WHY KENYA WAS GREY-LISTED BY FATF AND WHAT THAT MEAN FOR THE COUNTRY
On 23rd February 2024, the Financial Action Task Force (FATF) listed Kenya under Jurisdictions with increased monitoring (commonly referred to as “grey-list”) a move thatnot only tarnishes Kenya’s reputation globally but alsoposes great challenge to the growth and progress of the country’s economy. This grey-listing means that the country is now considered not to be a safe haven for supporting terror funding and money laundering activities.
This listing comes few months after the country enacted the Proceeds of Crime and Anti-Money Laundering (Amendment) Act, 2023 in which it included the Sacco Societies Regulatory Authority and Law Society of Kenya as self-regulatory bodies to report suspicious transactions involving their members’ clients’ funds, they believe emanates from proceed of crime or are intended to finance terrorism activities.
Even after enacting the Proceeds of Crime and Anti-Money Laundering (Amendment) Act, 2023, FATF still believes Kenya is yet to fully comply hence categorized under States that are now extensively monitored in terms of money laundering and financing of terrorism activities.
The FATF identified the following shortcoming which Kenya failed to meet resulting to its grey-listing:
- Failure by Kenya to prohibit or put in place relevant regulatory framework governing Virtual assets and Virtual assets service providers even after it has identified the money laundering and terrorism financing risks associated with them.
- Failure by most companies in Kenya to disclose their Beneficial Owners even after amending the companies act and making it mandatory for companies to declare their Beneficial Owners.
- Low recoveries from fraud, forgery and drug related offences which forms high risk to the country.
- Large unregulated and unsupervised Non-Profit Organizations sector which exposes the country to the risk of terrorism financing.
- Inadequacy in investigation and prosecution of persons for terrorism financing related offences.
- Lack of a clear strategy in prosecuting money laundering offences. and
- Inadequate monitoring and supervision of other financial institutions or designated non-financial business and professions. Supervision being kept on banks and micro finances only.
This listing now put Kenya under the radar of the international financial watchdog and exposes Kenya to negative consequences including but not limited to:
- Loss of foreign aid and investments.
- Expose to economic sanctions from international institutions such as IMF & World Bank.
- Challenges in international trade and payment as a result of increased due diligence and scrutiny of cash flows into the country.
- Difficulties in getting loans from international financial institutions.
- Boycott from trade by international partners and reduction in international trade.
- Sharp increase in compliance costs especially for financial institutions and other businesses.
This therefore calls for the country to rethink of its strategy in fighting money laundering and financing of terrorism. It has also been flagged out that the real estate sector is less regulated thus exposing the country to the risk of dirty cash flow hence the country needs to move with speed to put this sector under control. If nothing is done urgently, Kenya risks finding itself under High-Risk Jurisdictions that is subject to a Call for Action (i.e., FATF “black list”).
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