Scandalous Gold Smuggling and Money Laundering: Kenya on the Radar of Financial Crimes

By Jane Muthoni and Tom Waigi – Kenya Correspondents

Kenya’s Involvement in Global Financial Crimes

In a groundbreaking investigative report by Al Jazeera titled “Gold Mafia”, the world was introduced to the rampant issue of gold smuggling and money laundering in Zimbabwe. Local and foreign banks were identified as crucial conduits for these illicit financial flows (IFFs). Politically exposed persons were also found to be abusing their power to further these criminal activities. According to the Economic Development in Africa Report 2020, such financial crimes deprive Africa of an estimated $88.6 billion annually, equivalent to 3.7% of the continent’s gross domestic product. For Kenya, this equates to an average loss of Ksh40 billion each year since 2011.

The Goldenberg Scandal and Kamlesh Pattni

The report’s allegations of Kenyan national Kamlesh Pattni’s involvement in the Goldenberg scandal—a series of events backdated to the 1990s during which gold and diamonds were illicitly exported from Kenya, leading to nearly $1 Billion in losses from subsidies paid to a company linked to Pattni—has put Kenya at risk of entering the Financial Action Task Force (FATF)’s grey list, which monitors and regulates countries with insufficient protections against money laundering and terrorist financing.

Understanding Illicit Financial Flows and Money Laundering

IFFs and money laundering involve:

1. The illegal acquisition, transfer, or use of funds

   • Tax evasion
   • Corruption
   • Trade mispricing
   • Money laundering itself

2. Disguising ill-gotten gains by making them appear legitimate

3. Protecting criminals involved

Consequences of Illicit Financial Flows and Money Laundering in Africa

Africa, rich in natural resources like gold, oil, and gas, can potentially sustain the continent and promote economic and social development if effectively managed. However, IFFs and money laundering can cause significant harm:

• Encouraging corruption
• Weakening rule of law and government institutions
• Eroding tax bases
• Hindering structural transformation, economic growth, and sustainable development

Sectors Driving Illicit Financial Flows and Money Laundering in Kenya

The main sectors fueling IFFs and money laundering in Kenya include:

1. Public procurement
2. Real estate
3. Vehicle importation
4. Manufacturing
5. Banking

Mostly due to:

• Rampant corruption
• Influential individuals and politically exposed persons

Methods include:

• Public-private partnerships
• Nominee relationships
• Front companies
• Direct embezzlement

Combating Illicit Financial Flows and Money Laundering in Kenya

Effective countermeasures include:

1. Enhancing understanding of IFFs and money laundering origins and progression

2. Identifying their impact on resource mobilization

3. Strengthening Kenya’s institutions dedicated to combating IFFs and money laundering, such as:

   • Ethics and Anti-Corruption Commission (EACC)
   • Directorate of Criminal Investigation
   • Kenya Revenue Authority
   • Financial Reporting Centre
   • Asset Recovery Agency

4. Collaborating with non-government actors:

   • Financial institutions
   • Civil society organizations

5. Implementing comprehensive Beneficial Ownership Transparency registers to:

   • Prevent the use of anonymous companies as cover for illicit activities
   • Require all companies, not just those awarded public tenders, to make their Beneficial Ownership information publicly available

Conclusion

Lifting the veil on Kenya’s involvement in illicit financial flows and money laundering puts a spotlight on the need for greater transparency and accountability. By implementing anti-corruption measures and strengthening regulatory bodies, Kenya can take steps toward limiting the opportunities for IFFs and money laundering to thrive and ultimately promote a stronger economy and more responsible governance.