Countries/Jurisdictions of Primary Concern - Kenya
Kenya remains vulnerable to money laundering and financial fraud. It is the financial hub of East Africa, and its banking and financial sectors are growing in sophistication. Money laundering and terrorism financing activity occur in both the formal and informal sectors, and derives from both domestic and foreign criminal activity. Such activities include transnational organized crime, cybercrime, corruption, smuggling, trade invoice manipulation, illicit trade in drugs and counterfeit goods, trade in illegal timber and charcoal, and wildlife trafficking.
Kenya’s financial sector supports 43 licensed commercial banks, many with branches throughout East Africa; nine deposit-taking microfinance institutions in Kenya, with 69 branches; 91 licensed Forex Bureaus, with Nairobi hosting 75 bureaus and Mombasa nine; and one mortgage finance company. Kenya holds more than half of the total bank assets in the region, which has grown to $52 billion in 2013, up from $45.2 billion in 2012.
Although banks, wire services, and mobile payment and banking systems are available to increasingly large numbers of Kenyans, there are also thriving, informal, and unregulated networks of hawaladars and other remittance systems that facilitate cash-based, unreported transfers that the Government of Kenya cannot track. Foreign nationals, and in particular the large ethnic Somali resident and refugee populations, primarily use hawaladars to send and receive remittances internationally. Diaspora remittances are growing annually, contributing significantly to the country’s foreign exchange inflows. There are now nine licensed money remittance providers in Kenya, all located in Nairobi. Remittances in 2013 totaled $1.3 billion and are already at $1.1 billion through September 2014, with North America providing between 45-50 percent of all remittances, and with Europe and the “rest of the world” each providing approximately 25 percent.
The Communications Authority of Kenya (CAK) reports that Kenya’s telecommunications sector enjoys 79.2 percent mobile phone penetration and supports 32.2 million mobile phone subscriptions. The CAK also reports there are 22.3 million internet users, raising the percentage of the population that has access to the internet to 54.8 percent. There are approximately 121,000 mobile-money agents in Kenya. Through August 2014, $1.7 billion moved through Kenya’s mobile-money systems.
Kenya is a transit point for international drug traffickers. Trade-based money laundering is a problem in Kenya, though the Kenya Revenue Authority has made recent strides in improving internal monitoring and collection procedures. There is a black market for smuggled and grey market goods in Kenya, which serves as a major transit country for Uganda, Somalia, Tanzania, Rwanda, Burundi, eastern Democratic Republic of Congo, and South Sudan. Goods marked for transit to these northern corridor countries are not subject to Kenyan customs duties, but Kenyan authorities acknowledge that many such goods are often sold in Kenya. Trade goods often are used to provide counter-valuation in regional hawala networks.
Kenya’s proximity to Somalia makes it an obvious and attractive location for the laundering of certain piracy-related proceeds and a financial facilitation hub for al-Shabaab, a UN- and U.S.-designated group.
The FATF first included Kenya in its Public Statement in February 2010. In February 2014, the FATF removed Kenya from its Public Statement in recognition of the significant progress Kenya has made in addressing its strategic AML/CFT deficiencies.
For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found at: //2009-2017.state.gov/j/ct/rls/crt/
Do FINANCIAL INSTITUTIONs engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or illegal drug sales that otherwise significantly affect the U.S.: YES
criminalizATION OF money laundering:
“All serious crimes” approach or “list” approach to predicate crimes: All crimes approach
Are legal persons covered: criminally: YES civilly: YES
Know-your-customer (KYC) rules:
Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: YES
KYC covered entities: Banks and institutions accepting deposits from the public; lending institutions, factors, and commercial financiers; financial leasing firms; transferors of funds or value by any means, including both formal and informal channels; issuers and managers of credit and debit cards, checks, traveler’s checks, money orders, banker’s drafts, and electronic money; financial guarantors; traders of money market instruments, including derivatives, foreign exchange, currency exchange, interest rate and index funds, transferable securities, and commodity futures; securities underwriters and intermediaries; portfolio managers and custodians; life insurance and other investment-related insurance underwriters and intermediaries; casinos; real estate agencies; accountants; and dealers in precious metals and stones
Number of STRs received and time frame: 201: January - November 2014
Number of CTRs received and time frame: 2,825: January – November 2014
STR covered entities: Banks and institutions accepting deposits from the public; lending institutions, factors, and commercial financiers; financial leasing firms; transferors of funds or value by any means, including both formal and informal channels; issuers and managers of credit and debit cards, checks, traveler’s checks, money orders, banker’s drafts, and electronic money; financial guarantors; traders of money market instruments, including derivatives, foreign exchange, currency exchange, interest rate and index funds, transferable securities, and commodity futures; securities underwriters and intermediaries; portfolio managers and custodians; life insurance and other investment-related insurance underwriters and intermediaries; casinos; real estate agencies; accountants; and dealers in precious metals and stones
money laundering criminal Prosecutions/convictions:
Prosecutions: One in 2014
Records exchange mechanism:
With U.S.: MLAT: NO Other mechanism: YES
With other governments/jurisdictions: YES
Kenya is a member of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), a FATF-style regional body. Its most recent mutual evaluation report can be found at: http://www.esaamlg.org/reports/view_me.php?id=228
Enforcement and implementation issues and comments:
The Proceeds of Crime and Anti-Money Laundering Act (POCAMLA), as amended, provides a comprehensive framework to address AML issues and contains appropriate sanctions; however, the POCAMLA has never been used to prosecute financial crimes. The Central Bank of Kenya (CBK) licensed the first money remittance provider in November 2013, following its issuance of the Money Remittance Regulations, 2013, in April 2013. In addition, Kenya’s National Payment System Act is now in force. This Act, which among other things provides regulation over mobile money, is another important component of Kenya’s move toward financial integrity and security. Regulations attendant to the POCAMLA, Supplement No. 521 of 2013, require covered entities to file currency transaction reports (CTRs).
Of the 345 STRs submitted to the Financial Reporting Centre (FRC), Kenya’s financial intelligence unit, since its inception in 2012, 85 have been disseminated to law enforcement agencies for further investigation and possible prosecution. The FRC’s analytical ability and efficiency would improve with an automated system to aid in the analysis. Although the FRC receives STRs from some money and value transfer services, this sector is more challenging to supervise for AML/CFT compliance.
All cell phone devices must be registered, and all mobile-money accounts also must be registered, with proper identification. While mobile payment and banking systems are increasingly important, the tracking and investigation of suspicious transactions remains difficult, although data on these transactions have the potential to facilitate investigations and tracking, especially compared to transactions executed in cash. The lack of regulation/supervision of this sector, coupled with a lack of reporting from certain reporting entities, contribute to the risks posed by this sector. The CBK’s strategy to increase financial integrity through increasing financial inclusion, and its associated regulatory interventions, has led to an increase in formal sector financial inclusion from 41 percent in 2006 to 67 percent in 2013.
To demand bank account records or to seize an account, the police must present evidence linking the deposits to a criminal violation and obtain a court order. The confidentiality of this process is not well maintained, meaning that account holders are often tipped off about such investigations and so are able to move their assets or contest the orders.
Kenya is overhauling its criminal justice system. The government, and especially the police, must allocate appropriate resources and build sufficient institutional capacity and investigative skill to conduct complex financial investigations independently. Kenya also must address the bureaucratic impediments preventing it from pursuing investigation and prosecution of these crimes. Until 2013, Kenya had only 74 public prosecutors; however, the ODPP has greatly expanded and now has 605 prosecutors. The ODPP is organized into four broad thematic departments, with the Department of Economic International and Emerging Crimes (DEIEC) responsible for the prosecution of corruption and economic crime, cybercrime, narcotics, organized crime, money laundering, piracy, and terrorism cases. In order to streamline proceedings and enhance professionalism as well as develop expertise in its prosecutions, the DEIEC is divided into various thematic divisions, with the AML/CFT division, formed on July 18, 2014, and headed by the Senior Assistant Director of Public Prosecutions, specifically dealing with money laundering and terrorism financing offenses. The AML/CFT division is made up of 18 Prosecution Counsels from the Nairobi office, complemented by eight Prosecution Counsels from county offices. In 2014, nine money laundering cases were forwarded to the ODPP, four of which were closed and five of which are still pending.
The POCAMLA provides legal mechanisms to freeze, seize, and confiscate the proceeds of crime; however, this aspect of the law has not yet been used. The Prevention of Organized Crimes Act also provides for seizure of cash and property used by organized criminals to commit an illegal act. The Asset Recovery Agency, a semi-autonomous body based in the Attorney General’s office, is now staffed and leading an interagency Asset Recovery Task Force.
The 2013 Westgate Mall attack, which resulted in the first cases being charged under Kenya’s Prevention of Terrorism Act (POTA), demonstrates the critical importance of first responders, regulators, law enforcement, and prosecutors continuing to develop their expertise to investigate and charge high impact cases, including terrorism financing and money laundering offenses, and to pursue related asset recovery. Kenya passed the Finance Act of 2013, which includes amendments to the POTA, to include expanding the scope of Kenya’s criminalization of terrorism financing. In November 2013, Kenya issued regulations to implement the POTA, and therefore, its obligations pursuant to UNSCRs 1267 and 1373. With this law, Kenya has taken significant steps toward improving its compliance with international standards.