On 23 February 2024, the global Financial Action Task Force (FATF) anti-money laundering watchdog placed Kenya on its ‘grey list’ for the second time.
Countries on the FATF grey list are placed under increased monitoring due to strategic deficiencies in meeting international standards aimed at combating money laundering and terrorism financing. Kenya’s recent listing is specifically tied to weaknesses in regulation and oversight over the real estate sector and financial transactions made through legal firms.
On 11 March, the United States (US) Department of Treasury also sanctioned 16 entities in Kenya for their links to terror financing. These included several Kenyan and Somali citizens for raising and laundering funds on behalf of al-Shabaab, as well as Crown Bus Services, a privately owned Kenyan passenger bus company, for supporting al-Shabaab operations and logistics.
Grey-listing Kenya means the country risks reduced investor confidence, difficulties when conducting cross-border financial transactions, and hurdles in accessing financial services, among others, due to heightened compliance requirements. Countries with this classification also increase their vulnerability to criminal groups who frequently exploit jurisdictions with inadequate anti-money laundering and counter-terrorist financing regulations for illicit activities.
Membership in the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) and the existence of the Proceeds of Crime and Anti-Money Laundering Act (POCAMLA) (2009) should ensure Kenya’s adherence to international standards and best practices in these areas. However, recurring problems in meeting international financial safeguard standards signify loopholes in the state’s protections against money laundering and terrorism financing.
The country’s grey-listing sheds light on its weak financial oversight, which facilitates money laundering through the transport, real estate, legal and casino sectors and other areas like non-governmental organisations and gold, drug and wildlife trafficking.
A 2021 analysis by The Sentry, an investigative and policy organisation, sheds light on the country’s susceptibility to financial risks. The report highlights how corrupt foreign figures use the purchase of luxury real estate to commit financial fraud. The investigation specifically pinpointed prominent South Sudanese individuals as key players in Kenya’s money laundering networks.
Efforts to promote transparency and accountability in the real estate sector, including regulations requiring real estate transactions exceeding US$7 582 to be conducted through banks and other financial institutions, have done little to help.
In 2023, an analysis by ESAAMLG revealed that between 2021 and 2023, a total of US$544 905 660 in cash entered Kenya illegally through Jomo Kenyatta International Airport (JKIA). ESAAMLG says this indicates inadequate oversight by the Banking Fraud Investigation Unit based at the airport. The assessment team also criticised Kenya’s Financial Reporting Centre for its inadequacies in examining cash transactions associated with potential patterns signalling money laundering and terrorist financing activities.
Despite the enactment of POCAMLA, attempts to launder money are frequent in Kenya. In February 2022, a Kenyan man travelling from Burundi was arrested at JKIA with US$2 million (KES284.6 million) in foreign currency that had not been declared, as required by law.
Similarly, in November 2021, the Kenya Revenue Authority and postal service officials reported the recovery of US$28 000 (KES3.1 million) concealed in a jacket shipped into the country as a parcel from the US. And in December 2020, a Nigerian national destined for Dubai was arrested by the Assets Recovery Agency with over US$754 717 (KES100 million) stashed in his handbag.
The Kenyan Cabinet’s recent approval of the Anti-Money Laundering and Combating of Terrorism Financing Laws (Amendment) Bill 2023 exacerbates the country’s risks tied to money laundering. If passed by Parliament, the bill will set the stage for increasing the cash reporting threshold by 50%, from the current US$10 000 to US$15 000, creating more opportunities for increased illicit financial activities.
Jaindi Kisero, a leading economic analyst, says the proposed bill should be rejected and that its enactment would reverse ongoing efforts towards tracking and tracing the movement of proceeds of corruption and crime.
While on the FATF grey list, Kenya’s financial redemption depends on adhering to the following strategic recommendations. Firstly, a coordinated effort is needed to strengthen regulatory enforcementgovernment regulators, the financial sector, international partners, the private sector, civil society and the general public. This would enhance compliance mechanisms and reinforce regulatory oversight.
Secondly, there is an urgent need for increased international cooperation. Kenya should leverage its position as a member of anti-money laundering/counter-terrorism financing bodies such as ESAAMLG to facilitate intelligence gathering and information sharing among member states. Through strengthening such partnerships and collaborative efforts, Kenya could increase its credibility in the global financial community.
Lastly, Kenya must enhance its tracing and recovery of crime and corruption proceeds by prosecuting and sentencing suspects to boost investor confidence in its financial regulatory systems.is requires a multifaceted approach encompassing the strengthening of legal frameworks, fostering inter-agency and international cooperation, investing in technology and personnel training, and cultivating private-public partnerships.
Problems such as legal complexities, insufficient coordination and a lack of expertise exist. But prioritising measures to harmonise laws, strengthen global enforcement and partnerships, and promote transparency offers pathways to overcoming these challenges.
Valtino Omolo, Intern, East Africa Peace, Security and Governance Project, Willis Okumu, Senior Researcher, Halkano Wario, ROCO, East Africa
