Construction Sector Leads in Money Laundering Cases in Kenya: A Government Report Reveals
According to a new government report published by the Business Registration Service (BRS), the construction sector in Kenya is the preferred conduit for financial crimes, with more than half of all money laundering cases involving companies in this sector.
Key Findings
- More than 56.5% of the 10,733 private companies reported for money laundering in 2022 were in the construction industry.
- The construction sector, which accounts for 7.1% of Kenya’s GDP, has seen significant growth lately due to major projects like the Nairobi Expressway, the Standard Gauge Railway, and the Lamu Port, as well as thousands of commercial and residential buildings.
Construction Industry: A Hotbed for Financial Crimes
The report highlights that legal entities, such as private companies, play a vital role in facilitating financial crimes, including corruption, tax evasion, sanctions evasion, shielding assets from confiscation, money laundering, and terrorist and proliferation financing. The most frequently abused legal structures were found to be mostly involved in the construction, real estate, manufacturing, and financial services industries.
Kenya’s Vulnerability to Financial Crimes
Kenya was included in the ‘grey list’ by the Financial Action Task Force (FATF) due to its vulnerability to financial crimes. Trusts and private companies are the most commonly used legal entities in money laundering, surpassing public companies, foreign companies, partnerships, unlimited companies, and companies limited by guarantee.
Private Limited Companies: The Majority Abusers
The report states that private limited companies were the most frequently abused legal structure for money laundering purposes in Kenya. Out of the 10,733 cases reported, private limited companies accounted for 98.09%. Furthermore, 43.51% of these cases involved directors of the company, and employees were also significant contributors.
Implications for Kenya’s Financial System
The continued trend of money laundering in the construction sector could lead to reduced confidence from global financiers and a potential outflow of capital. Domestic and international investors may withdraw their funds due to concerns about the integrity of the financial system.
Recommendations
The report concludes by emphasizing the need for Kenya to address the issue of money laundering and terrorism financing, particularly in relation to the trust regime. The following recommendations were made:
- Review the laws governing the trust regime in Kenya.
- Implement measures to mitigate or deter the use of trusts for money laundering and terrorism financing purposes.