TRANSPARENCY

Opaque laws fuelling Kenya's illicit financial flows - tax lobby

In Summary
  • The country's contribution to global financial secrecy worsened this year to position 24 globally from position 27 in 2018.
  • In Kenya, a beneficial owner is an individual who either directly or indirectly holds at least 10per cent of the issued shares of the company.
A company list showing the Mossack Fonseca law firm is pictured on a sign at the Arango Orillac Building in Panama City April 3, 2016. REUTERS/Carlos Jasso
A company list showing the Mossack Fonseca law firm is pictured on a sign at the Arango Orillac Building in Panama City April 3, 2016. REUTERS/Carlos Jasso

Kenya’s beneficial ownership law effective March 1, is opaque giving room for hiding of identities for resource plunder and tax avoidance, according to Tax Justice Network Africa.

This, the lobby group has seen Kenya ranked second in Africa in the latest Secrecy index.

Kenya’s contribution to global financial secrecy worsened this year to position 24 globally from position 27 in 2018.

 
 
 
 

Although Kenya is among 17 countries in Africa with beneficial ownership law, TJNA says the country must fix loopholes to improve its financial secrecy rankings.

In a webinar dubbed ‘ Beneficial Ownership Transparency: The state of play in 2020’, tax justice experts said that the recently enacted Data Protection Act, 2019 which limits the company’s disclosure of its owners, tints transparency on companies ownership.

The data law for instance provides that a company should not use or disclose any information about its beneficial owners except for purposes of communicating with the concerned beneficial owner, in compliance with the regulations or court order.

The Companies (Beneficial Ownership Information) Regulations, 2020 that took effect from February 28, 2020, compels companies to keep records of all their beneficial owners through the chain of ownership or control in order to identify the natural person(s) who have the ultimate beneficial ownership or control.

A company is required to take reasonable steps to identify its beneficial owners and to enter the required particulars, which include personal information, in the register.

A beneficial owner is an individual who either directly or indirectly holds at least 10per cent of the issued shares of the company.

Changes in beneficial ownership information should be notified to the Registrar within 14 days. 

 
 
 
 

Failure to comply with these requirements is deemed an offense and the company and every officer who is in default will each be liable on conviction to fines of up to Sh500 000 for a first offense and an additional fine of Sh50 000 per day for continuing non-compliance.

Even so, Kenya’s beneficial ownership information is not shareable with other countries, making it difficult to pin down perpetrators of illicit financial flows.  

Only Botswana, Ghana and Seychelles have effective beneficial ownership registration: bearer shares pose no risks and all types of companies have to register and update their beneficial ownership information.

According to tax experts, the high financial secrecy in Africa undermines the continent’s development agenda, losing close to $1.4 trillion (Sh1148 trillion) to illicit financial flows between 1970 and 2015.

''This is made possible by the masterly exploitation of a system of interactions between multiple jurisdictions with varying degrees of financial secrecy, ‘ Markus Meinzer, director financial secrecy at Tax Justice Network said.

He added that Illicit financial flows from the continent dwarf overseas development assistance and erode the sovereignty of nations in raising revenues domestically for public expenditure and investment.

Riva Jalapa, the policy lead, fair and equitable taxation at TJNA said, to effectively capture and unveil deceitful activities, governments should enact legislation introducing the mandatory disclosure of beneficial ownership information.

''IFFs thrive through corporate and financial secrecy and revealing the real owners behind companies is one way to address this’’, Jalipa said.