The High Court of Kenya has held that financial institutions are empowered to freeze accounts with suspected money laundering activities. This is in line with the Central Bank of Kenya Guidelines on Proceeds of Crime and Money Laundering Prevention – CBK/PG/08. The Court dismissed an argument that institutions such as banks were only empowered to report suspicious activities and not to stop dealings with suspicious accounts.
The Plaintiff, in this case, had filed an Application against the Bank, requesting the High Court to compel the Bank to release funds in its account. We persuaded the High Court to dismiss the Application as the Plaintiff had failed to satisfactorily explain huge transactions carried out in its account. Yet there was a complaint that the Plaintiff was running a pyramid scheme. Further the bank had investigatory power and powers to freeze accounts as an internal control measure.
The Guidelines, according to the Court, not only empower banks to ask for information to determine the source and use of funds but to also take internal control measures. Such measures may include restricting access or denying a transaction in the account to prevent money laundering activities.
Kenyan Courts have in the past sanctioned banks that allowed suspicious transactions. In one such case the High Court held that the Bank was negligent as it failed to exercise reasonable care and skill and missed or ignored waving red flags. This recent decision of the High Court affirms this position as it contains an express holding that financial Institutions have a duty of care to their customers and members of the public and as such banks must guard accounts held by them from being used to further illegal activities.
You can read the full case here: Habaswein Designers Ltd v Co-operative Bank of Kenya (Commercial Suit E796 of 2021)  KEHC 98 (KLR) (Commercial and Tax) (1 October 2021) (Ruling)
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