Sealing the Crypto Money Laundering Loophole


Sealing the Crypto Money Laundering Loophole

What is the state of cryptocurrency trading regulations in Kenya? To me, that’s the big issue we have to deal with following the ongoing case where the Asset Recovery Agency (ARA) froze the assets of entities that allegedly moved 25 billion shillings through our banking system here in a spectacularly short time.

How prepared are we in terms of our ability to track suspicious transactions involving cryptocurrency transactions? Cryptocurrency business is big business here.

Indeed, statistics from blockchain data platform chainanalysis and entities like statistita will show you that Kenya ranks very high in the world in terms of cryptocurrency transactions. We have one of the most active bitcoin trading communities on planet earth.

Yet we also know that it is not possible to legislate to eliminate cryptocurrency trading. It is foolhardy to imagine that a government bureaucrat could ever wake up and ban the internet.

The case between ARA and the Nigerian entities is a wake-up call for regulators to accept that we have not kept pace with international best practices in anti-money laundering regulations regarding crypto trading -currency and payment and funds transfer platforms.

Under the current legal framework, banks and other reporting institutions must alert the Financial Reporting Center (FRC) of large transactions that appear suspicious.

But we still don’t have a proper legal framework to regulate cryptocurrency trading. Crypto exchanges and trading platforms are not obligated to report suspicious transactions to the FRC.

Concerned about the risks posed by money laundering to the integrity of its financial system, the Central Bank of Nigeria in February 2021 ordered all regulated institutions to refrain from dealing with entities dealing in cryptocurrencies.

Banks have also been ordered to close the accounts of people or entities involved in cryptocurrency transactions within their systems. The result is that a commercial bank in this country is not allowed to open accounts for cryptocurrency exchanges.

As the ongong case amply demonstrated, we are badly exposed. A recent IMF study found that high crypto usage in emerging markets is correlated with corruption. Is it any surprise that Kenya and Nigeria have the largest cryptocurrency markets in Africa?

We live in a country where public life and leadership are dominated by self-serving elites engaged in the blind pursuit of corruptly acquired wealth that must be kept offshore in tax havens or invested in cryptocurrencies where the The identity of the beneficial owners is concealed.

Worse still, our payment infrastructure still has major flaws. The most popular payment methods for cryptocurrency trading, namely M-Pesa, internet banking, ATMs and PesaLink remain widely exposed.

This is the hard lesson we learned from the Dusit terrorist attack, where we were forced to understand how criminals became adept at exploiting payment platform loopholes in our systems.

Even with a modern legal framework and fairly strong and well-managed institutions like the FRC, our banking systems remain exposed.

Two years ago, the Governor of the Central Bank of Kenya, Dr. Patrick Njoroge, came out to impose fines on banks for failures and poor reporting of anti-money laundering and suspicious transactions.

The fines related to illegal payments laundered from state coffers by perpetrators of the infamous National Youth Service scandal through the banking system.

Most telling of this episode was the fact that the top rated banks were all caught in this net. This begs the question: if the major banks were found to have shown such weaknesses and material failures, what should we expect from smaller lenders with fewer resources to devote to anti-money laundering reporting?

The reason Nigerians transfer money through our systems is that many international merchants refuse transactions from or to this country. Let no one contaminate our systems.