A recent survey by the Central Bank of Kenya (CBK) has revealed that 15 commercial banks in the country are routinely involved in ferrying large volumes of foreign currency across borders, raising alarms over possible money laundering, exchange rate instability, and regulatory gaps in Kenya’s financial system.

The findings, drawn from a survey involving all 38 licensed banks in Kenya, show that 39.4% of them acknowledged regular movement of physical cash out of the country. These transactions are often linked to foreign currency repatriation and liquidity management for foreign-based subsidiaries.

“The cross-border transfer of significant amounts of physical cash regardless of whether it's legitimate poses a major threat to both the Kenyan and international financial systems,” the CBK noted.

Despite existing regulations, the central bank warned that enforcement is still lacking, especially where cash is moved via smuggling or informal courier services.

According to the report, the primary destinations for the exported cash include the United Kingdom, United States, Germany, Switzerland, South Sudan, and the Democratic Republic of Congo. The currencies most commonly moved are the US dollar, Euro, and British pound, typically sourced from deposits and group-linked institutions.

Though most of the 15 banks claimed to have frameworks in place for handling cross-border currency movement including using cash declaration forms and assigning official couriers CBK raised concerns about lingering vulnerabilities.

While many institutions reported conducting Know Your Customer (KYC) and Customer Due Diligence (CDD) procedures, the CBK warned that weaknesses in technology and interbank cooperation were allowing suspicious transactions to slip through the cracks.

“Some banks lack the technical infrastructure to properly detect smuggling attempts, and in several cases, clients or overseas partners have been uncooperative,” the regulator stated. “This impairs efforts to track and authenticate cross-border transactions.”

Alarmingly, between 2022 and 2024, only four suspicious transaction reports related to cross-border currency movement were filed with the Financial Reporting Centre (FRC), despite the high volume of cash in circulation.

Just over a third of the banks that flagged irregularities reported them to law enforcement, with most opting to handle them internally. The system still leans heavily on manual inspections and paperwork, making it susceptible to abuse.

As pressure mounts for better financial transparency, sector stakeholders are urging tighter oversight and better coordination between regulators and banks. Recommendations include the creation of a central database for all cash declarations at ports of entry, with real-time access for financial institutions.

CBK data also shows that 67% of the surveyed banks had experienced at least one case of smuggling or irregular reporting of cross-border cash in recent years though such incidents were reportedly infrequent.

To close the loopholes, the CBK has proposed that banks undertake annual reviews of their cross-border cash handling systems, enhance staff training to spot red flags, and invest in automated transaction monitoring. Additional measures include stricter scrutiny of high-risk clients and compulsory reporting of all incoming and outgoing cash at border points.

The CBK is also calling for a unified verification system that allows financial institutions to cross-check cash declarations made at entry ports, amid growing international scrutiny over illicit financial flows.

Given Kenya’s role as a regional trade and financial hub, the CBK warned that the country remains especially exposed to cash-based crime.

Although Kenya has tightened its anti-money laundering regime in recent years, the regulator said enforcement remains inconsistent.

“This should serve as a wake-up call,” the CBK concluded.