Fraud and forgery are main threats in Kenya, new report shows

Investigations into money laundering activities inadequate

In Summary
  • Motor vehicle dealers, the legal sector,  casinos and the gaming industry have made Kenya highly vulnerable to money laundering.
  • Car dealers have emerged to be the leading laundering agents.
Interior CS Fred Matiangi with Financial Reporting Centre boss Saitoti Maika during the launch of the Money Laundering and Terrorism Financing National Risk Assessment 2021 (NRA) Report
Interior CS Fred Matiangi with Financial Reporting Centre boss Saitoti Maika during the launch of the Money Laundering and Terrorism Financing National Risk Assessment 2021 (NRA) Report
Image: Handout

Contrary to public perception of corruption, a new report has revealed that the main proceeds generating crime in Kenya relate to fraud and forgery.

Further, terrorism is not a major proceed generating crime in Kenya and is rated low risk in terms of the level of threat to money laundering.

According to the Money Laundering and Terrorism Financing National Risk Assessment 2021 (NRA) Report, even though terrorism is a serious predicate offence in Kenya, the ultimate motive of perpetrators of terrorism is to kill, maim and avenge Kenyan targets mainly for ideological mileage

There are insignificant proceeds or financial rewards that accrue as a benefit of the attacks.

“Overall Terrorism Financing threat in Kenya was assessed as medium and the overall vulnerability for terrorism financing was assessed as medium-low,” the report says.

Motor vehicle dealers, the legal sector,  casinos and the gaming industry have made Kenya highly vulnerable to money laundering.

According to reports, Kenya acts as a strategic gateway between East and Central Africa and Europe, the Middle East, and Asia and this makes it highly susceptible to acting as a transhipment point for illicit trade and finance.

As a result, the country needs to have an effective and adequate anti-money laundering and countering the financing of terrorism (AML/CFT) measures in place.

The US government recently listed Kenya as a “major money laundering jurisdiction,” citing numerous domestic and foreign criminal activities and highlighting that money laundering takes place in both the formal and informal sectors.

After updating its AML/ CFT framework, Kenya was removed from the Financial Action Task Force’s (FATF) list of non-cooperative countries and territories.

It said the Designated Non-Financial Business and Professions' (DNFBP) sector was assessed as vulnerable in relation to trade-based money launderings like services provided by accountants and lawyers can be used in tax evasion as a result of abusive transfer pricing, trade mispricing, mis-invoicing of services and intangibles and shifting of profits.

The assessment showed a high money laundering vulnerability for the DNFBPs sector mainly due to the fact that the players are involved in clients' transactions.

Motor vehicle dealers, especially secondhand dealers were assessed as highly vulnerable to money laundering abuse in Kenya.

The report found the level of risks in the non-profit organizations (NPOs) sector in Kenya was assessed as low.

The assessment determined that the NGO's Coordination Board does not conduct effective monitoring, supervision and other regulatory obligations with reporting requirements under POCAMLA

“NPOs in Kenya are registered under different laws hence the inability of NGO's Coordination Board to effectively register and supervise NPOs,” says the report.

The NRA which was launched Wednesday, July 27, amongst others, identified the terrorism financing activities which pose a threat to our people.

It established money laundering investigations in the country are low.

“Investigations and prosecutions to consider parallel financial investigations alongside the predicate offences.”

Interior Cabinet Secretary Fred Matiangi said Kenya continues to face security threats from terror attacks, which when they happen, lead to the loss of lives and disruption of our economic activities.

He said car dealers have emerged to be one the leading laundering agents in the country and hence the need to tame their activities.

“The NRA Report will facilitate the development of a national framework for implementing countermeasures against the financing of these deadly disruptions to Kenyan lives and livelihoods. As a result, we envisage early detection of terrorist financing activities, leading to the disruption of funding to terrorist organizations and the subsequent prosecution of offenders perpetrating terrorism financing.”

He said terrorism financing is a dynamic phenomenon.

“Those involved continuously seek to devise new ways sourcing and utilizing funds to carry out terrorist attacks while at the same time trying to avoid detection,” he said.

The ability to source, move, store and use funds often entails the use of financial channels and instruments In order to support terrorist activities and operations such as facilitating procurement of weapons or facilitating movement, he said.

The NRA Report, he added is therefore very important because it has assessed and ranked the vulnerabilities of various sectors of the economy.

“This will enable us to devise commensurate measures to protect our financial system from being abused for such terrorist activities.”

The CS revealed that during the transition from the old currency to the new one, the officials witnessed a phenomenon where car dealers were suddenly exchanging the old notes for the new notes.

“Car dealers changed billions of shillings. How many cars do you need to sell to be able to have billions and all these dealers are friends of senior politicians? They are now the ones financing all these Sh200 and Sh500 notes in the villages and so on,” he said.

He argued this year’s election will be critical in the decisions to be taken to address the challenge of terror financing and money laundering in the country.

“Either we elect a government that will not fight money laundering because that is its way of life and we will not achieve anything or elect a government that is against money laundering, with integrity and will join all of us in fighting these challenges,” he said.

In the realization that terrorism is a global phenomenon that extends beyond the boundaries of nations and even regions he said, Kenya continues to play its role as a responsible member of the international community through the implementation of the relevant international frameworks, particularly the International Convention for Suppression of the Financing of terrorism and United Nations Security Council Resolutions 1267 and 131 which requires member countries to criminalise the financing of terrorism and impose disruptive measures such as asset freezes, travel bans and arms embargo on entities considered a threat to global peace and security.

He said there is a need to up the multiagency collaboration to continue dealing with the threat and to tie up various regulations guiding the sector.

“We have many scattered pieces of legislation that need to be tied up to help us in the future. We need to have a facilitative and not inhibiting law.”

He faulted agencies working to frustrate efforts to tame crime.

The Counter Financing of Terrorism Inter-Ministerial Committee is responsible for implementing the UN Security Council Resolutions relating to the suppression of terror financing and the prevention, and suppression of dealings of weapons of mass destruction.

He said the report will be useful in guidance to all stakeholders involved in the fight against terrorism financing, in drawing policy directions and implementing appropriate measures to curb the activities.

Based on the foregoing, the money laundering predicate offences were categorized as either posing High risk, Medium risk or Low risk to the country.

The financial reporting centre director general Saitoti Ole Maika said the study was conducted between 2020-2021.

Director of Public Prosecutions Noordin Haji said they have come up with various policies to guide the management of the sector.

He asked that the judiciary be involved in the process of coming up with policies to address the menace for better management in the future.

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