Africa: Kenya is again in FATF’s crosshairs

The Financial Action Task Force (FATF) anti-money laundering has placed Kenya on its gray list for the second time. Listed countries are facing increased scrutiny due to shortcomings in meeting international anti-money laundering and anti-terrorist financing standards.

Kenya’s IPO on February 23 is specifically linked to weaknesses in regulation and oversight of the real estate sector and financial transactions made through law firms. Additionally, on March 11, the US Treasury Department sanctioned 16 entities in Kenya for their links to terrorist financing. These included several Kenyan and Somali citizens targeted for raising and laundering funds on behalf of al-Shabaab, and Crown Bus Services to support al-Shabaab’s operations and logistics.

FATF’s gray list means Kenya risks reduced investor confidence and difficulties in conducting cross-border financial transactions and accessing financial services, among other things due to stricter compliance requirements. Countries with this classification are also more vulnerable to criminal groups exploiting jurisdictions with inadequate anti-money laundering and terrorist financing regulations.

Kenya’s compliance with international standards should be strengthened by its Proceeds of Crime and Anti-Money Laundering Act (2009) and membership of the Eastern and Southern African Anti-Money Laundering Group. However, recurring problems in meeting financial protection standards mean loopholes in the government’s response. Weak financial supervision facilitates money laundering through various sectors, including transport, real estate, legal, non-governmental organizations and gold.

In 2021, The Sentry, an investigative and policy organization, shed light on the country’s susceptibility to financial risks. The report highlights how corrupt foreign individuals use the purchase of luxury properties to commit financial fraud. The investigation points to prominent South Sudanese figures as key players in Kenya’s money laundering network.

Efforts to promote transparency and accountability in the real estate sector have not helped much. These include rules requiring transactions over $7,582 to be conducted through banks and other financial institutions.

An analysis by the Eastern and Southern Africa Anti-Money Laundering Group revealed that between 2021 and 2023, a total of US$544,905,660 in cash entered Kenya illegally through Nairobi’s Jomo Kenyatta International Airport. According to the report, this indicates inadequate supervision by the Banking Fraud Investigation Unit based at the airport. The assessment team also criticized Kenya’s Financial Reporting Center for inadequacies in detecting patterns in cash transactions that could signal money laundering and terrorist financing activities.

Despite the passage of money laundering legislation, attempts to commit the crime are frequent in Kenya. In February 2022, a Kenyan man traveling from Burundi was arrested at Jomo Kenyatta International Airport with US$2 million in undeclared foreign currency. In November 2021, authorities recovered $28,000 hidden in a jacket shipped into the country from the United States. And in December 2020, a Nigerian national bound for Dubai was arrested by the Assets Recovery Agency with over US$754,717 in his hand luggage.

The risk of money laundering in Kenya may be increased by the government’s recent approval of the Anti-Money Laundering and Countering the Financing of Terrorism (Amendment) Bill 2023. If passed by Parliament, the bill will increase the money reporting threshold by 50 %, from the current USD 10,000 to USD 15,000, creating more opportunities for illicit financial activities.

Jaindi Kisero, a leading economic analyst, says the bill should be rejected and that its passage will reverse ongoing efforts to track and trace the movement of proceeds of corruption and crime.

While on the FATF gray list, Kenya’s economic recovery requires better enforcement of the law by the government, the financial sector, international partners, the private sector, civil society and the public. This would improve compliance and strengthen oversight.

There is also a need for increased international cooperation. Kenya should leverage its position as a member of the East and South Africa Anti-Money Laundering Group to gather intelligence and share information among member states. Stronger partnerships would increase its credibility in the global financial community. Finally, Kenya needs to improve its tracking and recovery of proceeds of crime and prosecution of suspects. This will increase investor confidence in their financial regulatory systems.

Due to the legal complexities, insufficient coordination and lack of expertise, Kenya faces an uphill battle. Good starting points are harmonizing laws and strengthening global enforcement and partnerships.

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