Kenya risks being grey-listed for weak money laundering controls

The Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog, will this week give its verdict on whether Kenya should be flagged for weak systems and strategic gaps.

The impact of grey listing will be painful for the country that is already struggling with a huge debt and steep repayment schedule.

FATF was formed in 1989 by the G7 group and endorsed by the UN Security Council in 2012. 

It sets international standards to prevent these illegal activities and the harm they cause to society.

Central Bank of Kenya governor Kamau Thugge had said last year that grey listing would “result in a negative impact on international trade, negative impact on international transactions and termination of banking relationships with international banks due to high compliance costs in dealing with anti-money laundering, countering terror financing and counter proliferation financing.”

Other impacts of grey listing include difficulty in security funding at the international market, effects on the country's international trade and reputational damage. 

It could also cause higher borrowing costs, reduced foreign direct investment and possible down grades on sovereign credit and business ratings. 

Kenya acceded to the oversight of the body through its membership in Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG).

The country’s anti-money laundering framework, including the legal and regulatory measures had been assessed in 2022 but found wanting, in an exercise known as monitoring and evaluation reporting. The assessment was done by ESAAMLG.

It was given a year to resolve the challenges and submit a report in October 2023.

If the measures are found not satisfactory, the country could be flagged and grey listed, meaning that it will be put under close watch due to the vulnerability of its systems.

Financial Reporting Centre, the country’s watchdog on matters relating to money laundering and terror financing, confirmed the process.

Director general Saitoti ole Maika said it took rigorous work to ensure the country complied with the October deadline in delivering the post observation progress report.

“…let me confirm that some of the serious issues raised against the country in the 2022 Mutual Evaluation Report were premised on reports from the media, which are mostly open-source,” Maika told reporters recently.

“The decision regarding whether the POPR (the post-observation progress report) for Kenya depicts significant positive progress in addressing the MER gaps will be made in the next FATF meeting in Paris [this] week.”

 “If the FATF meeting is convinced that there are remaining strategic gaps in Kenya’s AML/CFT/CPF regime that still need to be addressed urgently, the country may be placed under increased monitoring. The FATF increased monitoring of a country is commonly referred to as the FATF grey listing.”

It is worth noting that since the establishment of FATF in 1989, more than 80 countries have gone through the FATF grey list due to the identified respective strategic deficiencies, he said.

There are 23 countries on the grey list. They include Türkiye, UAE, South Africa, Nigeria, Tanzania and Uganda.

Part of the FATF demands, known as recommendation 40, is that the country needs to align its security and regulatory framework with its high standards. 

Other demands include enhancing transparency in dealing with matters related to money laundering and terror financing and preventive measures by listing up reporting entities.

Agreeing on the reforms involved steeped negotiations and compromise that saw lawyers be required to snitch on their financial details of their clients.