Financial Crime World

Title: Construction Sector Becomes Hotbed for Money Laundering in Kenya: Insights from the Government Report

Introduction

Nairobi, Kenya - The construction sector in Kenya has emerged as a preferred breeding ground for money laundering activities, according to a recent report by the Business Registration Service (BRS) of the Ministry of Industrial and Enterprise Development. In this article, we’ll discuss the key findings of the report and the implications for Kenya’s economy and financial system.

Money Laundering Prevalence in the Construction Industry

The Construction Industry: A Cash-Intensive Sector with Complexity

  • Construction and real estate have appeared as preferred sectors for illicit activities due to their cash-intensive nature and complex transactions, which can be easily manipulated for financial gain.
  • The construction sector contributes 7.1% to Kenya’s GDP, making it an attractive target for those looking to launder money or engage in other criminal activities.

Private Limited Companies and the Abuse of Directors and Employees

  • Private limited companies were the most frequently abused legal structure, accounting for 98.09% of money laundering cases.
  • In 43.51% of the cases involving private limited companies, the abuse was perpetrated by their directors, and employees were also frequently involved.

Kenya’s Grey Listing by FATF and the Implications

  • Kenya’s placement on the grey list by the Financial Action Task Force (FATF) in March 2023 highlights the challenges faced by the country in effectively combating money laundering and terrorism financing.
  • This designation could potentially lead to capital flight as investors, both domestic and international, may withdraw funds due to concerns about the integrity of the financial system.

Recommendations and Way Forward

  • To mitigate the use of trusts and private companies for money laundering and terrorism financing purposes, the report recommends that Kenya review its laws governing the trust regime and implement measures to deter their abuse.
  • As the construction sector continues to grow, it is essential that appropriate measures be put in place to [ensure transparency and compliance](#key- takeaways) with international anti-money laundering and counter-terrorist financing standards.

National Risk Assessment

The Business Registration Service (BRS) of the Ministry of Industrial and Enterprise Development recently published a National Risk Assessment on Money Laundering and Terrorism Financing of Legal Persons and Legal Arrangements. The report reveals the increasing prevalence of money laundering in the rapidly growing construction sector in Kenya.

Private Limited Companies

The report states that out of the 10,733 registered private companies reported for money laundering in 2022, 56.5% were in the construction industry. Private limited companies were the most frequently abused legal structure, accounting for 98.09% of money laundering cases.

Kenya’s Grey Listing by FATF

Kenya’s placement on the grey list by the Financial Action Task Force (FATF) in March 2023 highlights the challenges faced by the country in effectively combating money laundering and terrorism financing. This designation could potentially lead to capital flight as investors, both domestic and international, may withdraw funds due to concerns about the integrity of the financial system.

Report Recommendations

To mitigate the use of trusts and private companies for money laundering and terrorism financing purposes, the report recommends that Kenya review its laws governing the trust regime and implement measures to deter their abuse. The report further suggests the adoption of international best practices and a collaborative multi-agency approach to combat these illicit activities.