Kenya: New Law to Guard against Money Laundering
By Ben Omondi
Nairobi, Kenya---Kenya recently joined its other East African Community (EAC) members in their concerted fight against money laundering by enacting a legislation that is meant to go along way in curbing the vice.
Kenya’s Proceeds of Crime and Anti-Money Laundering (AML) Act, which was signed in December 2009 and came into effect in June 28 2010, aims to enable the identification, tracing, freezing as well as seizure and confiscation of proceeds of crime.
Money laundering is the process of engaging in financial transactions that conceal or disguise the identity, source, location and destination of the money.
The AML Law seeks to establish a Financial Reporting Centre (FRC) and Assets Recovery Agency, to criminalize money laundering and further require reporting institutions to take measures to help combat money laundering.
The enactment of Kenya’s AML Law means that the country has now joined its other three EAC members - Tanzania, Rwanda and Burundi – that have already put in pace such legislation, with Uganda expected to enact the same in the 2010/2011 financial year. Tanzania has had its AML Law since 2006.
The Act has further ensured Kenya’s compliance with anti-money laundering standards set by the Financial Action Task Force on Money Laundering (FATF), an intergovernmental body that promotes policies to combat money laundering and terrorist financing globally.
The law’s enactment is being lauded as a positive move by players in the country’s banking and financial services sector, who see it as a key step in the country’s fight against money laundering in the country and region.
John Wanyela, Kenya Bankers Association (KBA) executive director said that even though the legislative process leading to the enactment of the AML Act has been long, it has finally been realized.
The process of enacting Kenya’s AML law began in 2004, with the Proceeds of Crime and Anti-Money Laundering Act, 2009 being passed by Parliament on December 11 2009, while its commencement date was set at June 28 2010 by Kenya’s finance minister Uhuru Kenyatta.
“Money launderers take advantage of any failure in unregulated and unsupervised sectors to whitewash their ill-gotten gains. They make sure that their proceeds of crime escape the scrutiny of law enforcement agencies,” said Wanyela.
Wanyela said that there is increased recognition within the banking sector that banks have a key role in the fight against money laundering, adding that to win the fight, powers of the regulators must be complimented with cooperation from the financial sector players.
“We will therefore increase our focus on ensuring that anti-money laundering measures are instituted not because simply for compliance purposes, but for the sake of sustainable development of the country’s financial system and economy,” said the KBA boss.
Anthony Gitonga, head of risk and compliance at Kenya’s I&M Bank, said that in the past two decades, about US $ 91.25 million (Kshs 7.3 billion) has been laundered into Kenya, though the figures are estimates and unsubstantiated as “there is lot of stuff that is hidden.”
“Almost all of the laundered cash and transactions take place online, with 80 per cent going through bank systems while 20 per cent are done in cash or undeclared cash. Most of the transactions are also done through wire transfers,” said Gitonga.
He said that the AML law is set to act as the first step before banks can then be expected to deploy IT infrastructure and software to curb money laundering, adding: “If you do not have a law in place and you are trying to convince management to deploy computer software, it’s impossible.”
Hanuman Tripathi, Infrasoft Technologies group managing director, said that the current volume of cash money laundered globally ranges between US $ 300 billion to 1.5 trillion, as there has been no anti-money laundering systems to detect and stop suspicious wire transfers.
“Kenya has now enacted its AML Law and all the banks and other financial institutions have to do now is to find the right technology,” said Tripathi, whose firm implements software products, solutions and services for the banking and financial services industry globally.
The AML Act requires financial institutions to maintain accurate records for a minimum of seven years, with details such as name, physical and postal address for each person conducting transactions with the financial institutions being recorded.
The Act further requires financial institutions to submit suspicious transactions (STRs) and Cash Threshold Reports (CTR) to the Financial Reporting Centre, with the reports being used to facilitate the gathering of financial intelligence for analysis purposes.
Previously, no verification of sources of funds coming into the country’s formal financial system was necessary, but the AML Law now requires forex bureaux and other money transfer and financial institutions to identify customers and report any transaction of more than US$10,000 (Kshs 810,000) in hard currency.
The Act also stipulates various penalties for convicted individuals and corporate bodies, ranging from jail terms of 2 years for individuals with US $ 12,500 (Kshs 1 million) to 14 years in jail terms and fines of US $ 312,500 (Kshs 25 million).
However, a recent commentary in the South Africa-based “the african.org,” published by the Institute of Security Studies noted that “mere existence of the legislation is not sufficient to thwart money laundering, notwithstanding the stiff penalties recommended by the Act.”
“Kenya now needs to demonstrate tangible commitment to the implementation of the Act.
The new and existing laws should be harmonized to ensure coordinated, effective implementation of the new law. Both the Proceeds of Crime and Anti-Money Laundering Act and the pre-existing Anti-Corruption and Economic Crimes Act deal with proceeds of crime, including corruption,” reads the commentary.”