“All the older Ksh.1000 series shall be withdrawn. All persons have until October 1, 2019, to exchange these notes, after which the older ones will cease to be legal tender,” Central Bank Governor Dr Patrick Njoroge said on Saturday.
The banking lobby has now promised to tighten controls over the Sh1,000 notes ($10) in a move targeted at the country's booming black market. Kenya has a thriving black market thanks to crooked and crafty traders who are in bed with corrupt government officials who allow undeclared goods into the country or intentionally under-report values of imported goods in return for fat bribes.
The Kenya Bankers Association (KBA) has read the riot act to traders and says it will not be business as normal and illegally obtained the money that has been stashed from circulation especially the Sh1,000 note, which is the highest denomination and the most preferred due to its high value will not be accepted.
On Sunday, KBA chief executive Habil Olaka welcomed the move to demonetise the notes saying it was meant to catch citizens who stash money not declared for tax purposes or obtained illegally.
“Controls are in place to ensure that the money does not find its way to the formal financial system easily. The system will be checking whether it is from genuine proceeds or crime, which includes corruption,” he said.
He went ahead and said acquiring property such as cars would also not evade scrutiny.
“Even if you buy cars, whomever you buy from using cash will still have to identify where the money is coming from, so it is not an easy way out,” said Mr Olaka.
Mr Olaka added that banks have already started putting stringent regulations to strengthen their ability to safeguard customers and itself against financial crimes.
The enthusiast by local banks to comply with the government directive is perhaps informed by them trying at all cost not to be caught on the wrong side of the law again and be slapped with stiff penalties as was the case last year.
In 2018, the National Youth Service (NYS) was hit by a Sh10.5 billion ($1.05 billion) scandal in a scheme that involved at least 48 individuals drawn from senior management at NYS and National Treasury, as well as suppliers.
Several bank accounts were used as conduits for looting more than Sh1 billion from the state agency. After the arrest of key suspects including top government officials, who are currently facing charges that include forgery, money laundering, abuse of office, obtaining by false presence and fraud, Assets Recovery Agency claimed that beneficiaries of the stolen public funds were colluding with banks to withdraw all the money in a bid and destroy evidence linking them to the scandal.
Standard Chartered Kenya, Equity, Diamond Trust, Co-operative Bank and KCB Group were fined a total of Sh392.5 million ($3.925 million) for handling billions of shillings stolen from NYS.
StanChart, which was fined Sh77.5 million ($775,000) for having handled Sh1.6 billion ($160 million) of the NYS money, stated that they have since enhanced controls around cash and payments from government and other government-related bodies while KCB, which was fined Sh149.5 million ($1.495 million) for handling Sh639 million ($639,000) of the NYS cash, stated that they too have taken measures to reacquaint their staff on all the regulations and processes to be followed in the event of suspicious transactions.