A recent report by Sentry indicates that more than half the banks operating in South Sudan are partially owned or controlled by Politically Exposed Persons (PEP), suggesting an undue level of political influence in the country’s banking sector.
The report dubbed ‘’Banking on War’’ says that because PEPs establish and control banks either directly or through relatives and associates, their banks receive preferential access to foreign exchange and this has caused inflation as the individuals have moved hard currency out of the South Sudanese economy.
‘’Given the heavy PEP influence on South Sudan’s banking sector, there is a risk that local banks will be cut off from the global financial system,” it reads in part.
Kenyan Banks could lose ties to the global financial system over money laundering in South Sudan
The report also warns that Kenyan banks operating in South Sudan are at a risk of being cut off from the global financial markets for aiding corruption and money laundering in the country that has been ravaged by civil war for more than four years forcing over two Million people to flee their homes.
‘’South Sudanese banks operating within East Africa’s banking network have access to the global financial market through correspondent bank relationships. Many of the powerful political elites who are driving the war rely on correspondent banks in the region and in banking capitals around the world to move money, including U.S. dollars.,’ the report reads.
According to the report, international banks are looking to mitigate the risk stemming from South Sudan’s banking sector in order to avoid regulatory fines and reputational harm.
“Larger banks operating in East Africa have a network of correspondent relationships and help connect smaller South Sudanese banks with the global financial system. Because of these ties to the regional correspondent banking network, South Sudanese banks hold nested accounts in Kenya and Uganda.” says Sentry.
Sentry adds that to prevent large-scale de-risking and restore international confidence in the banking sector, correspondent banks and regulators should agree to remove the most politically influenced local banks from the global financial system.
The number of Kenyan banks with subsidiaries operating in the East African Community (EAC), Partner States and South Sudan remained at nine as at the end of 2017 according to data from the Central Bank of Kenya (CBK).
The Sentry is a team of financial forensic investigators, policy analysts, and regional experts who follow the dirty money and build investigative cases focusing on the corrupt transnational networks most responsible for Africa’s deadliest conflicts.
The Sentry now urges South Sudanese businesses and international organizations—including the IMF, the World Bank, FATF, and ESAAMLG—should convene a meeting to discuss the ripple effect of South Sudan’s corrupted banking sector and identify stabilization steps in East Africa.