•NTA is currently working with county governments in Kenya to help them with budgeting and sealing corruption loopholes.
•“Corruption is a source of IFFs and an enabler of money laundering, and money laundering allows for the proceeds of corruption to be hidden away and used,” said Irene Boke, IFFs advisor for GIZ Kenya.
Kenya has been asked to up its game in the fight against money laundering and illicit financial flows.
Speaking in Nairobi, tax experts said Kenya is losing billions of shillings through these illicit money transfers.
IFF refers to undeclared funds that are illegally acquired, transferred, or used as the product of illegal activities and tax evasion. They are financial gains acquired and transferred by taking advantage of the loopholes in the law or using technology aimed at circumventing the spirit of the law.
Speakers at a webinar hosted by tax and policy thinktank National Taxpayers Association noted most of the monies Kenya loses through illicit financial flow are proceeds of corruption.
NTA is currently working with county governments in Kenya to help them with budgeting and sealing corruption loopholes.
“Corruption is a source of IFFs and an enabler of money laundering, and money laundering allows for the proceeds of corruption to be hidden away and used,” said Irene Boke, IFFs advisor for GIZ Kenya.
Boke noted that countries with prevalent corruption also tends to loss more on IFFs because these financial flows serve as a conduit for distancing the proceeds of those financial gains from its criminal source.
She noted this also discourages investors who shy from investing in countries where corruption is prevalent or with weak financial systems which could lead to financial sanctions or international consequences such as grey listing.
Boke noted also noted when a lot of resources leave the country or continent as a result of corruption and IFFs, this leads to overreliance on overseas development agencies and borrowing.
She advised measures to address IFFs and corruption should focus on strengthening anti-money laudering regime.
Such measures include reducing secrecy – enhancing transparency in the ownership of legal entities – often used in disguise of proceeds of crime, open contracting and addressing conflict of interest,” Boke said.
She also called for assets recovery. “We should ensure crime does not pay, strengthening asset recovery and management framework becomes critical. This ensures that proceeds of crimes are recovered and effectively managed to avoid subsequent corruption,” she said.
Investigating IFFs, a report by John-Allam Namu, co-founder of African Uncensored, reveals that Kenya is believed to have lost as much as $1.51 billion between 2002 and 2011 to trade misinvoicing.
In his case study 'captured', which was based on leaked data from Kenya's public financial management portal (IFMIS) to establish how the system allowed theft to grow and flourish, it revealed there was systematic undermining of public procurement processes, misuse of public funds, and conflict of interest in the awarding of tenders.
A study authored by Tiberius Barasa titled Illicit Financial Flows in Kenya estimated that Kenya has been losing an average of Sh40 billion every year through IFFs since 2011 as the government, local firms, and multinationals engage in fraudulent schemes to avoid tax payments.
While Kenya acts as a strategic gateway between East and Central Africa and Europe, the Middle East, and Asia due to its rich natural resources and strong manufacturing and service sectors, it also makes it an easy route for criminal activities.
In a report by Denisse Rudich, Kenya Illicit Finance Risks and Assessment, she points out that this gateway positions Kenya as highly susceptible to acting as a transshipment point for illicit trade and finance.
“It is essential for Kenya to have effective and adequate anti-money laundering and countering the financing of terrorism (AML/CFT) measures in place,” says the report.
Lack of trade integrity in international transactions also contributes to governments losing revenue.
Further, the study by the Danish government shows that Kenya's tax loss from trade misinvoicing by multinational corporations and other parties could be as high as 8.3 percent of the government's revenue, which hampers economic growth.
Transparency International Kenya (TIK) cites public procurement, real estate, vehicle importation business, manufacturing, and banking sectors as the major economic activities perceived to be contributing to IFFs and money laundering.
This is however contributed by corruption, mainly originating from public procurement and businesses that are influenced by well-placed individuals and politically exposed persons.
IFFs and money laundering are difficult to track. TIK proposes a need for Kenya and the agencies responsible for the fight to better understand IFFs and money laundering origins all through to the destinations and avenues where these vices pass, the types, volume, and, more importantly, the impact.
Rudich said that any action taken against IFF is a direct way that the Kenyan government and supervisors can demonstrate sound practices to the international community.
Lastly, her report recommends Kenya shouldn't allow itself to become an offshore jurisdiction, and it must continue to address not only domestic corruption but also foreign corruption, especially from its neighboring countries.
“Only by addressing these challenges and signaling that Kenya is hostile to criminal funds will various initiatives like Vision 2030 and the Nairobi International Financial Centre bring wealth to benefit the people of Kenya.”