Gold Mafia Expose: Kenya under the Radar for Illicit Financial Flows and Money Laundering, Losing Billions Annually

By Jane M. Waithera and Moses K. Mwangi, Contributing Reporters

Overview

Two weeks ago, Al Jazeera’s investigative report named “Gold Mafia” shed light on the involvement of local and foreign banks in gold smuggling and money laundering in Zimbabwe. Politically exposed individuals have been accused of exploiting their power to facilitate these financial crimes, resulting in estimated annual losses of US$88.6 billion for Africa - roughly 3.7% of the continent’s Gross Domestic Product. Kenya, which is estimated to lose approximately Ksh40 billion every year since 2011, cannot afford to overlook its connection to these financial crimes.

The Impact on Kenya

The gold trading scandal, as outlined in the “Gold Mafia” report, is not a new phenomenon to Kenya. One of the key figures, Kamlesh Pattni, was involved in the Goldenberg scandal that saw Kenya lose nearly $1 billion from 1993 to 2003 due to payment of subsidies to the company linked to Mr. Pattni. Kenya’s link to these financial crimes puts the country at risk of being classified as high-risk by the Financial Action Task Force (FATF).

Understanding Illicit Financial Flows and Money Laundering

IFFs encompass money earned, transferred, or used illegally to avoid taxes or regulations. Crimes such as tax evasion, corruption, and money laundering form part of IFFs. Money laundering is the process of hiding “dirty” money to appear legitimate, shielding criminals from investigation. IFFs and money laundering not only deprive African countries of needed resources for development but also fuel corruption, weaken economies, and discourage investment.

Natural Resources and Corruption

Natural resources, including gold, oil, and gas, held by African nations can contribute significantly to economic growth if managed responsibly. However, the consequences of IFFs and money laundering if left unchecked are drastic. They undermine the rule of law, erode tax bases, and contribute to social and economic instability.

Sources of Illicit Financial Flows in Kenya

In Kenya, IFFs and money laundering primarily stem from public procurement, real estate, vehicle importation, manufacturing, and banking sectors. Mostly driven by corruption, these activities involve the use of front companies, tax evasion, and nominee relationships.

Collaborative Efforts

The Kenya Anti-Corruption Commission, the Directorate of Criminal Investigations, the Kenya Revenue Authority, the Asset Recovery Agency, and the Office of the Director of Public Prosecutions need to collaborate with financial institutions, non-government actors, and civil society organizations to counteract these illicit activities.

Beneficial Ownership Transparency

Effective implementation of beneficial ownership transparency registers requires expanding the requirement for companies, not just those engaged in public tenders, to disclose their beneficial ownership data publicly. This can prevent anonymous companies from being used to hide illicit financial activities.

Conclusion

By raising awareness of the risks of IFFs and money laundering to the public and international community, we can combat the damages inflicted on Kenya and advance towards a more prosperous, corruption-free society.