POWER OF ETHICS AND ANTI-CORRUPTION COMMISSION TO INVESTIGATE A BANKER - CUSTOMER AFFAIRS IN KENYA

Introduction

The issue this opinion seeks to interrogate is whether or not the Ethics and Anti-Corruption Commission has the power to investigate the business affairs/Banker-Customer Relationship Interface between a Bank and a private company under the Ethics and Anti-Corruption Commission Act, Act No. 22 of 2011 as read with the Anti-Corruption and Economic Crimes Act 2003 (the Acts). A hypothetical situation is where the anti-corruption body seeks to obtain information regarding the banking affairs of another company through such company’s bank.

To lay a foundation for the argument, let’s interrogate the role of Central Bank of Kenya in regulation of the banking industry.

The Regulatory Role of the Central Bank of Kenya

The Central Bank of Kenya is established to inter alia “…assist in the development and maintenance of a sound monetary, credit and banking system in Kenya...”

The Banking Act provides at Section 27 that the Central Bank of Kenya shall collect such data and other information as may be necessary to enable it to maintain supervision and surveillance of the affairs of institutions and the protection of their depositors. For this purpose, central bank may require institutions to submit statistical and other returns on a periodic basis in addition to any other returns required by the act, if, at any time, the central bank has reason to believe that the business of a bank is being conducted in a manner contrary to or not in compliance with the act or in any manner detrimental to its depositors or members of the public etc.

The Central Bank, therefore, does not interfere with individual banker-customer relationships unless it discovers (whether on an inspection or otherwise) or becomes aware of any fact or circumstance which, in its opinion, warrants the exercise of the relevant power in the interests of the institution or its depositors or other creditors.

Accordingly, the authority of the Central Bank of Kenya over any commercial bank is of a supervisory nature, generally limited to ensuring that banks are engaged in proper business practice and inspection is limited to supervision and investigation into the practices of a bank and the latter only happens if for whatsoever reason the Central Bank of Kenya is of the opinion that a bank is engaged in some form of banking malpractice.

The “Banking Business” of a bank is regulated by the Central Bank through the Banking Act. This regulation extends only to systemic issues. As such, Central Bank can only interfere with the bank-customer relationships to the extent permitted by law.

Systemic issues are generic and therefore no particular customer may have a relationship with the bank below the regulated threshold. Or rather, the regulator, Central bank, may not require a bank to establish any special systems for a particular customer (including Public bodies).

Power of Ethics and Anti-Corruption Commission to Investigate a Banker - Customer Affairs

On this background, the Ethics and Anti-Corruption Commission cannot carry out an intended examination of the systems, policies, procedures and practices of a bank and/or in relation to any particular customer, and any attempt by the anti-corruption body to examine the systems of a bank as regards a particular customer would at best be superfluous.

Accordingly, the Ethics and Anti-Corruption Commission can only involve a bank in case of an investigation of private company and it must follow the procedure prescribed in the Ethics and Anti-Corruption Commission Act i.e. it must give a notice to the affected parties and obtain a court order requiring a person (whether or not suspected of corruption) to produce specified records in his possession that may be required for an investigation. Such person may further be required to provide explanations or information within his knowledge concerning the records.

In conclusion, therefore, the Ethics and Anti-Corruption Commission may obtain whatever information it requires from a private company, and or, with the mandatory and specific instructions of such company, from its bank, but limited only to that which the bank would be obliged to provide under the bank-customer contract. It cannot compel the bank (a 3^rd party) to release banking details of its customers.

A bank on the other hand is not obliged to reveal its systemic practices and can safely decline requests for information regarding its clients unless sanctioned by a court order premised on an on-going investigation into the affairs of that company.

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