The government has struck corrupt officials, launderers and those with ill-gotten money where it hurts most after the Central Bank of Kenya scrapped and recalled the current Sh1,000 notes.
In a shocking move that caught many unawares and that is expected to disrupt illicit financial flows, CBK Governor Patrick Njoroge said from October 1, the current Sh1,000 note would cease to be legal tender.
SURPRISE
This means those with the Sh1,000 notes will either exchange them with new ones launched Saturday, deposit them at commercial banks, rush to bureaus to exchange them with foreign currency or stare at unbelievably massive losses.
Tax evaders, politicians, terrorist financiers and fraudulent businesspeople who will fail to get the money into the financial system will end up stuck with billions of hidden shillings that will become valueless in just months.
Those that have been hiding money in their bedrooms, bunkers, and safes will have the hardest task of getting it to banks or legitimising it.
The Sh1,000 note referred to in slang as “thao” or “ngiri”, is the highest denomination and is preferred by those carrying huge amounts.
It is now a race against time, given that they have weeks to clean their money.
But CBK may have anticipated this step already, having set up stringent anti-money laundering regulations that require one to account for funds when making withdrawals or deposits above Sh1 million.
“We have assessed the grave concern our large banknotes — particularly the older Sh1,000 series are being used for illicit financial flows in Kenya and other countries in the region,” Dr Njoroge said at the Madaraka Day celebrations in Narok Saturday where he unveiled the new notes.
CBK insiders who spoke in confidence said Dr Njoroge’s announcement was the culmination of a secret operation that President Kenyatta was fully briefed about.
Other senior government officials were, however, caught by surprise.
TRANSACTIONS
“More recently, we have seen the emergence of counterfeits. These are grave concerns that would jeopardise proper transactions and the conduct of commerce in our currency,” the CBK chief added.
“To deal conclusively with these concerns, the older Sh1,000 series shall be withdrawn. By a Gazette Notice dated May 31, 2019, all persons have until October 1, 2019, to exchange those notes, after which the older Sh1,000 will cease to be legal tender.”
The tough rules that have made it harder for people to clean illicit money include the requirement for bank customers to give a three-day notice to make over the counter transactions of more than Sh10 million, complete with supporting documents such as the source of the money, the purpose for withdrawing funds, the reason real-time gross settlement cannot be used and national identity cards/passport copies of the people involved in the transactions.
The guidelines also require the approval of the branch manager for cash transactions of Sh1 million to Sh10 million or the equivalent while cash transactions of Sh10 million to Sh20 million or the equivalent would require the approval of the regional branch manager or the senior manager.
This has made banks no-go zones for unsophisticated money launderers and those hoarding proceeds of corruption, forcing them to keep the money in their homes or offices.
Recent raids by anti-corruption detectives have unearthed hundreds of millions of shillings in unexplained wealth hidden in suspects’ houses.
SH225 BILLION
When Ethics and Anti-Corruption detectives raided homes and offices of National Land Commission bureaucrats recently, they reportedly found a total of Sh18 million in local and foreign currency.
Former NLC chairman Muhammad Swazuri, chief executive Tom Aziz Chavangi and others are facing several corruption-related charges.
Late last year, Directorate of Criminal Investigations detectives reportedly found at least Sh700 million in the house of a personal assistant of a senior Jubilee party official during a secret raid though the matter never made it to court.
EACC and police officers investigating a Sh647 million Kenya Pipeline Company payout for hydrant pit valves supplies found Sh4 million from a suspect’s city residence last year.
EACC detectives told a court that they found more than Sh9 million in the homes and offices of a couple — Thomas Gitau Njogu and Teresia Njeri Gitau — during a raid in August 2017.
The trend has been similar in most corruption purges where millions of shillings have been found at houses.
During elections, many Kenyans withdraw billions of shillings from their accounts to keep at home due to political uncertainty.
In the 2017 General Election, an estimated Sh225 billion was withdrawn and kept at home in what is derisively referred to as “banking under the mattress”.
The CBK also launched other new generation notes at the same function. Circulation of these notes begins immediately.
This follows the launch of new coins with a wildlife theme in December.
RING-FENCE
In coming days, Kenyans will start seeing the new Sh50, Sh100, Sh200 and Sh500 notes that conform with the provisions of the Constitution, which require the CBK to come up currencies that do not have images of the sitting or former presidents.
A CBK source told the Sunday Nation that the regulator chose to do the process secretly to stop “serial litigious activists” from rushing to court to get injunctions, some on behalf of influential individuals.
This is why CBK announced the new currencies a day after it had gazetted them, to ring-fence the process from interference.
“The new generation banknotes were issued yesterday, May 31, 2019, by a gazette notice. They are now legal tender,” Dr Njoroge told the crowd in Narok.
The notes will come in themes and will have pictures of the country’s Big Five — the buffalo, the leopard, rhino, the lion and the elephant.
CBK says the five notes would bear a significant aspect of Kenya, and like coins, they would serve as means of passing knowledge, conserving culture and promoting the country’s uniqueness.
All the notes would bear the image of the Kenyatta International Convention Centre.
“The banknotes also embody the big five — nyati (buffalo), chui (leopard), kifaru (rhino), simba(lion) and ndovu (elephant),” Dr Njoroge said.
Every note will have a theme to show the people and beautiful nature of Kenya.
The Sh50 note will symbolise green energy, Sh100 (agriculture), Sh200 (social services), Sh500 (tourism) and Sh1,000 (governance).
WATERMARK
“For the first time, the banknotes bear features that make them more accessible to the visually impaired members of our society,” Dr Njoroge said, adding that the CBK would soon roll out an awareness campaign on the features of the new notes.
The banknotes will circulate alongside those previously issued and not withdrawn.
Some of the security features of the notes include bars when felt at the edge.
The Sh50 note has one bar, Sh100 two bars, Sh200 three bars while the Sh500 and Sh1,000 notes will have four and five bars respectively.
CBK says when one runs fingers over the notes, he or she can feel Kenya and the value of the currencies.
When held up to the light from both sides, one can see a watermark of a lion’s head, the text “CBK” and the value of the note.
The security thread appears as a continuous line on the new note.
If the note is tilted at an angle, the thread changes colour from red to green.
The 200, 500 and 1,000 banknotes have additional rainbow colours on the thread.
“The golden band on the back of the note shows the value,” Dr Njoroge said.