WIREDGOV

Achieving effectiveness in its anti-money laundering system is a challenge for Kenya. Civil society must play a key role in the journey ahead.

The Financial Action Task Force (FATF), the global standard setter on anti-money laundering and counterterrorist financing (AML/CTF), published its Mutual Evaluation Report on Kenya last month. Kenya faces significant challenges. For example, it is estimated that bad governance and corruption rob Kenya of around KES 270 billion ($2.5 billion) per year. This amounts to around 30% of the government’s annual budget, causing great damage to economic development. The recent analysis highlights good results on confiscating proceeds of crime and the use of financial intelligence. However, there is still a need for improvement in understanding terrorist financing risks, risk-based supervision of regulated entities such as banks and non-financial businesses and professions, and further enhancing financial investigations.

Do Mutual Evaluation Reports Matter?

FATF mutual evaluations are in-depth country reports analysing the implementation and effectiveness of measures to combat money laundering and terrorist financing, providing a series of priorities for action. Mutual evaluations are made up of two components: effectiveness and technical compliance. Most countries tend to comply, to a greater or lesser extent, with the technical criteria outlined in the 40 FATF recommendations. Yet, they usually struggle to demonstrate the effectiveness of their frameworks by implementing legislation appropriately and keeping exhaustive statistics.

One key outcome of a mutual evaluation is the way in which it can influence other jurisdictions and international banking partners in their view of the evaluated country. Poor performance can result in a jurisdiction being placed on the FATF’s so-called ‘grey list’ through the International Co-operation Review Group process, which produces a tri-annual list of jurisdictions that have been identified as having strategic deficiencies. The public nature of the evaluation report offers an important opportunity for the assessed country to audit and strengthen its response to financial crime by creating considerable momentum in the jurisdiction.

Kenya from 2011 to Now

In 2011, the Eastern and Southern Africa Anti-Money Laundering Group – the FATF body for the region – completed the first mutual evaluation for Kenya. Since then, Kenya has addressed most of the weaknesses identified in the report by enhancing its National Task Force on AML/CTF and introducing new Proceeds of Crime and Anti-Money Laundering Act Regulations, conducting a national risk assessment, and introducing beneficial ownership information requirements. The country also has a Prevention of Terrorism Act, which criminalises terrorist financing and provides for the freezing and confiscation of terrorist assets.​ The government is trying to organise law enforcement agencies to achieve effective collaboration in fighting corruption and other serious crime through the creation of specialised divisions in the Office for the Public Prosecutor intended to identify risks associated with financial crime. This includes the Anti-Corruption Division, the Transnational and Organized Crime Division, the Counter Terrorism Division, and the Proceeds of Crime Recovery Unit.

A Long Road Ahead

The FATF has outlined several priority actions for Kenya. The main recommendation to authorities is that they continue to build their understanding of risks by carrying out a more thorough risk assessment and analysis of activities generating the highest-value proceeds of crime. Kenya has also not demonstrated a good understanding of its terrorist financing risks to the assessors. This is because the country has not investigated or prosecuted legal or natural persons for terrorist financing, despite having identified it as a threat. The NPO sector has also not been adequately assessed for terrorist financing risk, meaning that any high-risk organisations have not been identified.

The public nature of the evaluation report offers an important opportunity for the assessed country to audit and strengthen its response to financial crime

There are several other areas identified as requiring improvement, mainly the fact that the investigation and prosecution of money laundering is still not a strategic priority. Other issues highlighted by the assessment team include the implementation of a risk-based approach; supervision of designated non-financial businesses and professionals such as real estate agents, notaries and legal practitioners; and sanctions adherence. This makes Kenya – a growing regional financial hub – an attractive destination for corrupt officials to launder illicit financial flows from across its borders.

Finally, regarding the FATF priority of increasing capabilities to recover criminal assets, Kenya is pursuing confiscation as a policy objective. Authorities have registered some success in cases related to corruption, the theft or misuse of public resources, tax offences and drug trafficking. There has been limited pursuit of criminal proceeds located abroad. Most proceeds of crime identified and pursued relate to domestic offences, with the proceeds and instrumentalities located within the jurisdiction. There have only been two successful cases of repatriation where the proceeds had been moved to a foreign jurisdiction. In the view of the FATF, to prove high effectiveness in its confiscation efforts, Kenya should continue pursuing proceeds of crime located abroad and should implement a system to manage, share and dispose of recovered assets.

Monitoring Progress: An Important Role for Civil Society

The FATF’s mutual evaluations are a valuable tool for non-government actors advocating transparency and progress in the fight against financial crime and kleptocracy in their home countries. An empowered civil society and media community can help monitor the internationally agreed standards that a country should be applying to tackle financial crime and hold kleptocratic leaders accountable for their actions. Yet to do this effectively, civil society needs the knowledge that enables it to hold the corrupt to account. It needs to understand the laws and regulations that should be applied to restrict and prosecute corrupt activity. It also needs to be aware of the policy accountability chain – from the responsible local government bodies up to international standard setters. Finally, civil society should be aware of the responsibilities placed on private sector actors who are used by the corrupt to move ill-gotten gains into the international system, where they can easily be hidden.

With this knowledge, based on the mutual evaluation process and a wider understanding of the FATF requirements, non-government actors should use their advocacy and investigative work to drive positive change and strengthen the integrity of their country’s financial system, particularly in jurisdictions where state authorities are unwilling or unable to address their illicit finance challenges themselves. Kenya has a long road ahead if it is to address the shortcomings illuminated by its recent evaluation; the non-government community has a key role to play in this journey.

The views expressed in this Commentary are the author’s, and do not represent those of RUSI or any other institution.

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