- Kenya's level of financial secrecy dropped to 67 per cent from 76 per cent in 2020
- The country's hesitation in passing beneficial ownership laws also stands in the way of financial openness.
Image: COURTESY
Kenya's financial sector is the among most secretive globally, according to a new report by Tax Justice Network.
The Financial Secrecy Index is a ranking of jurisdictions most complicit in helping individuals to hide their finances from the rule of law.
Financial secrecy facilitates tax abuse, enables money laundering and undermines the human rights of all.
The index identifies the world’s biggest suppliers of financial secrecy and spotlights the laws that governments can change to reduce their contribution to financial secrecy.
The 2022 index shows that although Kenya's level of financial secrecy dropped to 67 per cent from 76 per cent in 2020, its supply to the global potion rose to 0.83 per cent compared to 0.80 per cent three years ago.
Kenya is ranked third in Africa after Angola which has since outpaced Algeria which ranked second.
The sector has been ranked the second most rigid in Africa after Algeria and among the top 30 in the world in the latest Financial Secrecy Index of 2020.
The score means that the country is a fertile market to stash ill-gotten private financial wealth and other illicit financial flows (IFFs).
The country's rate is, however, below 75 per cent, meaning it is highly secretive from exponentially secretive in 2020.
''Even though the country’s share of the offshore world has increased post-Covid, its overall secrecy has dropped but is likely to increase further as the government positions Nairobi as the latest African International Financial Centre,'' the report reads.
Kenya's Financial Secrecy Index (FSI) just like the global one has dropped tremendously to 67 per cent from 76 per cent in 2020, and so is its ranking globally, which has improved to position 41 from 30.
The tax transparency lobby group is worried that the new government is already softening seals in the financial sector meant to curb illicit financial flows.
In 2016, the Central Bank of Kenya affirmed that the banking sector was vulnerable to suspicious activities such as money laundering. This saw it introduce tough measures including limiting daily transactions to Sh1 million.
The regulator ensured that anyone transacting above Sh1 million stated the source and use of the funds.
But in September 2022, President Ruto said that the government was working with the CBK to review the capping of money so that Kenyans can transact from Sh1 million, without notifying the regulator.
The report also sees the now-operational Nairobi International Financial Centre (NIFC) as another avenue likely to deepen the country's secrecy status.
The country's hesitation in passing beneficial ownership laws also stands in the way of financial openness.
In February, the European Union warned that Kenya risks being blacklisted over corruption and money laundering, revisiting an old problem Nairobi has struggled to contain.
The EU Ambassador to Kenya Henriette Geiger said Kenya’s reluctance to curb corruption and money laundering could scare away investors.
“For us, we think that fighting corruption is in the best interest of Kenya because maybe this is the single most determinant of investment. And also, Kenya is on the watchlist for money laundering,” Geiger said.
Angola is leading the continent in financial secrecy with a score of 79 per cent, accounting for almost one per centage point of the global supply.
Other countries mentioned in the lobby's report include Algeria, Liberia Nigeria, Egypt and Mauritius.
Globally, the United States of America (USA) leads the pack with a financial secrecy value of 1,951. Although its overall score is the same as that of Kenya, 5.74 per cent of IFFs are hidden there.
The report shows that $144.3 of the global IFFs find their way into the US during the reviewed period.
It is followed by Switzerland, Singapore, Hong Kong and Luxemburg in that order.
The report said the world’s most important providers of financial secrecy harbouring looted assets are mostly not small, palm-fringed islands as many suppose, but some of the world’s biggest and wealthiest countries.
According to the report, $21 to $32 trillion of private financial wealth is located, untaxed or lightly taxed, in secrecy jurisdictions around the world.
Illicit cross-border financial flows have been estimated at $1 to $1.6 trillion per year, dwarfing the $135 billion per year or so in global foreign aid.
According to the report, African countries alone have lost over $1 trillion (Sh100 trillion) in capital flight, while combined external debts are less than $200 billion.
''Africa is a major net creditor to the world – but its assets are in the hands of a wealthy elite, protected by offshore secrecy; while its debts are shouldered by broad African populations,'' the report said.