illicit financial flows and is being counterfeited. They had therefore moved to withdraw the old Kshs 1,000 notes by October 1, 2019, after which they will no longer be legal to use.

Going by the recent wave of a government moves in Kenya, we can probably expect a few challenges to the decision in the Courts and Parliament that will delay the new notes rollout over issues like:

  • The image of a statue of the First President of Kenya remains prominent on every new note.
  • On the demonetization of old 1,000 shilling notes, Parliament’s Committee on Delegated Legislation will say that it should have approval over such a radical move.

EDIT  On Tuesday, June 3, the Governor of the CBK held a press conference where he announced modalities for the transition to the new currency which is already being issued to commercial banks:

  • Persons exchanging currency notes for amounts not exceeding Ksh.1 million of the withdrawn currency notes will exchange at their Commercial banks, CBK Branches and Currency Centres, or any nearest commercial bank. 
  • Bank customers exchanging currency notes for amounts Ksh.1 million to Ksh.5 million of the withdrawn currency notes will exchange at their respective commercial banks, under the normal procedures and requirements. 
  • Persons without bank accounts exchanging currency notes for amounts exceeding Ksh.1 million will require an endorsement from CBK. 
  • Persons exchanging currency notes for amounts exceeding Ksh.5 million (bulk exchange) will require an endorsement from CBK.

CBK Fines Banks over NYS Transactions 

The Central Bank of Kenya (CBK) has levied bank fines against five institutions over transactions relating to their handling of payments and movement of funds sent from the scandal-plagued National Youth Service (NYS).

The banks are Diamond Trust which handled Kshs 162 million, and was fined Kshs 56 million, Co-operative Bank which handled 263 million (and was fined 20 million), KCB which handled Kshs 639 million (fined 149.5 million), Equity moves Kshs 886 million (89.5 million fine) and Standard Chartered which handled Kshs 1.63 billion from the NYS, and which was fined Kshs 77.5 million.

The CBK statement read that the bank fines followed investigations into failures at the banks including; not reporting large cash transactions, not doing due diligence on customers, lack of support documents for large transactions and lapses in reporting suspicious financial transactions to the Financial Reporting Centre (FRC).

Notably missing was Family Bank that featured heavily in a prominent series of transactions of funds that originated from procurements at the NYS. It has been previously sanctioned and branch and senior staff are being prosecuted.

All the banks which handled NYS funds had been named earlier and the CBK statement added that this was not the end, with an additional group of banks set to be identified and investigated.

EDIT:  In a filing to the London Stock Exchange, Standard Chartered disclosed that the bank had, in December 2019, entered a settlement with Kenya’s Director of Public Prosecutions (DPP) to defer prosecution of the bank and any people affiliated with it, and which would see the bank pay a penalty of Kshs 100 million ($964,000).

Naming banks is a sideshow to NYS

This week saw the naming of Kenyan banks alleged to have received funds from the National Youth Service in an unfortunate sleigh of hand as suspects were also charged in courts over fraud and abuse of office at the NYS.

The list of banks includes virtually all the top banks in Kenya – KCB, Equity, Cooperative, Barclays, CFC-Stanbic, Diamond Trust, National and smaller ones such as Consolidated and SACCO’s such as Unaitas. These are all institutions that offer supplier financing/ LPO financing – a popular product sought by young entrepreneurs and companies that allows them to obtain financing to procure and supply goods, under contract, that are then paid for by reputable companies and government agencies, such as the NYS, directly to the banks to recover the amounts advanced.

At this stage it is not clear the depth of the suppliers’ relationship with the institutions, as the banks have all cited customer confidentiality and compliance with the law, but it is doubtful if any will have the peculiar banking arrangements seem in the earlier NYS scandal which resulted in fines and sanctions by the Central Bank and charges filed against senior staff of Family Bank.

The article states that banks had filed statutory reports with the Financial Reporting Centre (FRC) a government institution created with the principal objective being to assist in the identification of the proceeds of crime and the combating of money laundering. The problems are clearly NYS ones, not ones and if any contracts were fraudulent, the fraud is with NYS, not the banks.

Kenya’s CBK risk safeguards against bank laundering and terror financing

The Central Bank of Kenya (CBK) has published new guidelines to assist Kenyan banks to assess and mitigate the risk that their institutions and systems may be used for money laundering (ML) or terrorism financing (TF).
They risk rules stipulate, among other proposals that:
  • Senior management of banks are to implement board-approved money laundering/terror financing policies.
  • Bank staff are to prepare periodic reports on money laundering and terrorism finance for their senior management and boards of the bank and also communicate these to the CBK. 
  • Financial institutions will be required to appoint a money laundering reporting officer who will be the point of contact for CBK.
  • Banks should assess and rank TF and ML instances and actions in terms of high, moderate, and low risk. 
  • They should identify countries and regions that are high risk for business; high-risk includes countries subject to sanctions from the UN and other credible organizations, countries that don’t have appropriate banking safeguards and countries known to sponsor terrorism.
  • Banks are to assess their customers for money laundering and terror financing risks; suspicious customer activities include frequent and unexplained movements of money to other accounts, or other institutions, and to far locations. They should also look at politically exposed persons who bank with them including prominent public figures, senior politicians, judicial officers, corporate CEO’s who dealing with them, or their families, may bring a reputational risk to the bank.
  • Banks are to assess their service delivery channels for money laundering risks. They are to pay attention to cash-intensive businesses, including supermarkets, convenience stores, restaurants, retail stores, liquor stores, wholesale distributors, car dealers. 
The guidelines follow an earlier directive on paper bag banking from two years ago. The new ML and TF rules are in draft form and bankers and any interested persons are invited to send comments to the CBK on the proposals before January 31, 2018.