Financial Crime World

Kenya Takes Steps to Prevent Money Laundering and Financing of Terrorism

Combating Financial Crimes in Kenya’s Insurance Industry

In a bid to curb money laundering and financing of terrorism, Kenya has taken significant strides in implementing measures to prevent these financial crimes. The country’s insurance industry is particularly vulnerable to these threats, with criminals exploiting the sector to launder proceeds from illegal activities.

Risks Facing the Insurance Industry

According to Joseph Owuor, Senior Supervision Officer at the Insurance Regulatory Authority (IRA), the insurance industry faces numerous risks of money laundering and terrorism financing, including:

  • Life insurance policies, annuities, investments, top-ups or overpaid premiums funded using proceeds of crime
  • Insurance companies or brokerage firms owned and controlled by criminals
  • Third parties holding and investing criminal funds through pooled accounts
  • Insurance cover over illegally/fraudulently obtained property
  • Insurance cover for suspected terrorist organizations

Identifying Red Flags

To combat these risks, Owuor highlighted the importance of identifying red flags, including:

  • Lump sum top-ups to existing life insurance contracts
  • Early surrender of policies or cashing out soon
  • Payment from third parties
  • Premiums being paid into one policy from different sources
  • Overpayment followed by a request for refund
  • Use of cash for payment of large single premiums

Kenya’s Legal Framework

Kenya’s legal framework against money laundering and terrorism financing is anchored on:

  • The Proceeds of Crime and Anti-Money Laundering Act (2009)
  • The Prevention of Terrorism Act (2012)

The Financial Action Task Force (FATF), a global standard-setting body, has also issued 40 recommendations on money laundering and nine special recommendations on terrorism financing.

Implementing Measures

To comply with these recommendations, financial institutions in Kenya are obligated to:

  • Implement customer due diligence
  • Keep records of transactions
  • Apply measures for politically exposed persons

Additionally, reporting obligations require institutions to report suspicious transactions and activities to the relevant authorities.

Challenges and Consequences of Non-Compliance

However, implementing these measures comes with challenges, including the cost of non-compliance. Owuor emphasized that non-compliance can result in:

  • Severe penalties
  • Reputational damage
  • Loss of business

Conclusion

In conclusion, Kenya’s insurance industry is at risk of being exploited by money launderers and terrorist financiers. To mitigate this risk, it is essential for financial institutions to implement robust anti-money laundering and combating the financing of terrorism measures, including customer due diligence, record keeping, and reporting obligations. Failure to comply with these requirements can result in severe consequences, highlighting the importance of effective implementation and enforcement.