Financial Crime World

Kenya’s Anti-Money Laundering Framework Under Scrutiny

A recent report by the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) has highlighted several areas of concern in Kenya’s anti-money laundering (AML) framework, citing high risks of various economic crimes.

Areas of Concern

  • High-risk predicates: bribery, soliciting and accepting bribes, unexplained wealth, embezzlement of public funds
  • Medium-risk areas:
    • Cybercrime
    • Tax-related offenses
    • Money laundering
    • Counterfeiting and piracy of products

Human Trafficking and Smuggling

According to the report, human trafficking and smuggling of persons are assessed as low-risk predicates in Kenya.

Effectiveness of Criminal Justice System

The assessment highlighted concerns about the effectiveness of the criminal justice system, noting that most investigations and prosecutions were being conducted without considering parallel financial investigations alongside predicate offenses.

AML/CFT Mutual Evaluation

The report came on the heels of Kenya’s second round of AML/CFT Mutual Evaluation, which aimed to determine the country’s level of preparedness in combating money laundering and terrorist financing. The assessment identified several strategic gaps, including:

  • Need for more comprehensive risk assessments
  • Improved coordination between law enforcement agencies

High-Level Action Plan

In response to the findings, a high-level action plan was developed and implemented, which included:

  • Updating the National Risk Assessment (NRA) through sectoral risk assessments
  • Improving the national money laundering threat assessment from High to Medium-High
  • Enhancing vulnerability assessment from 0.64 in 2021 to 0.53

Sector-Specific Risks

The report highlighted concerns about the:

  • Banking sector: rated Medium-High for ML vulnerability
  • Securities sector: found to be at a higher risk of money laundering, with non-dealing online foreign exchange brokers and investment banks identified as high-risk areas
  • Non-profit organizations (NPOs) sector: vulnerable to tax crimes
  • VAT carrousel fraud/missing trader schemes: a major threat to the Kenyan tax system

Conclusion

The findings of the assessment are a wake-up call for Kenya’s authorities, who must now take concrete steps to address these concerns and strengthen their AML/CFT framework. Failure to do so could have serious consequences, including increased risks of financial instability, corruption, and terrorist financing.