Kenya back in Financial Action Task Force crosshairs over money laundering, terrorism financing

The Financial Action Task Force (FATF) anti-money laundering watchdog has placed Kenya on its grey list for the second time. Listed countries face increased monitoring due to deficiencies in meeting international standards on combating money laundering and terrorism financing.

Kenya’s listing on 23 February is specifically tied to weaknesses in regulation and oversight of the real estate sector and financial transactions made through legal firms. Added to this, on 11 March, the United States (US) Department of the Treasury sanctioned 16 entities in Kenya for their links to terror financing. These included several Kenyan and Somali citizens targeted for raising and laundering funds on behalf of al-Shabaab, and Crown Bus Services for supporting al-Shabaab operations and logistics.

FATF’s greylisting means Kenya risks reduced investor confidence and difficulties conducting cross-border financial transactions and accessing financial services, among others, due to stricter compliance requirements. Countries with this classification are also more vulnerable to criminal groups who exploit jurisdictions with inadequate regulations against money laundering and terrorist financing.

Kenya’s adherence to international standards should be boosted by its Proceeds of Crime and Anti-Money Laundering Act (2009) and membership of the Eastern and Southern Africa Anti-Money Laundering Group. However, recurring problems in meeting financial safeguard standards signify loopholes in government responses. Weak financial oversight facilitates money laundering through various sectors including transport, real estate, legal, non-governmental organisations and gold.

In 2021, The Sentry, an investigative and policy organisation, shed 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 pinpoints prominent South Sudanese individuals as key players in Kenya’s money laundering networks.

Efforts to promote transparency and accountability in the real estate sector have done little to help. These include regulations requiring transactions exceeding $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 $544,905,660 in cash entered Kenya illegally through Nairobi’s Jomo Kenyatta International Airport. According to the report, 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 inadequacies in detecting patterns in cash transactions that could signal money laundering and terrorist financing activities.

Read more in Daily Maverick: Criminal syndicates launder hundreds of millions from stolen US Covid-19 funds in Kenya

Despite passing anti-money laundering legislation, attempts to commit the crime are frequent in Kenya. In February 2022, a Kenyan man travelling from Burundi was arrested at Jomo Kenyatta International Airport with $2-million in foreign currency that had not been declared. In November 2021, authorities recovered $28,000 concealed in a jacket shipped into the country from the US. And in December 2020, a Nigerian national destined for Dubai was arrested by the Assets Recovery Agency with over $754,717 in his hand luggage.

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

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

While on the FATF grey list, Kenya’s financial redemption requires better regulatory enforcement by government, the financial sector, international partners, the private sector, civil society and the general public. This would enhance compliance and reinforce oversight.

Increased international cooperation is also needed. Kenya should leverage its position as a member of the Eastern and Southern 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. Last, Kenya must enhance its tracing and recovery of the proceeds of crime, and prosecute suspects. This will boost investor confidence in its financial regulatory systems.

Given the legal complexities, insufficient coordination and a lack of expertise, Kenya faces an uphill struggle. Good starting points are harmonising laws and strengthening global enforcement and partnerships. DM

Valtino Omolo, Intern, East Africa Peace, Security and Governance, Willis Okumu, Senior Researcher and Halkano Wario, Enact East Africa Organised Crime Observatory Coordinator, Institute for Security Studies (ISS) Nairobi.

Enact is funded by the European Union and implemented by the Institute for Security Studies in partnership with Interpol and the Global Initiative against Transnational Organized Crime.

First published by ISS Today.