KENYA’S ARSENAL AGAINST MONEY LAUNDERING

‘’CRACKING DOWN ON DIRTY MONEY: KENYA’S LEGAL ARSENAL AGAINST MONEY LAUNDERING’’

Money laundering, a clandestine practice that conceals the illicit origins of funds, poses a grave threat to the integrity of our society. It is a web of deception that enables criminals to legitimize their ill-gotten gains, perpetuating crime, corruption, and undermining the stability of financial systems. The impact of money laundering reverberates across various sectors, affecting us all. It fuels organized crime, drug trafficking, and terrorism, eroding the very fabric of our communities. Moreover, it distorts economic stability and hampers growth, hindering the development and prosperity of nations. That is why the fight against money laundering is of paramount importance. Governments, financial institutions, and law enforcement agencies must join forces to dismantle this intricate network of illicit finance.

In Kenya, robust laws and regulations have been put in place to combat money laundering, such as the Proceeds of Crime and Anti-Money Laundering Act (POCAMLA Act), the Banking Act, the Financial Reporting Centre Act, and the Terrorism Prevention Act. These laws form a formidable defense, empowering authorities to track, seize, and confiscate illicit funds, while also promoting transparency and accountability in the financial sector. However, the battle against money laundering is an ongoing one, as criminals continuously adapt their methods. Vigilance, cooperation and constant evaluation of these laws are crucial to stay one step ahead. By fortifying our legal framework and enhancing international collaboration, we can safeguard our societies, protect our economies and ensure a brighter future for all.

The purpose of this article would be to raise awareness about the issue of money laundering in Kenya and to highlight the efforts and measures taken by the country to combat it. It aims to inform readers about the impact of money laundering on the economy, the steps being taken to address this issue and even propose potential solutions. Additionally, the article may also seek to encourage readers to support and participate in the fight against money laundering.

Money laundering involves disguising the origins of illegally obtained money, making it appear as if it came from legitimate sources. It is considered a serious crime because it enables criminals to profit from their illegal activities and undermines the integrity of the financial system.¹ The UN Vienna 1988 Convention Article 3.1 describes money laundering as ‘’the conversion or transfer of property, knowing that such property is derived from any offense , for the purpose of concealing or disguising the illicit origin of the property or for assisting any person who is involved in such offense to evade the legal consequences of their actions.”² Money laundering allows illicit funds to be integrated into the legal economy, making it difficult for law enforcement to trace and confiscate the proceeds of crime. By combating money laundering, authorities can disrupt criminal networks, protect the integrity of the financial system, and prevent the funding of further illegal activities. A case example of a money laundering scheme in Kenya would be that of February 2022 where syndicates laundered stolen USA COVID funds in Kenya.³

Money laundering has severe negative consequences on the economy. Firstly, it leads to reduced foreign investment. When money is laundered, it becomes difficult to trace its true origin. This lack of transparency raises concerns among potential foreign investors, who may fear getting involved in illicit activities or unknowingly supporting criminal enterprises. As a result, foreign investment decreases, hindering economic growth and development. Furthermore, money laundering contributes to increased corruption within the economy and in a bid to fight the same the court stated in KACC v. Stanley Mombo Amuti that property from corrupt and laundering dealings ought to be forfeited to the state. Criminals often bribe officials or manipulate financial systems to facilitate their illicit activities. This undermines the integrity of institutions and fosters a culture of corruption. As corruption spreads, it erodes public trust, discourages legitimate businesses, and distorts the fair operation of markets. Ultimately, this hampers economic stability and undermines the rule of law. In summary, money laundering has detrimental effects on the economy, including reduced foreign investment and increased corruption. It is crucial to combat money laundering through robust regulatory measures, international cooperation, and public awareness to safeguard the integrity and prosperity of the economy.⁴

Money laundering laws in Kenya aim to prevent the illegal process of making “dirty” money appear “clean.” Money laundering involves three stages: placement where launderers sell expensive goods and receive payment electronically entering financial system legitimately, layering through complex transactions to hide source of money, and integration where clean money is reintegrated into the economy.⁵ The key elements in the Legal frameworks include legal definitions, penalties, and enforcement. The law also covers the financing of terrorism. Kenya has implemented various laws and policies to combat money laundering and ensure the integrity of its financial systems. Here are some key legal frameworks and policies:

1. Proceeds of Crime and Anti-Money Laundering Act (POCAMLA): This act criminalizes money laundering and provides a comprehensive framework for the prevention, detection, and prosecution of money laundering offenses. It establishes reporting obligations for financial institutions and requires them to implement robust anti-money laundering (AML) measures. The Anti-Money Laundering Act imposes severe penalties. Convictions can result in fines up to Ksh 5 million and imprisonment for up to 14 years. Additionally, assets derived from money laundering can be confiscated. The Financial Reporting Centre (FRC) is responsible for enforcing anti-money laundering laws.⁶

2. Banking Act: The Banking Act requires banks to establish and maintain effective AML policies and procedures. It mandates customer due diligence, record-keeping, and reporting of suspicious transactions. Banks are also required to implement internal controls and provide regular training to staff on AML measures.⁷

3. Capital Markets Act: This act regulates the securities industry and includes provisions to prevent money laundering within the capital markets. It mandates reporting of suspicious transactions and requires market intermediaries to implement AML measures.

4. Insurance Act: The Insurance Act imposes AML obligations on insurance companies, including customer due diligence, record-keeping, and reporting of suspicious transactions. It also requires insurance companies to appoint compliance officers to oversee AML efforts.

5. Mutual Legal Assistance Act: This act facilitates international cooperation in criminal matters, including money laundering. It allows Kenya to collaborate with other countries in investigating and prosecuting money laundering offenses, exchange information, and freeze assets related to money laundering.

6. Financial Reporting Centre (FRC): The FRC is an independent government agency responsible for receiving, analyzing, and disseminating information related to suspicious transactions. It plays a vital role in combating money laundering by facilitating the reporting of suspicious activities and sharing intelligence with relevant authorities.⁸

7. National Risk Assessment: Kenya conducts regular national risk assessments to identify and understand the money laundering risks it faces. This assessment helps in developing targeted policies and measures to mitigate these risks effectively.

In addition to these legal frameworks, Kenya is also a member of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) and has committed to implementing international AML standards set by the Financial Action Task Force (FATF).

These legal frameworks and policies demonstrate Kenya’s commitment to combating money laundering and ensuring the integrity of its financial systems. By implementing and enforcing these measures, Kenya aims to protect its economy, promote transparency, and deter criminals from using its financial systems for illicit activities.

Regulatory bodies like the Financial Reporting Centre (FRC) and the Central Bank of Kenya play crucial roles in enforcing anti-money laundering (AML) measures in the country. Financial Reporting Centre (FRC): is the primary agency responsible for receiving, analyzing, and disseminating information related to suspicious transactions. It acts as a central hub for reporting and sharing intelligence on money laundering activities. The FRC collaborates with various stakeholders, including financial institutions, law enforcement agencies, and other regulatory bodies, to combat money laundering effectively.

The FRC’s key functions include: receiving and analyzing suspicious transaction reports (STRs) from reporting entities, conducting investigations and inquiries into suspected money laundering activities, sharing intelligence and information with relevant authorities, such as the Directorate of Criminal Investigations and the Office of the Director of Public Prosecutions, pproviding guidance and training to reporting entities to enhance their understanding of AML requirements, ccollaborating with international counterparts to exchange information and support cross-border investigations.

Central Bank of Kenya (CBK): As the country’s central monetary authority, the CBK plays a vital role in ensuring the integrity and stability of the financial system. It is responsible for regulating and supervising banks, financial institutions, and payment systems in Kenya. In the context of AML, the CBK has the following responsibilities: ssetting and enforcing AML regulations and guidelines for banks and financial institutions, cconducting regular inspections and audits to assess compliance with AML requirements, iimposing penalties and sanctions for non-compliance with AML regulations, ccollaborating with the FRC and other relevant authorities to share information and coordinate efforts in combating money laundering, providing guidance and training to banks and financial institutions on AML measures and best practices, mmonitoring and analyzing trends and developments in money laundering activities to inform policy decisions.⁹

By working in tandem, the FRC and the CBK contribute to the effective implementation and enforcement of AML measures in Kenya. Their collaboration ensures that reporting entities adhere to their AML obligations, suspicious transactions are promptly identified and reported, and investigations are conducted to bring money launderers to justice. These regulatory bodies play a crucial role in safeguarding the integrity of Kenya’s financial system and protecting it from the risks associated with money laundering.

Kenya has implemented several initiatives and strategies to combat money laundering, including:

1. Enhanced Customer Due Diligence (CDD): Financial institutions in Kenya are required to conduct thorough customer due diligence measures to verify the identities of their customers and assess the risks associated with their transactions. This includes obtaining and verifying customer identification documents, conducting ongoing monitoring of customer activities, and implementing risk-based approaches to identify and mitigate potential money laundering risks.

2. Suspicious Transaction Reporting: Reporting entities, such as banks and financial institutions, are mandated to report suspicious transactions to the Financial Reporting Centre (FRC). This involves the submission of Suspicious Transaction Reports (STRs) to the FRC, which analyzes and investigates these reports to identify potential money laundering activities. Prompt reporting of suspicious transactions is crucial in detecting and preventing money laundering.

3. International Cooperation: Kenya actively collaborates with international counterparts and participates in regional and global initiatives to combat money laundering. This includes exchanging information, sharing intelligence, and cooperating in investigations with other countries. Kenya is a member of organizations such as the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) and the Financial Action Task Force (FATF), which provide platforms for international cooperation and the development of AML standards.

4. Financial Intelligence Sharing: The FRC plays a pivotal role in facilitating the sharing of financial intelligence among various stakeholders, including law enforcement agencies, regulatory bodies, and reporting entities. The FRC acts as a central repository of financial intelligence and disseminates relevant information to support investigations and prosecutions related to money laundering.

5. Training and Capacity Building: Kenya emphasizes the importance of training and capacity building to enhance the understanding of AML requirements among reporting entities and relevant stakeholders. The FRC and the Central Bank of Kenya provide guidance, conduct workshops, and offer training programs to educate reporting entities on AML measures, detection techniques, and reporting obligations. These initiatives and strategies collectively strengthen Kenya’s efforts to combat money laundering, enhance the integrity of the financial system, and protect against illicit financial activities.¹⁰

Kenya faces several challenges in effectively combating money laundering, including:

1.Ineffective laws; there exists a couple of legal frameworks in Kenya that addresses the issue of money laundering but most of them are being outdated daily by evolving techniques and thus being rendered ineffective. Major acts like POCAMLA Act should keep up with evolving trends to remain relevant and effective in combating money laundering.

2. Limited Resources: Kenya’s law enforcement agencies and regulatory bodies often face resource constraints, such as inadequate funding, staffing, and technological infrastructure. These limitations can hinder their ability to effectively investigate and prosecute money laundering cases.

3. Corruption: Corruption poses a significant challenge to anti-money laundering (AML) efforts in Kenya. It can undermine the effectiveness of AML measures and facilitate the laundering of illicit funds. Addressing corruption within the public and private sectors is crucial to strengthening the overall AML framework.

4. Evolving Techniques: Criminals constantly adapt their money laundering techniques to exploit vulnerabilities in the financial system. This includes the use of sophisticated technologies, complex transaction structures, and the exploitation of emerging sectors such as cryptocurrencies. Staying ahead of these evolving techniques requires continuous monitoring, research, and collaboration with international partners.

5. Informal Economy: Kenya has a significant informal economy, which can be susceptible to money laundering activities. The informal sector’s lack of regulation and oversight makes it challenging to detect and prevent illicit financial flows.

6. Cross-Border Transactions: Kenya’s proximity to countries with high levels of organized crime and money laundering activities presents challenges in combating cross-border money laundering. Coordinating efforts with international partners becomes crucial to effectively address these transnational criminal activities.

Despite these challenges, Kenya continues to make efforts to strengthen its AML framework, enhance cooperation with international partners, and raise awareness among stakeholders. By addressing these challenges, Kenya aims to create a robust and resilient system to combat money laundering effectively.¹¹

Continued efforts to safeguard Kenya’s economy and promote financial integrity are crucial for several reasons:

1. Economic Stability: Money laundering undermines the stability of the economy by distorting market competition, reducing foreign direct investment, and increasing the cost of doing business. By combating money laundering, Kenya can maintain a stable and attractive business environment.

2. Investor Confidence: Effective measures against money laundering enhance investor confidence in Kenya’s financial system. When investors have trust in the integrity of the financial sector, they are more likely to invest and contribute to economic growth.

3. International Reputation: A strong commitment to combating money laundering improves Kenya’s international reputation. It demonstrates that Kenya is a responsible global player and a reliable partner in the fight against financial crimes, which can lead to increased cooperation and support from the international community.

4. Financial Inclusion: A robust AML framework promotes financial inclusion by ensuring that the financial system is safe and accessible to all. By safeguarding against money laundering, Kenya can encourage more individuals and businesses to participate in the formal economy, leading to greater financial inclusion and economic growth.

5. Crime Prevention: Money laundering is often linked to other serious crimes, such as corruption, drug trafficking, and terrorism financing. By effectively combating money laundering, Kenya can contribute to the prevention and disruption of these criminal activities, promoting overall security and public safety.

Safeguarding Kenya’s economy and promoting financial integrity requires ongoing collaboration between government agencies, financial institutions, and other stakeholders. By working together, Kenya can create a resilient and transparent financial system that supports sustainable economic development.¹²

To address these challenges, potential solutions include:

1. Increasing Funding: Allocating more resources to enforcement agencies and regulatory bodies can enhance their capacity to combat money laundering effectively. This includes funding for specialized training, advanced technology, and hiring additional personnel.

2. Strengthening International Partnerships: Collaborating with international partners, such as financial intelligence units and law enforcement agencies from other countries, can facilitate information sharing, joint investigations, and capacity building. This can help address cross-border money laundering activities more effectively.

3. Raising Awareness: Educating the public, businesses, and financial institutions about the risks and consequences of money laundering is essential. This can be done through awareness campaigns, training programs, and workshops. Increased awareness can encourage individuals and organizations to adopt best practices and report suspicious transactions.

4. Enhancing Regulatory Framework: Continuously reviewing and updating the regulatory framework can help address evolving money laundering techniques. This includes strengthening laws, regulations, and guidelines to keep pace with emerging risks, such as cryptocurrencies and digital financial services.

5. Combating Corruption: Tackling corruption within the public and private sectors is crucial. This involves implementing robust anti-corruption measures, promoting transparency, and holding individuals accountable for their actions. Strengthening governance and promoting ethical behavior can contribute to a more effective AML framework.

By implementing these potential solutions, Kenya can enhance its ability to combat money laundering, promote financial integrity, and safeguard its economy. It requires a comprehensive and coordinated approach involving government agencies, financial institutions, international partners, and the public.

All of the information, content, and materials made available on this website are just for general informational purposes and are not intended to be, nor does it represent, a legal opinion.

REFERENCES

United Nations, UNODC ROMENA, “Money Laundering” UN Vienna Convention on Money Laundering, Art 3(1) (1988)

PROCEEDS OF CRIME AND ANTI-MONEY LAUNDERING ACT, CAP 59B,2012

Banking Act, CAP 488

“Syndicates launder stolen US COVID-19 funds in Kenya” Willis Okumu, Mohammed Daghar, 18^th May 2023

“Effects of money laundering in Kenya” Kiplagat Toroitich 2020

Financial Crime Academy, “The Three stages of Money Laundering” (Accessed on 20^th August 20, 2023)

Financial Reporting Centre (www.frc.go.ke)

Central Bank of Kenya (https://www.centralbank.go.ke)

“Detecting and investigating money laundering in Kenya” ISS Africa

“Fighting Money laundering, the challenges in Kenya” HBP Moshi

BY;

KIPTOT IVY CHEPKORIR

MUKOMA ASSOCIATES