Finance Minister should toughen financial services surveillance

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Finance Cabinet Secretary Henry Rotich should submit a Financial Crime Bill for legislation with regulations providing for tough laws governing fraudulent or dishonest activity by financial services companies and make it easier to successfully prosecute criminal offences such as fraud, money laundering and false accounting.

This should be a move by the government to repair trust in financial services business and improve accountability, which must include new measures in the new law to penalize firms, including bankers, who fail to prevent staff conducting tax evasion and money laundering. Short of such law Kenya will soon suffer considerable loss of confidence by local and international investors.

Financial companies, more so banks, must be held to account for the criminal activity that takes place within them. This is necessary following criminal conduct that led to collapses of banks last year and multi-billion-shilling National Youth Service fraudulent deals facilitated by bank officials knowingly.

The massive billions of shillings worth of Kenya Airways losses are a clear evidence that the quasi-governmental corporation was not receiving professionally honest financial services from their accounts and audit providers. The company suffered gross pilfering of its finances that could have been prevented by professional calling. Investigations must be launched to establish how money laundering funds financed Kenya Airways Jambojet subsidiary.

Corporate economic crime undermines confidence in business, distorts markets, and erodes trust. It’s time to restore public faith in business and make sure we have the right tools available to crack down on corporate criminality.

This would be the latest in a series of moves by the government to repair trust in business and improve accountability, which has included new measures in the Financial Crime Bill to penalize firms who fail to prevent staff conducting tax evasion. Indeed, if Rotich was Fred Matiang’i there would be crying and gnashing of teeth in the banking industry.

Companies must be held to account for the criminal activity that takes place within them. Corporate economic crime undermines confidence in business, distorts markets, and erodes trust. I want to restore public faith in business and make sure we have the right tools available to crack down on corporate criminality.

Last year the government moved to prepare a new law making senior management of a financial services firm criminally liable if any member of staff facilitates tax evasion and money laundering.

The government should now hold a consultation on whether successful convictions are being hindered by prosecutors needing to prove the “directing mind and will” of businesses undertaking criminal activity. It should find out if there is potential to reform the law in areas of economic crime other than bribery and tax evasion, so as to provide a just and proportionate method of holding companies to account.

The government should further engage public participation and call for evidence seeking views on:

  1. Whether the need to prove the involvement of a “directing mind” in corporate offending is hindering the prosecution of companies for wrongdoing.
  2. Alternatives to proving “directing mind” complicity in corporate criminal conduct, including:
  • a US-style ‘vicarious’ liability offence, making companies guilty through the actions of their staff, without the need to prove complicity,
  • the failure to prevent model, whereby a company is liable unless it shows it has taken steps to prevent offending, and
  • the benefits of strengthening regulatory regimes.

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