In February 2024, Kenya was placed on the Financial Action Task Force (FATF) grey list, signalling deficiencies in its anti-money laundering (AML), counter-terrorism financing (CFT), and counter-proliferation financing (CPF) frameworks. 

This designation, a setback for East Africa’s financial hub, has prompted urgent reforms to restore Kenya’s global financial reputation and mitigate economic risks like reduced foreign investment and increased compliance costs. 

Recent efforts, including the passage of the Anti-Money Laundering and Combating of Terrorism Financing Laws (Amendment) Bill, 2025, President William Ruto’s return of the Conflict of Interest Bill to Parliament, and the National Risk Assessment (NRA) on non-governmental organisations (NGOs), reflect Kenya’s commitment to addressing FATF’s concerns.

FATF has been reviewing Kenya’s progress since the grey listing, and its latest review in October last year acknowledged that Kenya was making progress. The next FATF plenary in June 2025 will be critical, with Kenya’s progress under scrutiny, hence the government’s race to revise various legal frameworks.

The FATF Grey List Context

Kenya’s grey listing stemmed from a 2022 mutual evaluation by the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), which found Kenya only partially compliant with FATF’s 40 Recommendations. 

Key deficiencies included inadequate prosecution of money laundering and terrorism financing offenses, weak supervision of designated non-financial businesses and professions (DNFBPs) like lawyers and real estate agents, and insufficient regulation of NGOs vulnerable to terrorism financing abuse. 

The listing, announced on February 23, 2024, has subjected Kenya to enhanced monitoring, requiring swift action to implement an FATF action plan. Failure to address these gaps risks prolonged economic isolation, with studies estimating a potential 2 per cent drop in the foreign direct investment (FDI) to GDP ratio for grey-listed countries.

Kenya’s AML/CFT Response

A cornerstone of Kenya’s response is the Anti-Money Laundering and Combating of Terrorism Financing Laws (Amendment) Bill, 2025, passed by the National Assembly on April 16, 2025. This legislation aims to align Kenya’s AML/CFT framework with FATF standards by strengthening oversight of high-risk sectors and enhancing compliance mechanisms.

Key provisions include stricter regulation of Saccos, NGOs, and betting firms. The bill mandates these entities to comply with rigorous AML/CFT regulations, addressing FATF’s concerns about weak supervision of DNFBPs. For instance, NGOs must now fully declare their financial sources, reducing risks of terrorism financing abuse.

The amendment to the Accountants Act (Cap. 531) grants the Institute of Accountants authority to regulate AML/CFT compliance. At the same time, the Betting Control and Licensing Board will monitor betting firms for illicit financial flows.

Recognising the growing risk of money laundering through cryptocurrencies, the bill proposes bringing virtual assets under anti-terrorism scrutiny, addressing FATF’s call for licensing and supervising virtual asset service providers (VASPs).

Majority Leader Kimani Ichung’wah framed the bill’s passage as urgent, warning of “financial isolation” without decisive action. 

The legislation empowers regulators to crack down on illicit financial flows, seeking to restore investor confidence and demonstrate Kenya’s commitment to FATF benchmarks. 

However, critics argue that the Bill’s broad scope risks overregulating legitimate NGOs, potentially stifling civic space—a concern echoed by Transparency International Kenya, which urges operationalising the Public Benefit Organisations (PBO) Act to balance oversight with freedom.

President Ruto’s Return of the Conflict of Interest Bill

Another significant move is President Ruto’s decision to return the Conflict of Interest Bill to Parliament, signalling a focus on governance reforms to complement AML/CFT efforts. 

While the Bill’s specifics remain under discussion, it aims to address corruption and conflicts of interest among public officials, which are closely tied to money laundering risks. Corruption, identified as a predicate offence for money laundering in Kenya’s NRA, undermines financial integrity and investor trust.

Ruto’s action reflects the political will to tackle systemic issues highlighted by FATF, such as the lack of successful prosecutions for economic crimes. 

By returning the Bill for refinement, Ruto aims to ensure robust mechanisms for transparency and accountability, critical for aligning with FATF Recommendation 3 (money laundering offences) and Recommendation 30 (responsibilities of law enforcement). 

However, the move has sparked debate, with some analysts questioning whether parliamentary revisions will dilute the Bill’s effectiveness or delay its enactment, potentially slowing Kenya’s FATF compliance timeline.

National Risk Assessment on NGOs

Kenya’s NRA, a key FATF requirement, has been instrumental in identifying vulnerabilities, particularly in the NGO sector. Launched in December last year, the report indicated that Kenya had made huge progress in protecting Non-Profit Organisations (NPOs) operating in the country against terrorism financing abuse.

According to Interior Principal Secretary Raymond Omollo, the study, which culminated in the publication of Terrorism Financing Risk Assessment for Non-Profit Organisations in Kenya, is a key step towards addressing a major deficiency identified by the Financial Action Task Force (FATF), the global action leader on tackling money laundering, terrorism, and proliferation financing.

The report concluded that Kenya’s non-profit sector faces medium to low terror financing risk.

“There is no known public evidence of terrorism financing abuse involving NPOs in Kenya. However, there is a plausible terrorism financing threat, and the assessment identified reasonable concerns about potential inherent vulnerabilities for NPOs,” the report stated.

The report recommended that the PBO Authority develop mechanisms to identify the specific NPOs potentially ‘at risk’ of terrorism financing. The Interior Ministry has also instructed the authority to ensure that all NGOs file their annual reports since, in the 2022/23 financial year, only 2,829 out of a total of 10,007 organisations deemed to be active during the year filed.

FATF’s action plan mandates Kenya to revise its NGO regulatory framework to ensure risk-based measures that do not disrupt legitimate activities.

Recent steps include mandating NGOs to declare funding sources under the 2025 AML/CFT Bill and enhancing the Financial Reporting Centre’s (FRC) capacity to monitor suspicious transactions.

While these measures address FATF’s call for risk-based supervision, challenges remain, including limited inter-agency coordination and technical capacity to handle complex financial crimes.

Implications and Challenges

Kenya’s reforms are supported by international partners, including the World Bank, the IMF, the EU, the US, and the UK, which have pledged technical assistance to bolster regulatory frameworks. The government has emphasised collaboration with these entities to expedite Kenya’s exit from the grey list, citing Mauritius’ removal after less than two years as a model.

Weak enforcement, particularly in prosecuting high-profile cases, remains a sticking point, with FATF noting no successful money laundering prosecutions despite Kenya’s risk profile. Additionally, sectors like real estate, legal services, and transport, flagged as money laundering enablers, require sustained oversight beyond legislative reforms.

The 2025 AML/CFT Bill’s focus on digital assets and DNFBPs is forward-thinking but faces implementation hurdles, such as building technical expertise for VASP supervision. Moreover, the NRA’s recommendations must translate into effective prosecutions and asset recovery to demonstrate tangible progress to FATF.