Money laundering and terrorism financing: Kenya at medium risk as CBK publishes inaugural report
On Wednesday, July 27, 2022, the Central Bank of Kenya launched the Money Laundering and Terrorism Financing National Risk Assessment Report (NRA). The report identifies and assesses Kenya’s Money Laundering (ML) and Terrorism Financing (TF) risks at a national and sectoral level.
The overall ML threat for Kenya was assessed as medium with potential for an increase in the future. The NRA assessed the banking sector as having the highest impact on Kenya’s ML/TF risk profile due to the pivotal role it plays in facilitating payments, trade, and investments in Kenya and the region.
The report also sets out recommendations geared towards strengthening the AML/CFT (Combating the Financing of Terrorism) supervisory and regulatory framework within the various sectors.
Below is a summary of the sector-specific findings contained in the NRA report and the recommendations.
Sectors under review
| Sector | Ranking | Risks |
| Banking | High with a likelihood of increasing | Banks are the most likely institutions to be abused for money laundering. Nearly all mega corruption cases in the country have been facilitated through the banking sector. Exposure of Kenya’s banking system to international business also increases the risk of ML within the banking sector. |
| Insurance | Medium with a likelihood of increasing | Threat to ML is likely to increase given that the main financial sector which is the banking sector is currently heavily regulated thereby diminishing opportunities for exploitation by criminal networks and thus shifting their MLschemes to other sectors including the insurance sector. |
| Securities | Low with a likelihood of increasing | There exists a gap in enforcement of AML/CFT provisions as currently, the market regulator Capital Markets Authority (CMA) has not pursued penalties for violations of the Proceeds of Crime and Anti-Money Laundering (POCAMLA) regulations. |
| Remittances | Low with a likelihood of decreasing | The fact that customers using the sector are often one-offs create possibilities for moving huge amount of cash through multipleinstitutions with little detection giving rise to ML risk. Remittance service providers are morevulnerable to fraudulent activities (corruption and bribery) which have a consequential effect on ML activities |
| Casinos | Medium | There was a significant increase in the number of sports and betting companies across the country, which presented ML risks given the cash-based nature of transactions in the country. |
| Dealers in precious metals | No risks noted. Most incidents relate to fraudulent schemes. | |
| Car dealers | Medium High with a likelihood of increasing | Weak regulatory controls. |
| Lawyers | Medium High with a likelihood of increasing | There is currently no legalrequirement for lawyers to report any suspicious transactions to the Financial Reporting Centre. Confidentiality of client accounts and the attorney-client privilege have been identified as creating a challenge in accessing transaction records where there is suspicion of involvement of lawyers in ML schemes. |
| Accountants | Medium Low with no likelihood for increase | |
| Real estate sector | High with a likelihood of increasing | ML threat in the sector is likely to go high due to the attractiveness on returns in the real estate investments, appreciation in land prices and the increasing demand for housing. |
| Money Value Transfer Services (MVTSs) | Low with a likelihood to reduce |
Recommendations
Policy and legal
- Adopt a national policy to fight money laundering offences in a similar manner to those adopted against other ML predicates like corruption, drug abuse, among others.
- Conduct parallel financial investigations, prosecution and confiscation to all cases involving ML predicate offences.
- Law enforcement agencies should adopt a policy to investigate ML component (follow the money principle) for all terrorist offence predicates.
- Law enforcement agencies should adopt, as a policy objective, the confiscation of property of corresponding value from offenders. Authorities should quantify the value worth of all proceeds for effective freezing and confiscation including for non-economic crimes.
- Investigations and prosecution of prevalent predicate offences presenting high risk should involve parallel financial investigations as a matter of policy.
- The authorities should as a practice maintain records of the value arising from all the predicates investigated and prosecuted so as to allow for confiscations of proceeds and instrumentalities of crime.
- The authorities should aggressively pursue as a matter of policy, the confiscation of falsely declared or undeclared cross-border cash transactions.
Operational and domestic cooperation
- Law enforcement agencies should be well capacitated to maintain a database of all offences by predicate types and to ensure data coherence from various agencies
- Data digitisation is recommended to facilitate the update of withdrawal and addition of charges in the Judiciary and to shift from the current format for drafting charges where the focus is on the number of charges as opposed to the nature of charges.
- Authorities should strengthen investigation and prosecutorial capacity for cross border ML threat and predicate offences.
- Government should strengthen inter-agency coordination mechanisms and joint investigation teams to enable these institutions to follow the ML offences through the use of a wide range of financial intelligence and other information.
- Terrorism being a threat to the country, there should be parallel financial investigation of all terrorist related offences to effectively identify ML threats relating to terrorism so as to deny the facilitation of terrorist networks and to disrupt the planning and recruitment for attacks.
Resources and capacity building aspects
- The government should enhance the capacity of Assets Recovery Agency (ARA), the Anti-Counterfeit Authority (ACA) and Financial Reporting Centre (FRC) to be able to effectively pursue the proceeds and instrumentalities of crime.
- Law enforcement agencies should pursue, as a matter of policy, the perpetrators of human trafficking and deny them the benefits of proceeds generated from such crimes.
- There should be adequate resources to improve the capacity of all law enforcement agencies to investigate financial crimes especially those arising from predicates presenting high risk to the country and provide adequate skills and necessary tools to be able to pursue money laundering cases from these predicates.
- There should be effective mechanisms to promote the AML/CFT capacity of Reporting Institutions and law enforcement agencies as envisaged under POCAMLA
Regulatory and supervisory aspects
- All the financial sector and other designated non-financial business and professions supervisors should implement a risk-based approach and effectively supervise their respective sectors for compliance. Further, regulators should adopt group-wide supervision to mitigate cross-sector ML/TF threats when appropriate.
- There is a need to conduct and continuously update sectoral and institutional risk assessment to establish the level of risk in various sectors for risk-based interventions to ML/TF threats in those sectors.
- Lawyers and car dealers should be designated as reporting institutions for the purposes of reporting ML suspicions to the FRC. It is proposed that the Law Society of Kenya should be designated as supervisor in respect of the legal profession.