KIMEU: Sanctions against South Sudan should worry Kenyan banks

Thursday September 28 2017

Customers at a KCB banking hall in Juba, South

Customers at a KCB banking hall in Juba, South Sudan. FILE PHOTO | MORGAN MBABAZI  

By SAMUEL KIMEU
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About a week ago, the US Treasury Department imposed sanctions on two South Sudanese government officials and one former official for their roles in threatening the peace, security, or stability of South Sudan.

While these developments do not seem significantly germane to Kenya, they could trigger a domino effect that will rattle the Kenyan financial system as well as customers of those Kenyan banks who have dealt with South Sudan’s political and military elite.

Three men were singled out for targeted sanctions, because they not only “abuse human rights, seek to derail the peace process and obstruct reconciliation in South Sudan” but also profit from this destructive behaviour: Gen Malek Reuben Riak Rengu, the army’s Deputy Chief of Staff in charge of military procurement, Michael Makuei Lueth, Information Minister and Paul Malong, former chief of staff of the South Sudan People’s Liberation Army.

But the ramifications go much wider. The US Treasury also released a Financial Crimes Enforcement Network Advisory alerting US financial institutions to the possibility that certain South Sudanese senior political figures may try to use the US financial system to move or hide proceeds of corruption.

Historically, Kenya’s banking sector and real estate markets have been investment destinations of choice for members of the South Sudanese elite, including those alleged to be responsible for brutal abuses against their own people.

Contamination of the Kenyan economy

The result is the contamination of the Kenyan economy with proceeds from corruption and commission of atrocities by South Sudan’s political and military elite.

This not only potentially implicates Kenyan authorities, but also exposes them to the consequences of anti-money-laundering measures, which along with sanctions, have become increasingly important tools for the international community in attempting to resolve political conflicts.

On the positive side, this linkage between South Sudanese and Kenyan financial sector players may be an important leverage in seeking to resolve the crisis in South Sudan. This argument could extend to Uganda and Ethiopia as well.

In the case of South Sudan, where the prospects of a political solution are diminishing, the crackdown on the sources of finance for South Sudanese leaders was inevitable.

The targeted sanctions are the first in a sequence of actions that may result in heavy penalties being levied by correspondent banks in the US that have helped clear massive payments in US dollars through the correspondent banking system.

The trail may lead straight to Kenyan banks that have transacted with military generals or their relatives. Evidence collected by a two-year investigation into the corruption, money movement and assets locations by the Sentry showed millions of dollars moving through Kenyan bank accounts of both Riak and Malong.

Financial Action Task Force grey list

The Kenyan parliament and finance sector need to seriously consider how Kenya’s economy intersects with the rapidly disintegrating South Sudanese economy and immunise Kenya from the contagious effect of the war before it is too late.

Until 2014, Kenya was on the Financial Action Task Force grey list of countries not doing enough to tackle money laundering or shield its financial sector from acting as a conduit for illegally acquired cash.

Kenya may end up being put back on that list if claims that Kenyan banks have been laundering assets from South Sudan are proven.

In February, South Sudanese authorities claimed to have traced Ksh1.03 billion (about $10m) to accounts in three Kenyan banks. The banking sector has a responsibility to protect their shareholders’ investment by not exposing them to risk.

The Financial Reporting Centre should investigate such claims as a matter of urgency. In addition, the Kenyan Bankers’ Association needs to conduct a vigorous risk assessment of the effect these toxic assets may have on the Kenyan consumer.

The Foreign Affairs Committee of Parliament, the Kenyan National Chamber of Commerce and the Central Bank should also conduct serious investigations.

Where illicit money is used to capture state power and inflict violence on a people, the return on that investment is impunity for those involved in these kinds of crimes.

Kenya, which has historically played an important role in helping resolve conflict in the Sudans, has enough of its own internal struggles with graft and can ill afford to import the consequences of war into its own economy.

Instead of jeopardising the peace process by providing safe havens for implicated leaders to stow away their wealth, it should use its influence for good and play an active part in resolving the current crisis, including imposing sanctions of its own or convincing regional leaders to do so within the regional formations.

Samuel Kimeu is the executive director of Transparency International Kenya