Home of 'wash wash' cleaners: Illicit wealth fuels economy, deepening rich and poor divide

In a country where many are fighting just to survive, a few are living in a world of excess-driving luxury cars, buying mansions, and calling themselves business moguls, even though no one can quite explain the businesses they claim to run. It's a bitter contrast. While taxes rise and businesses fold, the majority are left scrambling for scraps, their dreams of a better life slowly slipping away. The economy is growing at 5.6 per cent, but for most, it feels like a cruel joke. The cost of living is suffocating, and as companies close their doors, the gap between the rich and the struggling widens. In Nairobi, property prices have surged by 6.6 per cent, making it the sixth-fastest growing market globally, according to a report by the Real estate firm Knight Frank. For the wealthy, it's a time of prosperity; for the rest, it's a time of uncertainty, as they watch an ever-increasing number of people drown under the weight of a broken system. A government report exposes extensive illicit financial flows through trade mispricing and falsified documents, with compliance gaps in sectors like real estate and casinos. As investigations increase, questions arise about the scale of Kenya's underground economy. Some experts believe that illicit money is driving the economy after a report by The Financial Reporting Centre (FRC), an agency at the National Treasury, explained that , the most suspicious transactions involve funds coming to Kenya from Somalia, UAE, and South Africa, followed by Uganda, DRC, and North America. More questionable is that funds have been leaving the country to DRC, Somalia, and Mozambique, as well as Uganda and Rwanda, describing Kenya as a transit point for financial crimes. "Money being laundered is illicit money and that Kenya is losing capital investment funds to countries with weak laws on money laundering. And the latest IMF reports have said Mozambique and DRC to have weak laws," said development economist Mumo. The report paints a grim picture of Kenya as a hub for illicit financial flows, with over USD 1 billion (Sh129 billion) leaving the country in 2023, while only $400,970,874 (Sh52 billion) entered. "Euro-based transactions saw EUR34,119,606 declared in, with EUR2,978,317 going out. The GBP figures stood at PS334,000 incoming and PS405,525 outgoing. In Kenyan Shillings (KES), KES 118,700,440 was brought into the country, while KES 11,025,000 was taken out," the report outlines. The agency noted 5,100 suspicious transaction reports (STRs) annually from 2017 to 2022. The 2023 total, 6,633, marked a notable increase from 2022, when 6,064 reports were received. "The banking sector has consistently formed the bulk of STRs reporting," the report published this month said. The report also detailed how funds move through mobile platforms, bank transfers, remittance providers, cash smuggling, and virtual assets, making it harder for authorities to track illicit activities. "In 2023, the total number of Cash Transaction Reports (CTR) received was 11,079 representing a 9.1 per cent increase in CTRs received as compared to the previous year which had 10,159," the report said. FRC's findings suggest that while reporting has increased, loopholes persist, particularly in sectors such as real estate, law firms and casinos, where weak monitoring and enforcement continue to enable illicit transactions. Prominent lawyer Ahmednassir Abdullahi, who criticized Parliament for failing to scrutinize Cabinet appointees during this year's vetting, explained that politicians join politics mainly to amass wealth. He lamented that, unlike politicians in developed countries who aim to make a difference, their East African counterparts seem more interested in personal enrichment. "All had declared their net worth in 2022. For example, X, aged Y, was worth Sh250 million. Eighteen months later, X declares a net gain of Sh100 million, bringing the total to Sh350 million," he said. "The vetting committee isn't asking: in 25 years of your prime life, you made Sh250 million. How did you make 100 million in 18 months on a salary of Sh2 million per month, without other businesses?" The government admits in a news report that a hidden economy thrives out of sight-one fueled by illicit money flowing through real estate deals, casinos, law firms, and local savings and credit co-operatives (SACCOs). The Financial Reporting Centre (FRC), an agency at the National Treasury, and economic experts warn that the illegal activity, dubbed "Wash Wash" on the streets of Nairobi, has become a major threat to Kenya's financial integrity. This is forcing the government to borrow more, depriving citizens of vital public services, and allowing billions in corrupt deals to leave the country. The report by the FRC further sheds light on the alarming scale of money laundering, revealing how criminals exploit weak regulations, trade mispricing, and cross-border financial activities to launder billions of shillings. "In 2023, the total number of reports received was 6,631 from reporting institutions, plus two reports from walk-ins or whistleblowers. This represents a 12% increase compared to 2022," the report published this month reads. The FRC's analysis of suspicious transactions linked to tax crimes revealed a pattern of trade-based money laundering. This comes at a time On May 16, the Directorate of Criminal Investigations (DCI) summoned directors of Green Seal Properties and Zefus Properties Limited, companies linked to Tatu City, to record a statement following allegations of tax evasion and money laundering. The developments highlighted the complexity and reach of financial crimes in Kenya, underlining the extent to which illicit financial activities permeate key sectors such as real estate and business. The report says that goods or services are often invoiced at inflated or deflated prices to disguise the true nature of transactions. "The increase in STRs during June, July, and August is due to heightened activity among corporations and government agencies during the closure of the financial year, a period marked by the settlement of outstanding obligations," the report notes. The report adds that In 2023, 296 reports were being prosecuted by law enforcement agencies, marking an 83% increase from the previous year. The report revealed that the DCI, NIS, and EACC have intensified investigations, with the DCI doubling its caseload to 66 cases over two years, EACC's efforts increasing by 218%, and the KRA investigating 79 tax-linked money laundering cases. "In 2023, the Centre received 511 requests from law enforcement agencies on cases involving money laundering," the report said. The EACC saw a 218 per cent increase in investigations, totaling 71 over two years, with 4 under review and 67 under investigation. "Analysis of STRs related to foreign accounts revealed risks such as foreigners opening accounts with insufficient KYC documentation, preferring multiple cash deposits, followed by online wire transfers to/from overseas intermediaries," the report stated. The NIS initiated 154 investigations, an 80 per cent increase, with 60 triggering new information collection, 94 providing supplementary details, 89 shared with law enforcement, and 65 still under collection. The KRA initiated 83 investigations, a 52 per cent rise, with 79 under investigation and 4 under review. The ARA initiated 84 investigations, a 40 per cent increase, with 76 under investigation, 11 resulting in judgments, 18 with forfeiture applications, 28 under preservation, and 26 under investigation. Economists interviewed by the Standard said that the money laundering crisis is a double blow for the economy, with the government losing development capital and tax revenue as funds are siphoned away through corruption and hidden in tax havens. "This means we will have to borrow more since we are losing out on capital expenditure," said Dr. Mumo Muindi, a development economist. While presenting audit reports for various countries, the Auditor General put several governors on the spot for huge legal fees, despite having legal departments, as the 47 counties grapple with pending legal fee bills totaling Sh56 billion. "The Office of the Auditor General (OAG) indicated in the report that the Nairobi City County Government owed Sh10B. The county has to date paid out a total of Sh287M to various law firms," said nairobi governor Johnson Sakaja. The FRC's report highlighted the growing role of professional institutions, such as law firms and real estate agencies, in facilitating illicit transactions. Law firms are exploited for money laundering, while real estate increasingly serves as a breeding ground for corruption and the concealment of illicit wealth. The report said that some real estate agencies, along with 24 of Kenya's 47 casinos, were flagged for non-compliance with anti-money laundering (AML) policies. Inspections revealed that these businesses often lack proper AML policies, employee training, and due diligence on customers. The report added that Kenya's location, coupled with weak regulatory frameworks, makes it an attractive conduit for cross-border money laundering and terrorism financing. The FRC report revealed a worrying pattern of funds moving between countries with known links to terrorism, such as Somalia and Uganda, and Kenya. The report, which analyses 2023 profiled 80 real estate agencies, with 24 classified as high risk. The Centre also profiled 47 casinos, identifying 24 as high risk. These inspections focused on evaluating compliance with AML and Counter Financing of Terrorism (CFT) measures, including customer due diligence, transaction monitoring, suspicious activity reporting, record-keeping, and financial sanctions related to terrorism financing and proliferation financing. Moreover, the rise of mobile platforms, remittance providers, and virtual assets has made it increasingly difficult to track money laundering activities. The report detailed how funds are concealed using proxies, stolen identities, or stored with mules or valuable goods for future use. These funds are often used to support various illicit activities, including terrorism, recruitment, operations, and weapons procurement. "Kenya's strategic location, particularly with its proximity to countries with known terrorist activities, places it at risk of becoming a key hub for terrorism financing," the report concluded.The report explained that despite the increased scrutiny and ongoing investigations, money laundering continues to thrive in Kenya, exacerbated by a lack of adequate enforcement in key sectors. It described the real estate sector a focal point for corrupt individuals and criminal enterprises, driving up property prices and distorting the housing market. The report said that most foreigners involved in money laundering were arrested due to lack of necessary documents to be in the country, work permit failed to match the activities, entity registered in Kenya but with no physical address, clients were not citizens or residents in Kenya, company legal structure has been altered a number of times and foreign entity with complex ownership structures. Other red flags on foreigners included account funded by multiple cash deposits followed by wire transfers, all transactions done online, fund from to multiple over multiple overseas intermediaries, documents provided are irrelevant to the accounts, false or counterfeit documentation, and movement of funds failed to match the stated purpose of the document. "Service-based money laundering relies on exploiting the trade in services or other intangiblesto disguise and justify the movement of illicit proceeds by use of consultancy arrangements. Foreigner account typologies cover a wide range of non-quantifiable services andare often used to integrate illegal funds into the legitimate financial system. Other trendscaptured involved software providers, including gaming and business software financialservices, and in virtual asset wealth management," the report said. Economist Dennis Kabara explained, "Money laundering has disproportionately affected the economy, driving up prices across all sectors. It has affected real estate, which is why houses are expensive. It has artificially distorted the value of the shilling and compromised service delivery in government." He added, "Money laundering is why Kenya has to borrow heavily after losing tax revenue and investment capital. It indirectly causes higher inflation, interest rates, and reduced foreign direct investments." Despite efforts to combat money laundering, the government has struggled to keep up with the scale of the crisis. CBK and Experts argue that while the 2017 Proceeds of Crime and Anti-Money Laundering Act (POCAMLA) has been a crucial tool in combating illicit financial flows, more stringent measures are needed to close the regulatory loopholes that continue to facilitate illicit activity. The FRC's report calls for stronger regulatory frameworks and more robust enforcement of anti-money laundering policies. It stresses the need for increased vigilance and cooperation between local and international law enforcement agencies to close these gaps and stem the tide of financial crime.

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