Inside the big shift in fight against dirty cash, weak links


Casinos are among the sectors that the government is paying keen attention to in regard to money laundering.

Photo credit: File |

The government has intensified the fight against dirty money as digital transactions offer increased weak links for circulation of such cash in sectors such as banking, money remittance, and real estate.

Kenya is a major regional business and travel hub and a gateway to the neighbouring East African economies, and also boasts of well-developed trade links to the rest of the world.

But while this geo-positioning has facilitated legitimate commerce and enabled the country to grow economically, the nature and volumes of trade as well as its global ties have amplified its exposure to money laundering and terrorism financing risks.

Now the State is increasingly going for different entities including sports betting firms, real estate companies, law firms, banks, and saccos in a bid to lower the chances of abuse of the financial system by local and transnational criminal networks.

This is in line with the 2021 taskforce report on the National Risk Assessment on Money Laundering and Terrorism Financing, which showed Kenya’s geo-positioning, trade inter-connectedness, and high fintech use have increased the country’s vulnerability to money laundering and terrorism financing.

The taskforce assessed that the banking industry carried the highest money laundering vulnerability, followed by real estate, money remittance providers, saccos, legal professionals, and second-hand motor vehicle dealers.

The sweeping changes proposed in the Anti-Money Laundering and Combating of Terrorism Financing Law (Amendment) Bill, 2023, including stiffer penalties for individuals moving large undeclared cash volumes, look set to buttress the piecemeal tightening of checks in these sectors.

Real estate agencies, saccos, casinos, forex bureaus, and life insurance brokers have become the latest targets as the government clamps down on economic crimes such as financial terrorism and racketeering.

Last week Friday was the d-day for these entities to register with the anti-money laundering watchdog, Financial Reporting Centre.

The Central Bank of Kenya (CBK) last week directed all money remittance providers (MRPs) to sell all daily foreign exchange currency above $100,000 (Sh14.7 million) to banks.

“CBK has noted increased participation of MRP’s in the wholesale FX [foreign exchange market] without being required to comply with the various guidelines, standards, and codes of conduct that are in place,” said Mr Gerald Nyaoma, director of bank supervision at CBK.

The regulator did not refer to countering money laundering threat but the move looks set to give it more visibility of large digital transactions that have been happening outside banks. 

Sacco Societies Regulatory Authority (Sasra), which oversees the operations of saccos in the country, has also asked members to tighten their reporting to ensure that they do not become money laundering conduits.

The regulator is concerned that there has been a sharp rise in sacco’s investments in an asset class classified as “other assets” and warns that such a classification can be used as a hiding ground for money laundering and terrorism financing.

Non-withdrawable deposit-taking (NWDT) saccos and deposit-taking (DT) Saccos’ “other assets” investment portfolio rose from Sh5.03 billion in 2021 to Sh10.24 billion last year, alarming the regulator who now wants full disclosure of what these investments really are.

“NWDT Saccos and their DT-Saccos counterparts are thus called upon to take proactive measures aimed at unpacking these huge “other assets” components of the portfolios in order to ward-off risks of fraudulent activities often associated with such “other assets” classifications,” says Sasra.

They now add to other financial sector players such as banks where the State has been tightening checks to ensure they play fairly.

From the fining of several key lenders for handling the National Youth Service looted cash to asking them to ensure cash receipts and withdrawals of $10,000 (Sh1.5 million) and above are properly recorded, the sector is seeing increased scrutiny.

CBK had in a January 2016 circular told banks that large cash transactions were characterised by “informality and anonymity,” making the banking sector vulnerable to money laundering and terrorism financing.

Kenya has taken a cautious stance on digital currencies and recently opened an investigation into operations of Worldcoin—an iris biometric cryptocurrency that was paying Kenyans to capture their eyes’ biometrics.

Interior Cabinet Secretary Kithure Kindiki told Parliament’s ad hoc committee that such cryptocurrencies present a weak link for money laundering.

“Because cryptocurrency is not a legal tender and because it does not fall within the regulatory armpit of the CBK, it is very difficult to oversight that trade,” said Prof Kindiki.

The State already tightened checks on betting firms by first canceling their licenses and asking them to apply afresh under tightened oversight.

The government classified betting as a high-risk area for money laundering, noting that proceeds from sports betting could be co-mingled with funds from predicate crimes and passed out as genuine winnings with a possible collusion on who takes the winnings which are later either reverted into the syndicate or transferred outside the country.

The Kenya Revenue Authority has now integrated its systems with those of betting firms, giving it real-time view of the flow of money for tax purposes.

Now the government is making another attempt to have lawyers start reporting suspicious transactions by their clients to the Financial Reporting Centre (FRC) in what will mark a major boost in the fight against money laundering.

The FRC last month signed consent with the Law Society of Kenya, mandating it to be a self-regulatory organ, allowing lawyers to report on proceeds of crime and anti-money laundering.

Authorities have also made strides in ensuring that companies disclose the identity of secret shareholders including names and residential addresses under the Ownership Information Regulations of 2020.

The Business Registration Service (BRS), the State agency in the Attorney General’s office overseeing the process, is pushing for changes in law to get powers to sanction companies that fail to make such disclosures.

The National Treasury has told the International Monetary Fund (IMF) that BRS has been conducting outreach activities to reiterate the obligations of companies, including submission of beneficial ownership information, and will start deregistering all non-compliant firms.

“Following the outreach activities, BRS will strike off companies from the company register for non-compliance,” says Treasury in documents shared with IMF as part of conditions to tap loans.

Allowing beneficial owners to hide their identity has given room for individuals to acquire massive wealth by laundering the proceeds of crime through proxies who conceal and disguise the source of funds used to procure the assets involved.

Kenya is keen to fully align with the Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog, and the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG)— an associate member of FATF.

Over 200 jurisdictions worldwide are committed to the FATF recommendations, which, among others, require financial institutions to undertake customer due diligence measures on transactions above the designated threshold of $15,000 or €15,000 (Sh2.4 million).