Financial Crime World

Headline: Kenya’s Grey Listing by FATF: A Setback for Economic Progress and Reputation

Subhead: Kenya’s recent inclusion in the Financial Action Task Force (FATF) grey list poses significant challenges to its economic and social progress, and reputation as a reliable regional and global partner.

Reasons for Kenya’s FATF Grey Listing

The Financial Action Task Force (FATF) grey list, to which Kenya was recently added on 23rd February 2024, casts a shadow over the country’s economic development. Kenya’s financial system fell short of FATF’s expectations for the following reasons:

  1. Lack of Strategy Against Money Laundering and Terrorist Financing Kenya failed to provide examples of successful investigations, prosecutions, or convictions related to money laundering offenses or the financing of terrorism.

  2. Insufficient Oversight of Non-Profit Organizations With a burgeoning but largely unregulated non-profit sector, there is a heightened risk for terrorist financing abuse that remains unaddressed.

  3. Subpar Anti-Corruption Efforts The National Risk Assessment conducted by Kenya identified fraud, forgery, and drug-related offenses as the country’s most significant risks. However, recovery rates remained low compared to misuse of resources and corruption.

  4. Unfinished Business on Beneficial Ownership and Politically Exposed Persons While some progress has been made on beneficial ownership disclosures, the identification and monitoring of transactions involving Politically Exposed Persons (PEPs) and their associated risk remain inadequate.

  5. Limited Regulation of Virtual Assets Despite Kenya ranking among countries with the highest use of virtual assets, regulatory frameworks to monitor and prevent their misuse for money laundering and terrorist financing are yet to be put in place.

  6. Inadequate Supervision Risk-based supervision towards AML/CFT remains relatively underdeveloped beyond banks and microfinance institutions. Inspections and scrutiny of other financial institutions and designated non-financial businesses and professions are not carried out on a risk-sensitive basis.

Implications of Greylisting for Kenya

Kenya’s addition to the FATF grey list has serious ramifications:

  1. Loss of Foreign Aid and Investments Being grey listed can deter foreign investors and discourage foreign aid, impacting the country’s ability to balance its trade deficit and reduce its debt burden.

  2. Increased Compliance Costs Stricter adherence to AML/CFT regulations leads to higher compliance costs for financial institutions, businesses, and individuals.

  3. Obstacles in International Trade and Payments Increased scrutiny and due diligence from foreign banks may lead to delays and higher transaction costs for cross-border trade and payments.

Combating Financial Crime in Kenya

In light of Kenya’s greylisting, various stakeholders, including Civic Society Organizations (CSOs), have emphasized the need for quick action on the following fronts:

  1. Involvement of Stakeholders Encouraging public participation and adopting whistleblower protection laws in the fight against financial crimes.

  2. Stronger Judiciary Ensuring judicial independence and raising the capacity of judicial officers.

  3. Operationalizing the PBO Act Properly implementing the Public Benefit Organizations Act (PBO Act) to better regulate the non-profit sector.

  4. Enhanced Prosecution Strengthening the Office of the Director of Public Prosecution’s (ODPP) efforts to prosecute financial crimes.

  5. Collaborative Efforts Building collaborations between the Law Society of Kenya and financial reporting agencies to develop reporting guidelines and regulations.

Conclusion

Kenya’s inclusion in the FATF grey list necessitates immediate and comprehensive reforms to strengthen its AML/CFT/CPF framework. By working together, government agencies, civil society, and international partners can enhance compliance with global standards, restore confidence in financial institutions, and safeguard Kenya’s economic future.

Signed 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)