Financial Crime World

Kenyan Banks Face Legal Backlash Over Negligence in Financial Fraud Cases

Banks in Kenya Grapple with Court Cases Alleging Complicity in Financial Fraud and Credit Scams

Nairobi, Kenya - A string of commercial banks in Kenya are facing legal challenges regarding complicity in financial fraud and credit scams. These cases raise concerns over the lenders’ inability to conduct proper due diligence checks on clients and monitor financial transactions.

First Community Bank: A Sh1.2 Million Negligence Case

  • In 2014, unknown individuals opened a parallel account using forged documents in the name of Jumbo Foam Mattresses Industries Limited at First Community Bank.
  • The fraudsters diverted funds from Jumbo Foam’s account, leading to a substantial loss for the company.
  • The High Court found that the bank had failed to exercise due diligence when opening the fraudsters’ account.
  • The judgment did not hold the bank responsible for aiding the fraud because the documents were forgeries.

Recurring Issue of Failure to Conduct Proper Customer Due Diligence (CDD)

  • Other banks like Equity Bank Limited, Cooperative Bank of Kenya, Eco Bank, and Standard Chartered have faced similar allegations.
  • Impostors have opened bank accounts and directed funds to them, instead of the intended recipients.
  • The banks are not only facing financial losses but also legal challenges due to their duty of care towards clients.
  • First Community Bank’s case is not an isolated incident; similar claims have been made against Ecobank, Equity Bank, Standard Chartered Bank, Giro Commercial Bank, and Southern Credit Banking Corporation Limited.

Ecobank: Sh4 Billion Fraud Involving an Online Payment Company

  • Ecobank is currently battling a Sh4 billion fraud case involving an online payment company with links to an international credit card scam syndicate.
  • The bank was accused of conspiring with the company and certain individuals to authorize fraudulent withdrawals from clients’ accounts and accepting proceeds of fraudulent transactions.

Equity Bank: A Sh36 Million Fraud orchestrated by Abong Bildad Onyango

  • In 2008, a high court advocate and Equity Bank customer, Abong Bildad Onyango, orchestrated a Sh36 million fraud.
  • The court held that Equity Bank owed a duty of care to the buyer of the land but breached it, leading to the loss.
  • despite the requirement to inquire into the nature of transactions, the bank failed to do so, leading to the withdrawal of large amounts of cash.

Southern Credit Banking Corporation Limited: Sh4 Million Fraud

  • In a Sh4 million fraud, two individuals posed as directors of Kenya Grange Vehicle Industries and opened bank accounts.
  • Southern Credit Banking Corporation Limited was accused of being negligent in the opening of the account and accepting cheques to be credited.

Stricter Adherence to Due Diligence Checks and Customer Verification Protocols

  • The financial industry in Kenya is governed by the Companies Act, the Banking Act, the Central Bank of Kenya Act, and the prudential guidelines issued by the Central Bank of Kenya (CBK).
  • Despite these regulations, multiple banking institutions still find themselves entangled in fraud scandals, highlighting the need for stricter adherence to due diligence check and customer verification protocols.