Wash–wash gangs on spot as Kenya fights grey listing tag

The government has intensified the crackdown on perpetrators of illicit financial flows and money laundering through real estate and shell companies, as the country faces increased scrutiny from the international community.

Various global institutions, including the International Monetary Fund, European Union, and the United States government, have pointed fingers at Nairobi, accusing President William Ruto’s administration of aiding the vice that poses threats to global security.

A senior government official privy to the ongoing efforts by the country to cleanse its financial system told the Star in confidence that at least 56 real estate agencies, 119 companies, nine betting firms and several politicians and businesspersons are on the state radar over the vice.

Already, the Financial Reporting Centre has flagged and frozen bank accounts belonging to several companies and individuals, even as it highlights increasing cases of suspicious financial transactions.

The latest annual report by the centre shows it received 8,057 reports consisting of 5,454 STRs, 2,482 Suspicious Activity Reports (SARs) and 114 Suspicious Transaction Activity Reports (STARs) from reporting institutions and seven reports from walk-ins/whistle blowers.

"This represents a 22 per cent increase compared to the previous year, where the centre received 6,631 reports, with the banking sector maintaining its consistency as the primary source of STR/SAR/STARs reporting," the annual report adds.

The Money Laundering and Terrorism Financing Trends and Typologies Report 2025 by FRC flagged suspicious transactions valued at Sh6.97 trillion, almost half of the country’s Gross Domestic Product, with banks handling 91 per cent of the transactions.

The report highlights one case involving a foreign construction firm with two local subsidiaries involved in major infrastructure projects.

Directors of the three related companies hatched a scheme of evading taxes through making fictitious payments.

They used company employees to register shell companies that were used to raise invoices claiming to be suppliers of construction materials. Those shell companies recruited businesses dealing in hardware and construction materials.

“They subcontracted them to make the supplies. Part of the funds that were paid to the shell companies were withdrawn in cash, converted into foreign currencies, while a smaller portion was paid to the suppliers," FRC annual report says.

Regulation 34 of the 2023 Anti-Money Laundering law requires all reporting institutions to report any cash transaction of $15,000 or more (or its equivalent in other currencies), even if it doesn’t seem suspicious. These cash transaction reports must be submitted to the centre by the end of each week.

The chilling report of rampant cases of illicit financial flows comes at the time Nairobi and its environs are witnessing a significant construction boom, fueled by high-value transactions and minimal regulatory oversight—conditions that, in some cases, have previously been linked to money laundering and terror financing.

Early this year, the FRC directed all real estate agencies to register with the centre in compliance with Section 47A of the Proceeds of Crime and Anti-Money Laundering Act, 2009 (POCAMLA).

The Estate Agents Registration Board is established under the Estate Agents Act Cap 533 and recognised as a supervisory body for real estate agents under the First Schedule of the POCAMLA.

“Registration is done online through the goAML platform. Take note that failure to register with the FRC constitutes an offence pursuant to Section 47A (5) of POCAMLA and the centre will proceed to take necessary action,’’ FRC director general Saitoti Maika said in notice dated February 14.

Two months ago, President Ruto signed into law an amendment to the Anti-Money Laundering and Combating of Terrorism Financing Laws (Amendment) Bill, 2025, which largely targets real estate and shell companies aiding illicit financial flows.

The bill amended 10 Acts of Parliament to address the technical compliance deficiencies identified by the Eastern and Southern Africa Anti-Money Laundering Group and the Financial Action Task Force on anti-money laundering, combating terrorism financing and combating proliferation financing.

FATF tasked Kenya with ensuring that the financial intelligence information gathered is used more effectively and inspecting the work of non-governmental organizations (NGOs) and not-for-profit organisations to ensure they do legitimate work and are not used as conduits to transfer proceeds of crime.

This was after the European Union included Kenya among the money laundering high-risk states, months after the Financial Action Task Force at its plenary meeting in February 2024 added the country and Namibia to its Grey List.

The US Department of State is worried that Kenya’s efforts to curb money laundering face a tough challenge from designated non-financial businesses and professions — lawyers, real estate agents, and notaries — who operate in a regulatory grey zone.

According to the report by the department’s Bureau for International Narcotics and Law Enforcement Affairs, despite these professions being covered under the Proceeds of Crime and Anti-Money Laundering Act, many of these professionals remain largely unchecked.

“Kenyan financial institutions likely serve as conduits for money laundering associated with the trafficking of illegal narcotics, humans, weapons, wildlife, timber, charcoal, and minerals,’’ the report released in March reads.

President Donald Trump’s administration observes that informal Somali financial networks thrive in the country, operating beyond the reach of regulators.

“These systems, built on trust and cultural ties, facilitate swift, anonymous cross-border transactions.”

It adds that those networks link Kenya to Somalia, where weak governance and minimal oversight make it nearly impossible to track illicit financial flows.

Financial crime experts are asking President Ruto not to relent in the fight against illicit financial flows, warning that the vice poses a huge threat to the country’s social-economy.

According to John Kamau, partner, Financial Crime Advisory, Eastern Africa Region, PwC Kenya, while the EU listing is not a sanction per se, it is far from symbolic.

“In regulatory terms, it is a binding designation with immediate legal and financial consequences across the entire EU market. For a country like Kenya, East Africa’s financial, innovation and trade hub, the cost is both reputational and operational,” he said.

He explains that the listing triggers mandatory enhanced due diligence for any financial or business relationship between EU-based institutions and Kenyan clients, placing banks, fintechs, exporters, and professional service firms under a much harsher compliance spotlight, potentially complicating even the most routine transactions.

For Kenyan financial institutions, especially those serving as remittance corridors or processing cross-border payments, Kamau says that the risk of de-banking or de-risking is real.

“The longer Kenya stays on the list, the harder it becomes to unwind the market’s perception of elevated risk. In a global financial system increasingly intolerant of opacity, even a short-term label can leave long-term scars.”

He, however, says that all is not lost as the country has made tremendous effort to comply, having improved its technical compliance with 28 out of 40 Financial Action Task Force recommendations now marked as “Compliant” and “Largely Compliant.”

Even so, effectiveness remains low in nine out of 11 key outcomes, a major hurdle to exiting the Grey List.

“The focus must now shift from policy to practical enforcement to ensure that we exit from the FATF Grey List and EU high-risk jurisdiction lists in the shortest time possible.”

The Tax Justice Network Africa, a non-state agency fighting illicit financial flows, views money laundering as a significant threat to Kenya's economic stability and development, advocating for stronger regulations and cross-border cooperation, especially in the context of digital finance and cryptocurrencies.