Financial Crime World

Construction Sector in Kenya:Under Scrutiny with More Than Half of Money Laundering Cases

Shocking Revelation: Construction Sector is a Preferred Conduit for Money Laundering in Kenya

According to the latest government report, the construction industry in Kenya is under scrutiny as more than half (56.5%) of the private firms implicated in money laundering cases are from this sector. This revelation underscores the growing concern regarding the cash-intensive nature of the construction industry, making it a preferred conduit for illicit activities.

Growth Trail for the Construction Sector and Its Contribution to Kenya’s Economy

The construction sector, which reported a massive growth and contributed 7.1% to Kenya’s GDP in 2022, has now been flagged for contributing more than half of the total (10,733) private companies reported for money laundering.

Kenya’s Financial System under the Global Radar

Kenya’s financial system is under increased scrutiny following its inclusion in the Financial Action Task Force (FATF) grey list alongside 21 other countries. FATF considers grey-listing a country with strategic deficiencies in its anti-money laundering and countering the financing of terrorism (AML/CFT) regimes.

Key Findings of the National Risk Assessment Report on Money Laundering and Terrorism Financing

The following bullet points summarize the key findings of the National Risk Assessment report on money laundering and terrorism financing published by the Business Registration Service (BRS):

  • A total of 10,733 private companies were reported for money laundering in Kenya.
  • Private limited companies accounted for the majority (98.09%) of these cases.
  • Nearly half (43.51%) of these cases involved the abuse of power by company directors.
  • Employees were also implicated to a great extent.
  • The legal structures most commonly exploited for money laundering were those in the construction, real estate, manufacturing, and financial services sectors.

Proposed Measures to Deter Money Laundering and Terroism Financing

Experts recommend a thorough review of Kenya’s laws governing the trust regime to mitigate and discourage money laundering and terrorism financing. These measures may include, but are not limited to:

  • Implementing measures to increase transparency and accountability within the construction sector and its dealings
  • Strengthening laws and regulations to prevent corruption and abuse of power in the business sector
  • Developing and enforcing effective penalties for money laundering and terrorism financing offenses

Potential Impact on Investor Confidence and Capital Flight

The impact of grey-listing on investor confidence could potentially lead to capital flight as global financiers express concerns over the integrity of Kenya’s financial system. Thus, addressing these concerns by effectively mitigating and discouraging illegal activities is imperative for the economic growth and stability of Kenya.