Kenya's grey listing by the Financial Action Task Force (FATF) in February 2024 due to its anti-money laundering and counter-terrorism financing loopholes poses a threat to its status as a financial hub and could have adverse effects on its economy and international relations.
In 2010, Kenya faced significant setbacks when it was grey listed by the FATF for the first time due to delayed implementation of the Proceeds of Crime and Anti-Money Laundering Act (POCAMLA) Act. In a move to address this, Kenya implemented significant legislative reforms aimed at strengthening its anti-money laundering (AML) and combating financing of terrorism (CFT) framework.
The country improved the enforcement of AML/CFT regulations by enhancing the capabilities of its law enforcement agencies, such as the Financial Reporting Centre (FRC) and the Asset Recovery Agency (ARA), to effectively investigate and prosecute financial crimes. These concerted efforts resulted in Kenya's removal from the FATF's grey list in 2014.
Despite efforts to address its regulatory shortcomings, Kenya faced another setback on February 23, 2024 when it was once again grey listed by the FATF.
The decision underscored the ongoing challenges facing the country in combating financial crimes and restoring confidence in its financial system.
They include several significant shortcomings in its anti-money laundering (AML) and counter-terrorist financing (CTF) efforts.
Key among them was failure in implementing preventive measures against money laundering, particularly in terms of collaboration between the private and public sectors. The country also struggled to demonstrate successful investigation and prosecution of money laundering offences.
Supervision of designated non-financial businesses and professions (DNFBPs), such as lawyers, dealers in precious metals, and virtual asset service providers was also found to be laden with gaps. Other challenges lay in collecting beneficial ownership information and effectively utilising financial intelligence for investigations, prosecution, and sanctions.
Grey listing poses significant challenges for Kenya. It impedes its access to capital and intensified scrutiny on financial institutions.
Reduced access to capital from international bond and loan markets could lead to higher government borrowing and corporate spreads.
With this, financial institutions will face heightened scrutiny from foreign banks, potentially limiting access to financial products and disrupting the supply chain due to delays in heightened due diligence procedures.
To overcome this scenario, the country needs to undertake comprehensive reforms in its anti-money laundering and counter-terrorist financing framework.
It is advisable that stakeholders such as the Financial Reporting Centre (FRC), the Central Bank of Kenya, the Capital Markets Authority, Insurance Regulatory Authority engage all parties, including the public in the fight against money laundering and terrorism financing. Such engagement could involve awareness campaigns, educational initiatives, and collaboration with community-based organisations to raise awareness about the risks of financial crimes and empower the public to report suspicious activities.
The role of Judiciary in combating corruption and curbing illicit financial flows will also need to be streamlined and enhanced. This will entail ensuring financial autonomy and providing ongoing capacity building for judicial officers to be able to prosecute cases related to money laundering and terrorism financing promptly.
The country should further enhance cooperation and information sharing among its domestic law enforcement agencies and international partners.
It is also essential to continue actively pursuing support in technical assistance, training programmes, financial resources, and intelligence sharing initiatives from various international partners including the European Union, the United Kingdom and the United States.
Finally, efforts towards timely prosecution of high-profile cases of money laundering and terrorism financing must be intensified by the Office of the Director of Public Prosecutions (ODPP) through fostering collaboration between the Law Society of Kenya and the Financial Reporting Centre.
