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. Furthermore, Kenya is at the forefront of mobile banking. Money laundering and terrorism financing occur in the formal and informal sectors and derive from both domestic and foreign criminal operations. Criminal 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; 12 deposit-taking microfinance institutions, with 99 branches; 85 licensed foreign exchange bureaus, with Nairobi hosting 69 bureaus and Mombasa nine; one mortgage finance company; and 15 licensed money remittance providers, all located in Nairobi. There are three licensed credit reference bureaus and seven representative offices of foreign banks in Kenya. In 2014, Kenya’s $58 billion in bank assets roughly equaled Kenya’s nominal GDP and represented 61 percent of the total bank assets in East Africa.
Although banks, wire services, and mobile payment and banking systems are available to increasingly large numbers of Kenyans, there are also thriving unregulated networks of hawaladars and other unlicensed remittance systems that lack transparency and facilitate cash-based, unreported transfers that the Government of Kenya cannot track. Foreign nationals, including refugee populations, as well as ethnic Somali residents (both foreign nationals and Kenyan citizens) primarily use the hawala system to send and receive remittances internationally. Diaspora remittances to Kenya are growing annually, contributing significantly to the country’s foreign exchange inflows. In 2014, remittances to Kenya totaled $1.42 billion, and were at $1.4 billion between January and September 2015, with North America providing between 45-50 percent of all of these remittances and Europe and the rest of the world accounting for approximately 25 percent each. The 12-month cumulative remittance inflow through September 2015 increased by 7.7 percent over the previous comparable period (up from $1.4 billion to $1.5 billion).
The Communications Authority of Kenya (CAK) reports that mobile phones have 74 percent total market penetration, with about 36 million mobile phone subscriptions in a population of approximately 45 million. Safaricom controls 67 percent of the mobile phone subscription market. The CAK also reports there are about 30 million internet users, which implies that 68 percent of the population has access to the internet. There are about 130,000 mobile-money agents in Kenya, most working through Safaricom’s M-PESA system. There are over 10 million M-Shwari accounts, Safaricom’s online banking service. One-third of all active M-PESA users are also active M-Shwari customers and 54 percent of M-Shwari accounts were held by customers without any other bank account.
Kenya is a transit point for international drug traffickers and trade-based money laundering continues to be a problem. 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 countries are not subject to Kenyan customs duties, but Kenyan authorities acknowledge that many such goods end up being sold in Kenya. Trade in goods is often used to provide counter-valuation in regional hawala networks.
Kenya’s proximity to Somalia makes it an attractive location for the laundering of certain piracy-related proceeds and a financial facilitation hub for the Somalia-based al-Shabaab, a UN- and U.S.-designated foreign terrorist organization.
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 serious crimes
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: 534: January – October, 2015
Number of CTRs received and time frame: 2,504: January – October, 2015
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: 2 in 2015
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. The Central Bank of Kenya (CBK) licenses money remittance providers. Kenya’s National Payment System Act provides regulation over mobile money and is another important component of Kenya’s move toward financial integrity and security.
Of the 876 suspicious transaction reports (STRs) submitted to the Financial Reporting Centre (FRC), Kenya’s financial intelligence unit, since its inception in 2012, 254 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 and all mobile-money accounts must be registered, with proper identification. While mobile payment and banking systems are increasingly important, the tracking and investigation of suspicious transactions remains difficult. There is a risk that illicit actors could use mobile payment systems to engage in structuring, particularly by using illicit funds to purchase mobile credits below reporting thresholds. Nevertheless, data on these transactions have the potential to facilitate investigations and tracking, especially compared to transactions executed in cash. The lack of rigorous enforcement in this sector, coupled with inadequate reporting from certain reporting entities, increases the risk of abuse.
In order 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, which allows account holders to sometimes be tipped off, providing an opportunity to move their assets or contest the orders.
Kenya is overhauling its criminal justice system. The small number of AML prosecutions and the absence of convictions are telling. The Office of the Director of Public Prosecutions (ODPP) has significantly expanded since 2013 and now has approximately 700 prosecutors, with plans to expand to 900. The Department of Economic International and Emerging Crimes (DEIEC), one of four departments within the ODPP, is responsible for the prosecution of corruption and economic crime, cybercrime, narcotics, organized crime, money laundering, terrorist financing, piracy, and other terrorism-related cases. The AML/CFT division, a thematic subdivision formed in July 2014, specifically deals 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. The ODPP has used ancillary provisions in the POCAMLA to apply for orders to restrain, preserve and seize proceeds of crime in Nairobi. In 2015, the ODPP filed a money laundering case and arrest warrants against the top management of Dubai bank. For the first time, in 2015 the ODPP used the POCAMLA to freeze the assets of nine ivory trafficking suspects.
The 2013 Westgate Mall attack, which resulted in the first cases being filed under Kenya’s Prevention of Terrorism Act, 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 2015, which includes amendments to the POCAMLA to expand the mandate of the FRC to combat the financing of terrorism.
In July 2015, the Government of the Republic of Kenya made commitments to promote good governance and anti-corruption efforts, including strengthening its AML/CFT regime. The Government of Kenya committed to work toward membership in the Egmont Group of Financial Intelligence Units. Additionally, Kenya agreed to work with international donors to conduct a full risk assessment for money laundering and terrorism finance and to work with development partners to facilitate the full implementation of its AML rules and regulations. Kenya also agreed to accelerate its work to strengthen the capacity of the FRC and CBK to track illicit financial flows and to increase bilateral information sharing and enforcement efforts.
The government, and especially the police, should allocate appropriate resources and build sufficient institutional capacity and investigative skill to conduct complex financial investigations independently. Kenya should also address the bureaucratic and other impediments preventing it from pursuing investigation and prosecution of these crimes. The Government of Kenya should fulfill its commitments on good governance, anti-corruption efforts, and improvements to its AML/CFT regime.