Financial Crime World

Gold Mafia Expose: Kenya’s Nearly Ksh40 Billion Annual Losses from IFFs and Money Laundering

By Alice Mwangi and David Mwangi - Kenya Correspondents

Introduction

Two weeks ago, Al Jazeera released an investigative report titled ‘Gold Mafia,’ exposing the intricacies of gold smuggling in Zimbabwe and the unwitting role played by local and foreign banks in money laundering. This scandal highlighted the alarming involvement of politically exposed persons and estimated US$88.6 billion annual losses for Africa due to Illicit Financial Flows (IFFs) and money laundering - approximately 3.7% of the continent’s Gross Domestic Product (GDP).

Kenya’s Role in the Scam

  • Estimated annual losses: Ksh40 billion
  • Representing nearly half of Kenya’s domestic revenue
  • Linked to the infamous Goldenberg scandal
  • Kamlesh Pattni, a Kenyan involved in the scam, is also a Goldenberg scandal suspect
  • Kenya occupies a precarious position in the FATF greylist due to Kenyan involvement

Understanding IFFs and Money Laundering

  • Transfer of funds gained through illicit activities, primarily for tax evasion and regulatory evasion
  • Process involves placing “dirty” money into the legal financial system, layering, and integrating the “clean” money back into the economy

Consequences for Kenya

  • Weakens economies, promoting corruption, eroding the tax base, discouraging investment, and impeding development
  • Prevalent in public procurement, real estate, vehicle importation business, manufacturing, and banking sectors
  • Origins and impacts on resource mobilization need improvement

Destinations of IFFs and Money Laundering Proceeds

  • Typically include tax havens like Mauritius, Nigeria, and the UAE
  • Used as transit points before moving internationally

Combating IFFs and Money Laundering

  • Key institutions include EACC, DCI, KRA, FRC, and the Asset Recovery Agency
  • Collaboration with financial institutions and civil society organizations needed
  • Implementation challenges surrounding Beneficial Ownership Transparency registers

The Way Forward

  • Making all companies publicly disclose their beneficial ownership data to create a significant deterrent for illicit financial activities.