Financial Crime World

Kenya’s Grey Listing by FATF: Combating Financial Crimes and Restoring Economic Reputation

Date: March 7, 2024

Kenya’s Grey Listing: Challenges and Reasons

On February 23, 2024, Kenya was included on the Financial Action Task Force’s (FATF) grey list. This designation tarnishes the country’s reputation and undermines its credibility as a reliable partner in the fight against financial crimes. Kenya was grey-listed due to the following reasons:

Reasons for Kenya’s Grey Listing

  1. Lack of clear strategy on money laundering prosecutions

    • Kenya could not demonstrate any successful investigation or prosecution of money laundering offenses.

  2. Inadequate investigations and prosecutions for terrorist financing

    • Several terrorism-related investigations did not result in successful prosecutions of terrorist financing offenses.

  3. Unregulated non-profit sector

    • The large sector of non-profit organizations in Kenya remains largely unregulated, increasing the risk of terrorism financing abuse.

  4. Poor recovery from fraud, forgery, and drug-related offenses

    • According to the National Risk Assessment conducted by Kenya, fraud, forgery, and drug-related offenses pose the greatest risk to the country, but recovery from these crimes is quite low.

  5. Limited beneficial ownership disclosures

    • While progress has been made in disclosing the real owners of companies and entities, Kenya still needs to require Enhanced Due Diligence procedures for Politically Exposed Persons (PEPs) and their transactions.

  6. Underdeveloped risk-based approach to supervision

    • Kenya’s risk-based approach towards Anti-Money Laundering/Counter-terrorist financing supervision is relatively underdeveloped, resulting in infrequent inspections and focus on basic controls.

Implications of Grey Listing

Being on the FATF grey list has several implications for Kenya:

  1. Reduction in foreign aid and investments

    • The country’s reputation as a stable and transparent financial environment may be compromised, potentially discouraging foreign investment and deterring businesses from operating in Kenya.

  2. Increased compliance costs

    • Grey listing requires stricter adherence to anti-money laundering and countering terrorist financing regulations, leading to higher compliance costs for financial institutions, businesses, and individuals.

  3. Obstacles in international trade and payments

    • The need for increased scrutiny and enhanced due diligence from foreign banks and financial institutions may result in delays, higher transaction costs, and possible restrictions on cross-border trade and payments.

Addressing the Challenge

To combat financial crimes and restore economic reputation, several actions must be taken in Kenya:

  1. Stakeholder involvement

    • The Financial Reporting Centre (FRC), Treasury, and other relevant government agencies need to engage all stakeholders, including the public, by enacting and adopting whistle-blower protection laws.

  2. Independent and effective judiciary

    • The independence and efficacy of the judiciary must be upheld to combat corruption effectively while continuously building the capacity of judicial officers to understand the complex nature of anti-money laundering and terrorism financing.

  3. Operationalising the PBO Act

    • The government should immediately operationalise the Public Benefit Organisations Act to facilitate better regulation of the non-profit sector.

  4. Enhanced prosecutions of high-profile cases

    • The Office of the Director of Public Prosecution (ODPP) needs to strengthen efforts to prosecute money laundering and terrorist financing cases while collaborating with relevant agencies to investigate such crimes and deter them effectively.

  5. Collaboration between the Law Society of Kenya and Financial Reporting Centre

    • A collaboration between the Law Society of Kenya and the Financial Reporting Centre is necessary to develop regulations and guidelines for reporting institutions and raise awareness within the legal profession on anti-money laundering and terrorism financing.

  6. Comprehensive reforms

    • Through collaborative efforts among government agencies, civil society, and international partners, Kenya can enhance its compliance with global standards and restore confidence in its financial institutions.

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