Money Laundering Control in Kenya - New Dawn or False Promise?
There has been a huge influx of unexplained cash into Kenya lately, leading to wild speculation over where it comes from. Official government statements have further fuelled anxiety, with revelations that the sources of large foreign currency inflows into the country cannot be traced. According to the Central Bank of Kenya February 2010 monthly report, the figure for ‘errors and omissions’ in the balance of payment statistics increased from $1.1 billion in January 2009 to $2.1 billion in January 2010.
Gladys Mirugi-Mukundi, Intern, Organised Crime and Money Laundering Programme, ISS Cape Town
There has been a huge influx of unexplained cash into Kenya lately, leading to wild speculation over where it comes from. Official government statements have further fuelled anxiety, with revelations that the sources of large foreign currency inflows into the country cannot be traced. According to the Central Bank of Kenya February 2010 monthly report, the figure for ‘errors and omissions’ in the balance of payment statistics increased from $1.1 billion in January 2009 to $2.1 billion in January 2010. The Bank could not explain the tenfold escalation.
In the last five years, Nairobi and other major Kenyan cities have witnessed significant increases in property prices, against the backdrop of a global and national economic downturn, and increased unemployment. As property prices and rental rates in Kenya skyrocket way above industry projections, speculation is rife that some of the unexplained capital being injected into real estate is laundered money. Media reports have suggested that the sudden hike in property prices, even beyond the reach of the middle class, is being caused by ‘piracy money’.
It is alleged that proceeds from piracy along the shores of Somalia are finding their way into the Kenyan real estate market, distorting the property market. A Kenya government spokesperson conceded that the country is an attractive destination for pirates to launder their money – being the largest economy in East Africa with vast investment opportunities and close to Somalia, with which it shares a 500-mile (800-kilometer) porous border. While there is no empirical evidence yet linking piracy to the property boom in Kenya, the government launched an investigation into property owned by foreigners in January 2010. However, as with most government appointed investigations in Kenya, the findings remain under lock and key to this day.
The absence of a legal framework to combat money laundering may have made it fairly easy for pirates or criminals to sanitise their money in Kenya. One could transfer proceeds of crime to collaborators in the country through forex bureaus or by using the unregulated ‘hawala’ cash- transfer system. Forex bureaus are suspected of contributing to the riddle of billions of shillings in the economy whose source the Central Bank of Kenya is unable to explain. In the 2010-11 budget speech in Parliament in June 2010, the Minister of Finance, Uhuru Kenyatta, ordered the Central Bank of Kenya and the Kenya Revenue Authority to carry out a comprehensive audit to scrutinise forex bureau operations for breach of tax laws and financial sector regulations.
The recently enacted Proceeds of Crime and Anti-Money Laundering Act 2009, (the Act) is aimed at sealing existing loopholes in Kenya. The Act provides for the ‘freezing, seizure and confiscation of proceeds of crime.’ While in the past the verification of sources of funds infused into the formal financial system was not mandatory, the Act seeks to change this. It requires forex bureaus and other money transfer and financial institutions to be vigilant, identify customers and report any transaction of more than US$10,000 (Kshs 810,000) in hard currency. The recent adoption of a requirement for mobile cellphone service providers to register their clients’ particulars has been justified as being intended to curb crime and money laundering. The use of money transfer by mobile telephone, popularly known as M-Pesa and Zap is prevalent in the country. In the past, receivers were not necessarily required to have been registered which made it difficult to trace and investigate suspicious transactions.
In principle, the Proceeds of Crime and Anti-Money Laundering Act puts Kenya in consonance with the anti-money laundering standards recommended by the Financial Action Task Force on Money Laundering (FATF). FATF is an intergovernmental body that promotes policies to combat money laundering and terrorist financing. The mere existence of the legislation is however not sufficient to thwart money laundering, notwithstanding the stiff penalties recommended by the Act.
Kenya now needs to demonstrate tangible commitment to the implementation of the Act. The new and existing laws should be harmonized to ensure coordinated, effective implementation of the new law. Both the Proceeds of Crime and Anti-Money Laundering Act and the pre-existing Anti-Corruption and Economic Crimes Act deal with proceeds of crime, including corruption. The former establishes a Financial Reporting Centre among other bodies, while the Anti-Corruption and Economic Crimes Act established the Kenya Anti-Corruption Commission. Further, while the Public Officer Ethics Act requires all public office holders to declare their wealth and its origin, the Prevention of Organised Crime Bill, which awaits enactment, also proposes to concern itself with proceeds of organised crime. The Central Bank of Kenya Guidelines on Anti-money Laundering, which banking and financial institutions are still required to comply with, remain in force.
Co-operation among the implementing institutions can only happen when all these laws and guidelines are harmonized. The various institutions and bodies should have mandates that do not conflict. The Financial Reporting Centre should be established without further delay. The scope of its mandate and power should be ironed out beforehand with an emphasis on cooperative functioning. A related issue is capacity to seek and offer mutual legal assistance in cross border investigations. It is unfortunate that the Financial Reporting Centre will have no autonomy to seek or give mutual legal assistance. Kenya is and remains vulnerable to cross-border money laundering.
Money laundering poses a grave danger to the banking and financial systems, which threatens its economic security. The legal framework to address the scourge should accordingly be well equipped to deal with the problem.
