Enforce laws enacted to disrupt money laundering networks

An illustration of money laundering. [Getty Images]

Is Kenya a playground for money launderers and safe haven for illicit cash flows? About a fortnight ago, the Financial Action Task Force (FATF) whose mandate includes combating illicit cash flows and terrorism financing placed Kenya on the grey list.

This is a predicament that Kenya finds itself in for a second time. The first time was in 2010 when Kenya was listed as a high risk country for delays in enacting laws to tackle criminal financial activities as well as failure to track money laundering. But within four years, Kenya was out of that list. Of interest is what it means for a country to be grey-listed and what that says about its financial infrastructure.

FATF has two categorisations for countries not fully compliant with its regulations. There are high-risk jurisdictions popularly known the ‘black list’ and then then the other category known as jurisdictions under increased monitoring, otherwise known as ‘grey list’; countries with strategic deficiencies in their ability to disrupt and stop money laundering and financing of terrorism but which have made commitments to have such gaps plugged.

For accountability purposes, regional FATF style entities otherwise known as FATF-Style Regional Bodies(FSRB) are then involved in monitoring the progress, which they then report through a Mutual Evaluation Report- a comprehensive analysis of a country’s policy, technical and operational anti-money laundering laws, combating the financing of terrorism and profiling financing framework against leading global practices vis a vis the prevailing risks.

Kenya embarked on a series of reforms to streamline its financial sector and to enhance its capacity to disrupt and mitigate ML,TF, PF risks. The AML/CFT Amendment) Act 2023, which has been assented into law seeks to reform various facets of our financial architecture and to align them with international best standards in regard to anti-money laundering initiatives.

The Act has amended key provisions that were deemed to have gaps that could be exploited and has altered 16 Acts of Parliament such as the Capital Markets Act, Insurance Act, and National police service Act among others.

The amendments are aimed at curing the deficiencies identified in the Mutual Evaluation report 2022 carried out by Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) a FATF-Style body for this region. Let us take a cursory glance at some of the changes and their capacity to help keep our homeland safe and our borders free from the rendezvous of the financial vampires. The Act, for instance, designated the LSK as a self-regulatory body with AML/CFT CPF responsibilities.

This is in light of the fact that the legal profession has high money laundering vulnerabilities owing to the abuse of client–attorney privilege and the previous exclusion of law firms as reporting institutions. An attempt was made to delicately balance bridging the enduring gaps within Kenya’s AML/CFT regulatory framework while preventing disclosures that might undermine client-attorney privilege.

The amendment broadens the scope of legal professionals as critical players in disrupting the flow of illicit cash by reducing the risk of non-reporting, which effectively ensures that client accounts run by law firms no longer remain the ‘dark holes’ that are used to frustrate law enforcement and accountability efforts.

The Act further proposes a proactive approach in disrupting the money laundering networks by mandating Financial Reporting Council (FRC) and its supervisory bodies to adopt a risk based monitoring of the reporting institutions.

The frequency of their supervision, the Act provides, should be premised on the risks identified and any new sectoral development. With these, I believe we will witness many successful sting operations. Successful and aggressive implementation of the Act is going to promote effective legal, regulatory and operational mechanisms of combating money laundering and such other threats to our financial system and will align it with international best standards. 

Mr Mwaga is Convenor, Inter parties Youth forum. [email protected]