Financial Crime World

Kenya’s Financial System under Scrutiny: The Road to Reform After FATF Grey Listing

Subtitle

The Financial Action Task Force’s (FATF) grey listing of Kenya calls for immediate action to address financial crimes and restore domestic and international confidence.

[Date]: March 7, 2024

Introduction

Kenya’s inclusion in the FATF grey list on February 23, 2024, poses significant challenges to the country’s economic progress and reputation. This article explains the reasons for the grey listing, its implications for Kenya, and the steps needed to confront financial crime and regain the confidence of the global community.

Reason for Grey Listing

Kenya found itself on the FATF grey list due to inadequate investigations and prosecutions of money laundering and terrorist financing offenses.

  • No successful cases have been brought to trial.
  • Numerous investigations failed.
  • The large and unregulated non-profit sector poses a high risk for terrorism financing abuse.
  • An inadequate risk assessment and lack of enforcement made efforts to address the issue unsuccessful.

Implications for Kenya

The grey listing comes with severe implications for Kenya.

  1. International reputation damage: The stigma that comes with being on the grey list can damage Kenya’s standing in the global community.
  2. Reduced foreign aid and investments: International investors are hesitant to invest in greylisted countries, reducing the flow of foreign investment into Kenya’s economy.
  3. Impact on trade deficit and debt burden: Lower investments in the country can negatively affect Kenya’s trade deficit and overall debt burden.

What Must Be Done

To combat financial crime and address FATF’s concerns, various stakeholders—including government agencies, civil society, and international partners—call for urgent action.

  1. Stakeholder involvement: A collaborative effort among the following stakeholders is essential:

    • Financial Reporting Centre (FRC)
    • Treasury
    • Civil Society Organizations (CSOs)

  2. Judiciary independence and efficacy: Ensuring financial autonomy and freedom from interference is essential for the judiciary to effectively prosecute financial crimes. Capacity-building of judicial officers is necessary to improve their understanding of complex money laundering and terrorism financing cases.

  3. Operationalize the PBO Act: Immediate implementation of the Public Benefit Organisations Act (PBO Act) is required for better regulation and oversight of the non-profit sector, including reporting institutions and raising awareness within the legal profession.

  4. Enhanced prosecution: The Office of the Director of Public Prosecution (ODPP) should intensify efforts to prosecute money laundering and terrorism financing cases collaboratively with relevant agencies to deter such offenses.

  5. Coordination: Collaboration between the Law Society of Kenya and the Financial Reporting Centre is crucial to develop regulations and guidelines that raise awareness and understanding of anti-money laundering and terrorism financing among reporting institutions within the legal profession.

Conclusion

Kenya’s grey listing signifies an urgent need for reform to strengthen its anti-money laundering and counter-terrorist financing framework. By collaborating with various stakeholders, building the capacity of the judiciary, and implementing key recommendations, Kenya can restore international confidence and position itself as a stable and trustworthy financial partner once again.

Endnote

This article has been prepared by:

  • Global Financial Integrity (GFI)
  • Transparency International Kenya (TI-Kenya)
  • Civil Forum for Asset Recovery (CiFAR)
  • African Forum and Network on Debt and Development (AFRODAD)
  • Institute of Public Finance
  • Kenya Human Rights Commission (KHRC)

Media contacts:

Contact Gerald Omumbo at +254703247825 or gomumbo@tikenya.org for inquiries from TI-Kenya. Contact Dennis Kabia at +254714317550 or dkabia@gfintegrity.org for inquiries from GFI.