The Cabinet issued a dispatch on 18th July after considering various legislative proposals, policies, and programs towards the implementation of the bottom–up Economic Transformation Agenda (BETA). This followed the just concluded fifth appraisal by the International Monetary Fund (IMF) after the approval by the World Bank for support to Kenya under the Development Policy Operations (DPO) Programme. It is worthy to note that from the dispatch, the Cabinet further ratified the Anti-Money Laundering and Combating of Terrorism Financing Law (Amendment) Bill, 2023.

“The Amendment Bill proposes legal and policy reforms to address technical compliance deficiencies identified in Kenya’s second Anti-Money Laundering and Counter-Terrorism Financing Mutual Evaluation Report by The Eastern and Southern Africa Anti-Money Laundering Group,” said Mr Hussein Mohamed, the State House Spokesperson.

The Cabinet further approved the increase of the threshold on all cash transactions from US$ 10,000 to USD$ 15,000. This move has had the IMF Mission Chief to Kenya, Haimanot Teferra, express concern as this would easily be a risk especially because of Kenya’s location at the Horn of Africa and its role as a transit hub for the Eastern Africa region, Kenya is a significant potential conduit for illicit commerce. The nation serves as a major nexus for terrorist-related activities due to its closeness to Somalia, an Al Shabaab stronghold.

Increasing the cash transaction threshold has been a topic of discussion since 2022 and after the Central Bank of Kenya released a report in February this year on ‘Kenya’s Payment Journey’. Further, MPs had voiced their displeasure with banking industry regulations that demanded those withdrawing more than Sh1 million declare the source of the funds.

The increase of the threshold is set to spark a lot of controversy. However, IMF will have to collaborate with the Kenyan government to make sure a plan to loosen restrictions on substantial monetary transactions by financial institutions does not provide a gateway of money laundering.

Nonetheless, the need to increase the threshold is a result of the significant developments in digital payments in Kenya, particularly mobile money services. Under the direction and supervision of the Central Bank of Kenya (CBK), the nation has achieved considerable strides in modernising and bolstering its National Payments System (NPS).

Since the introduction of mobile banking in 2007, NPS has undergone significant modifications and evolution such as the introduction of a national payments infrastructure, automation, and updates to multiple payment systems. These modernisation efforts have substantially altered Kenya’s payments system and increased financial inclusion leading to large-value, retail, and cross-border payment systems now operating more efficiently.

The Anti-Money Laundering and Combating of Terrorism Financing Law (Amendment) Bill, 2023 will contribute to the government’s efforts to combat money laundering and strengthen Kenya’s financial integrity. This will on one hand aid CBK in continuing to base its strategy on harnessing the benefits of innovations in technology while mitigating present and potential risks of money laundering and financial terrorism.

This is because the changes suggested in the Bill include an array of measures aimed at preventing money laundering in Kenya. These include preventing and countering terrorism financing, monitoring and enforcing anti-terrorism financing laws, reporting suspicious transactions, and making beneficial ownership information transparent.

Under the Kenya-IMF program, Kenya is required to realign policy priorities to tackle ongoing domestic and external challenges. These include having proactive monetary policies, advancing structural reforms, and addressing governance concerns to create a solid foundation for resilient growth.

The government’s goal of raising the ratio of revenue-to-GDP to well above pre-COVID-19 and the need to create space for growth-enhancing investments and priority social spending Capital and to ensure liquidity levels remain well above the statutory requirements also explains the reasons for increasing the threshold.

In a letter addressed to Ms Kristalina Georgieva, the IMF Managing Director, the Treasury Cabinet Secretary, Prof Njuguna Ndung’u, noted that Kenya is strengthening the AML/CFT legal framework in line with Financial Action Task Force (FATF) standards to support anti-corruption efforts and to address the legal and regulatory deficiencies in the existing AML/CFT framework. With the new Bill, the limit set in Regulation 31 of the Proceeds of Crime and Anti-Money Laundering Regulations 2013 to check financial flows will be amended.

However, with the Anti-Money Laundering and Combating of Terrorism Financing Law (Amendment) Bill, 2023, by adopting beneficial ownership transparency as stipulated in the Bill, Kenya will have made tremendous steps to curb financial secrecy. Although this is a significant step, it does not ensure complete transparency. All financial institutions and the government need to collaborate to ensure that the objective of the Bill is not reversed.