Kenya’s Corruption and Economic Crimes: A Growing Concern

Alarming Rise in Corruption and Economic Crimes

A recent report by the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) has highlighted the alarming rise in corruption and economic crimes in Kenya. The report rates bribery, soliciting and accepting bribes, unexplained wealth, embezzlement of public funds, and money laundering as High risk. Other offenses such as cybercrime, tax-related offenses, and counterfeiting and piracy of products were deemed Medium risk, while human trafficking and smuggling of persons were assessed as Low risk.

Ineffective Criminal Justice System

The report also criticized Kenya’s criminal justice system for being ineffective in dealing with money laundering cases. Despite a high number of allegations reported, investigations and prosecutions have been lacking parallel financial investigations, leading to inadequate identification, tracing, and confiscation of proceeds and instrumentalities of crime.

AML/CFT Mutual Evaluation

Kenya underwent its second round of AML/CFT Mutual Evaluation (a peer review process) by ESAAMLG between September 2021 and September 2022. The assessment revealed several “apparent” strategic gaps in the country’s anti-money laundering and combating financing of terrorism (AML/CFT) framework, including inadequate consideration of terrorist financing risks and limited understanding of money laundering methods.

Action Plan to Address Shortcomings

To address these shortcomings, a high-level Action Plan was developed and implemented, which included updating the National Risk Assessment (NRA) through sectoral risk assessments. The updated NRA identified bribery, soliciting and accepting bribes, unexplained wealth, embezzlement of public funds, and money laundering as High-risk predicate offenses.

Improved Understanding of Terrorist Financing Risks

The assessment also highlighted the need for improved understanding of terrorist financing risks and methods of money laundering, particularly in the banking, securities, insurance, and non-profit sectors. The report emphasized the importance of conducting parallel financial investigations alongside predicate offenses to effectively combat money laundering and terrorism financing.

Tax Crimes a Growing Concern

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High-Risk Predicate Offenses

The report also highlighted the growing concern of tax crimes in Kenya, with the assessment rating tax crime risks as Medium High. VAT carrousel fraud/missing trader schemes were identified as the highest threat to the tax system, contributing to about 70% of tax crime schemes. The use of power of attorney/nominees/directorships to hide the ultimate beneficial owner (UBO) of a legal structure was also identified as a major threat, contributing to 20% of tax crimes.

Urgent Action Required

The report’s findings have sparked concerns among anti-corruption and financial watchdogs, who are urging the government to take immediate action to address these growing threats.