Financial Crime World

KENYA TIGHTENS MONEY LAUNDERING AND TERRORISM FINANCING RULES

The recent grey listing by the Financial Action Task Force (FATF) has prompted businesses in Kenya to strengthen their verification processes to counter the flow of dirty cash through their systems.

Why Was Kenya Grey-Listed?

Kenya was grey-listed due to its lack of a clear strategy on the prosecution of money laundering offences, no adequate investigations or prosecutions of persons for terrorist financing, and an unregulated and unsupervised Non-Profit Organisations sector that is at risk of terrorism financing abuse.

Impact of Grey Listing

The grey listing has had a negative impact on Kenyan businesses, with some effects likely to last even after the country is delisted. The main impacts are:

  • A decline in investments and foreign aid, as Kenya’s reputation as a stable and transparent financial environment is compromised
  • An increase in transaction costs due to stricter adherence to anti-money laundering (AML) and countering terrorist financing (CFT) regulations
  • Delays in international transactions and potential reputational damage

Compliance Requirements

To comply with these regulations, businesses must implement robust AML/CFT measures. This includes:

  • Conducting customer due diligence (CDD)
  • Enhanced due diligence for high-risk customers
  • Internal monitoring of customer transactions
  • Risk-based approaches to identify suspicious activities

Examples of Compliant Businesses

Several Kenyan businesses have implemented internal frameworks to ensure compliance with AML regulations, including:

  • 4G Capital: Implemented Know Your Customer (KYC) process, CDD, EDD, internal monitoring of customer transactions, and appointment of a Money Laundering Reporting Officer who monitors the AML program.
  • Smile ID: Developed innovative products that use artificial intelligence (AI) and machine learning to detect and mitigate fraudulent activities, including deep fakes and manipulation of images.

Regulatory Requirements

The Financial Reporting Centre (FRC), established in 2012, requires entities to submit an annual compliance report covering aspects such as:

  • Customer Due Diligence (CDD)
  • Enhanced Due Diligence (EDD)
  • Training
  • Record-keeping
  • Screening
  • Mandatory reporting of suspicious transactions

Conclusion

The grey listing by the FATF has forced Kenyan businesses to take AML regulations seriously. Implementing robust measures to detect and prevent money laundering and terrorism financing will help Kenya regain its status as a stable and transparent financial environment.