The United States government has put Kenya on a list of global hotspots for money laundering, citing insufficient controls on the circulation of dirty cash and the lack of laws against terrorism financing.
A report published on Friday by the United States Department of State Bureau for International Narcotics and Law Enforcement Affairs said money laundering in Kenya occurs in the formal and informal sectors, fuelled by domestic and foreign criminal operations.
“Kenya remains vulnerable to money laundering and financial fraud,” says the report.
“It is the financial hub of East Africa, its banking and financial sectors are growing in sophistication, and it is at the forefront of mobile banking.”
Nations that are classified as havens for money laundering by the US attract scrutiny from global financial players and banks while investors are likely to carry out additional checks on payments involving entities from listed jurisdictions.
The report said “criminal activities include transnational organised crime, cybercrime, corruption, smuggling, trade invoice manipulation, illicit trade in drugs and counterfeit goods, trade in illegal timber and charcoal, and wildlife trafficking,” said the report.
Kenya recently formed a high-powered anti-money laundering task force to establish the extent of money laundering in the most susceptible sectors of the economy, setting the stage for a crackdown on the suspects.
The team gazetted by Treasury Secretary Henry Rotich brings together 30 State agencies from the security apparatus, the Judiciary, as well as banks, Saccos, real estate and gaming regulators.
“Financial institutions engage in currency transactions connected to international narcotics trafficking involving significant amounts of US currency derived from illegal sales in Kenya, other East Africa countries, the United States, and elsewhere,” added the 2019 International Narcotics Control Strategy Report.
The report prepared annually by the US Department of State has been presented to the US Congress.
It described Kenya’s vibrant financial system as a magnet for money laundering.
“Banks, wire services, and mobile payment and banking systems are increasingly available in Kenya. Nevertheless, unregulated networks of hawaladars and other unlicensed remittance systems facilitate cash-based, unreported transfers that the government cannot track,” it said.
The report says Kenya’s proximity to Somalia makes it an attractive location for laundering piracy-related proceeds.
Under the Proceeds of Crime and Anti-Money Laundering Act (POCAMLA) and other banking regulations, Kenyan financial institutions and entities are mandated to report to the Financial Reporting Centre (FRC).
But the report said that while Kenyan banks are subject to Know your customer (KYC) and STR (Suspicious Transaction Reports) rules and have enhanced due diligence procedures in place for PEPs (politically exposed persons) more needs to be done.
“While Kenya has made strides in implementing an AML framework, challenges remain to achieving comprehensive, effective implementation of AML laws and regulations,” it said.
“Kenya should fully satisfy its commitments on good governance, anti-corruption efforts, and improvements to its AML regime,” it added.
It proposes that an automated system would improve the FRC’s efficiency and ability to analyse suspicious transactions.
“Although the FRC receives STRs from some MVTS (Money Or Value Transfer Services providers), this sector is more challenging to supervise for AML compliance,” it says.
“To demand bank records or seize an account, police must obtain a court order by presenting evidence linking deposits to a criminal violation. Confidentiality of this process is not well maintained, allowing account holders to be tipped off and to move assets.”
It says the government, especially the police, should allocate adequate resources to build sufficient institutional capacity and investigative skills to conduct complex financial investigations independently.
“The tracking and investigation of suspicious transactions in mobile payment and banking systems remains difficult,” it says.
In February the Central Bank Governor Patrick Njoroge pushed back against a bid by MPs seeking to soften anti-money laundering laws, warning that the proposed amendments would frustrate the war on corruption and cut off Kenya’s banking sector from the global financial system.