Lawyers dirty money stalemate tests IMF’s Sh321bn Kenya plan


President William Ruto with the IMF Managing Director, Kristalina Georgieva. FILE PHOTO | PCS

Refusal by Kenyan lawyers to be appointed as reporting agents in the fight against dirty cash is testing government commitments to secure Sh321 billion from the International Monetary Fund (IMF).

The IMF—whose team was in Nairobi for the fifth review of the 38-month programme—has reportedly pushed the disbursement date —partly due to delays by Kenya to finalise regulations that would have listed lawyers as reporting agents by the end of June.

Last December, Kenya promised the IMF to introduce in the National Assembly enhanced anti-money laundering regulations.

These regulations would, among other things, designate advocates, notaries and other independent legal professionals as reporting entities for dirty cash dealings.

The draft amendments to the Proceeds of Crime and Anti-Money Laundering Act and Regulations, said the government officials, were to address some gaps in the Anti-Money Laundering / Countering the Financing of Terrorism (AML/CFT) legal framework.

“We are addressing remaining gaps in the legal framework on transparency of legal persons to bring it in line with FATF (Financial Action Task Force) standards,” Kenya, through Treasury Cabinet secretary Njuguna Ndung’u and the outgoing Central Bank of Kenya governor Patrick Njoroge, told the IMF.

However, with the June deadline fast approaching, and the IMF team having visited already, the government and lawyers are still stuck in a deadlock.

In 2021, the MPs passed an amendment that designated advocates, notaries and other independent legal professionals as reporting entities for dirty cash dealings.

However, lawyers moved to court and blocked the implementation of the provision by the Financial Reporting Centre (FRC), arguing that it violated the “advocate-client privilege”.

After some time, the parties, lawyers and FRC, agreed to an out-of-court settlement. However, by the end of Thursday, the two parties had not reached an agreement.

Should Kenya not comply with this requirement by September, it risks being ‘grey listed’ by the FATF, the global money laundering and terrorist financing watchdog, as one of the countries without proper safeguards against illicit financial flows.

South Africa is one of the countries that was put on a grey list after it failed to address all of the shortcomings in money laundering and the financing of terrorism that the task force identified in its 2019 evaluation of the country.

The decision of putting Kenya on a grey list— a list of countries under increased monitoring—would have serious implications for the country, more specifically its financial services sector as well as its ability to attract investment.

Omwanza Ombati, the lawyer who went to court to block the implementation of what the legal profession has described as an “offending clause,” confirmed to the Business Daily that they are yet to agree.

The legal profession in Kenya can also be classified as a high-risk zone should Kenya fail to enact the regulations.

“Should the stalemate continue, the law practice in Kenya will most likely be listed as a high-risk zone. That means now, more security, more back-up know-your-customer…banks will be asking for more information and all that,” said a source close to the negotiation.

But lawyers insist that, although this has been done in other developed jurisdictions, it cannot be easily replicated in Kenya.

“Other countries have fairly sophisticated systems. The law firms there are big,” said Mr Ombati.

The country is under global pressure to seal the loopholes in its anti-money laundering rules by the end of June by, among other things, listing lawyers.

If FRC has its way, law firms will be required to report suspicious dealings of their clients and keep records of cash transactions totalling at least Sh1 million ($10,000) and above.

The targeted transactions relate to buying and selling of property, creation, operation and management of companies as well as management of bank, savings and shares accounts on behalf of clients.

FRC fears that non-designation of advocates amongst reporting institutions, through amendment of Section 44 of the Proceeds of Crime and Anti-Money Laundering Act, may result in Kenya being flagged as a high-risk country for money laundering and terrorism financing as was the case in 2010.

The law was passed three years ago prompting the lawyers to go in court seeking a stay order on the implementation of that one provision of listing lawyers as reporting agents.

Other than requiring lawyers to be reporting agents, the new rules will also require ultra-vetting of politically exposed persons (PEPs) like the President, Vice President, ministers and MPs, in line with FATF standards.

“To this end, the authorities also aim to prioritize ensuring compliance by banks with enhanced due diligence measures for higher risk customers, including PEPs, through AML/CFT risk-based supervision,” said the IMF.

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