[2008-05-26]  Illegal forex dealers make a killing despite CBK regulations
Despite stringent Central Bank of Kenya measures to control foreign exchange, a significant portion of transactions take place daily due to a well co-ordinated underground black money market.

The business is particularly thriving in Mombasa where there is a lot of foreign exchange transaction because of the high number of tourists visiting the town with foreign cash.

Illegal money changers operate in the open, leading to a call by forex bureau operators for protection by the Government. They say the illegal dealers were posing unfair competition in the market.

Perhaps due to the calm and secure environment in the town’s Central Business District, dealers can handle huge transactions, even as high as KSh 1 million, with transactions done at the blink of an eye, said a dealer who spoke on condition of anonymity.

The illegal operators have established a huge and wide network and can quickly handle huge transactions. In case there is shortage of any foreign currency, they also network to make sure that none of their customers goes to the banks or forex bureaus in the town.

Compared to commercial banks and bureaus, the dealers offer a favourable rate and many customers who know this are willing to take security risks for the extra money they can save from the transaction with the underground dealers.

According to our source, the black market dealers offer a difference of close to one shilling for every dollar traded. According to Kasim Hakim, a manager of one of the bureaus in Mombasa, the dealers are happy with the small profit margin because they do not have overheads to meet.

“These people operate from the streets and any profit margin is their net income,” he said.

The business went down early this year following post-election violence in the country and is expected pick up in July. According to our source, business is often slack during the months of May and June. A significant portion of foreign cash also comes from Kenyans living abroad. Some send money to their relatives back home in foreign currency.

But CBK maintains that buying and selling of foreign currency must be done only when one of the parties in the transaction is an authorised dealer licensed under the Central Bank Act. CBK guidelines bar players from engaging in money laundering, tax evasion or even deal with money financing terrorism. Since forex bureaus and commercial banks are likely to ask customers for personal details, people who want to conceal their identity using the underground dealers.

Black market money dealers, however, do not have detectors for confirming authenticity of currency brought by customers to avoid losses through fake currencies. Anyone who seeks to enter the business must be conversant with the major currencies traded to avoid incurring huge losses as a result, our source said.

This has been used by the cartel controlling the business in Mombasa to keep away new entrants.

There are also issues related to security. Since these dealers carry a lot of cash with them, they have to be very careful in identifying locations that are safe to conduct business.

One also needs to be careful to avoid getting into any trap that can lead to robbery. Though such cases of robbery are not common, there are a few incidences where dealers have been tricked out of their location with a promise for a big business and ended up losing all their money.

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