A US report has named Kenya among countries classified as money laundering hotspots.
The report by the Bureau for International Narcotics and Law Enforcement Affairs on International Narcotics Control Strategy names Kenya among countries whose financial institutions engage in currency transactions involving significant amounts from international narcotics trafficking.
The report covering 2016 says laundering occurs in the formal and informal sectors and derives from both domestic and foreign criminal operations including transnational organised crime, cyber-crime, corruption, smuggling, trade invoice manipulation, illicit trade in drugs and counterfeit goods, trade in illegal timber and charcoal, and wildlife trafficking.
It adds although banks, wire services, mobile payment and banking systems are increasingly available, there are also thriving unregulated networks of ‘hawala’ and other unlicensed remittance systems that lack transparency and facilitate cash-based, unreported transfers that the Government cannot track.
According to Interpol, ‘hawala’ is where money is transferred without actually being moved.
M-Shwari and M-Pesa remain vulnerable to money laundering activities, the report says, adding that there are about 159,000 mobile-money agents. There are also over 10 million accounts on M-Shwari, Safaricom’s online banking service.
Diaspora remittances to Kenya totalled Sh159 billion ($1.55 billion) in 2015 and Sh87 billion ($862 million) between January and September 2016.
According to the report, Kenya is a transit point for international drug traffickers; trade-based money laundering continues to be a problem.
“Kenya’s proximity to Somalia makes it an attractive location for the laundering of certain piracy-related proceeds. There is a black market for smuggled and grey market goods in Kenya, which serves as a transit country for the region,” the report states.
Goods reportedly transiting through Kenya are not subject to customs duties, but authorities acknowledge many such goods are actually sold in Kenya.
“Trade in goods is often used to provide counter-valuation in regional ‘hawala’ networks,” reads the report.
Financial institutions engage in currency transactions related to international narcotics trafficking, involving significant amounts of US currency derived from illegal sales in the US and in Kenya.
It says an automated system would improve the financial reporting centre’s (FRC) efficiency and ability to analyse suspicious transactions.
Although the FRC receives suspicious transaction reports from some money or value transfer services providers, this sector is more challenging to supervise for anti-money laundering (AML) compliance.
The report says the tracking and investigation of suspicious transactions within mobile payment and banking systems remain difficult.
For instance, according to the report, criminals could potentially use illicit funds to purchase mobile credits at amounts below reporting thresholds. The lack of rigorous enforcement in this sector, coupled with inadequate reporting from certain reporting entities, increases the risk of abuse, it adds.
It attacks Government for failing to allocate adequate resources to build sufficient institutional capacity and investigative skills for independent complex financial investigations.
“Bureaucratic and other impediments also may impede investigation and prosecution of these crimes. Kenya should fully satisfy its commitments on good governance, anti-corruption efforts and improvements to its AML regime.”
It cites cases where police must obtain a court order by presenting evidence linking the deposits to a criminal violation in order to demand bank records or seize an account.
“The confidentiality of this process is not well maintained, which allows account holders to be tipped off, providing an opportunity to move their assets or contest the orders,” says the report.