The Central Bank of Kenya has imposed Sh392.5 million in fines on five commercial banks for facilitating transactions linked to the National Youth Service (NYS) scandal, triggering enhanced due diligence measures for government-contracted entities. KCB Group, the nation's largest bank by assets, announced stricter account-opening protocols and transaction monitoring for firms working with public institutions.
KCB Group Chief Finance Officer Lawrence Kimathi stated the institution now requires comprehensive documentation before account activation, citing regulatory penalties and shareholder protection as driving factors. "We are now saying bring everything, tick everything and when you are ready to go we open the account," he said.
The Central Bank of Kenya upheld the fines, citing inadequate measures by lenders to prevent financial misconduct. Governor Patrick Njoroge emphasized that banks' submissions failed to justify overturning the penalties. "CBK has concluded that the submissions were not sufficient to alter the findings of the investigations," he stated.
KCB Group defended its actions by highlighting 653 suspicious transaction reports submitted between 2015 and 2018, including NYS-related activities, though no regulatory feedback was received. CEO Joshua Oigara acknowledged the challenge of money laundering, noting government transactions as a key risk area. "We are working with CBK to ensure processes are followed," he said.
The Kenya Bankers Association's Habil Olaka linked the fines to systemic banking deficiencies that enabled the fraud. "Banks must be more vigilant in compliance with laws and prudential guidelines," he emphasized. The Central Bank alleged that institutions failed to report transactions exceeding Sh1 million to the Financial Reporting Centre, with some companies opening accounts hours before NYS funds were credited.
The scandal, involving an estimated Sh9 billion in misappropriated funds, prompted investigations starting in May 2018. CBK faces scrutiny over its regulatory role, with allegations of collusion between its staff and collapsed Imperial Bank officials. Court documents reveal claims of loan and school fee exchanges between Imperial Bank employees and CBK regulators.
