Kenya remains a major hotspot for money laundering, financial fraud and terrorism financing in Africa, the latest money laundering report as submitted to the US congress shows. The country was listed among other four African countries including Nigeria, Mozambique, Morocco, Ghana and Benin that are on the US radar screen as key conduits of criminal trade.
“Kenya is a transit point for the region and international traffickers of narcotics, persons, wildlife, timber, charcoal, and minerals. Trade Based Money Laundering continues to be a problem,” the report notes.
The 2021 edition of the congressionally mandated “International Narcotics Control Strategy Report, Volume II: Money Laundering” reviews the anti-money laundering (AML) legal and institutional infrastructure of jurisdictions and highlights the most significant steps each has taken to improve its AML regime.
The report lists criminal activities in Kenya as transnational organised crime, cybercrime, corruption, smuggling, trade invoice manipulation, trade in illegal timber and charcoal, wildlife trafficking, and illicit trade in drugs and counterfeit goods, including sugar and other agricultural products.
It lays the blame at the door of financial institutions for involvement in transnational narcotics trade.
Sale of narcotics
“Financial institutions engage in currency transactions connected to sale of narcotics trafficking, involving significant amounts of US currency derived from illegal sales in the United States and Kenya,” the report notes.
The report points a finger at Kenya’s ever rising diaspora remittances and lack of a comprehensive legal framework to capture unregulated networks such as hawalas and digital currencies.
Unregulated networks of hawalas and other unlicensed remittance systems facilitate cash-based, unreported transfers. Foreign nationals, including refugees and ethnic Somali residents, primarily use the hawala system to transmit remittances internationally.
Diaspora remittances to Kenya totaled Sh178 billion ($1.78bn) between January and August 2020. DNFBPs are a likely vehicle for money laundering that is beyond the current capacity of the host government to address.
Banking systems, wire services, and mobile money platforms are widely available and frequently used in Kenya. Kenya’s digital financial services and platforms are vulnerable to money laundering.
Moneylenders
The report notes mobile money lenders are not regulated despite widespread use of mobile lending applications. Most of Kenya’s mobile money agents use Safaricom’s M-Pesa system. M-Shwari, a mobile lender, has over 12 million registered subscribers, with 8 million active users.
Kenya’s proximity to Somalia according to the report makes it attractive for laundering of piracy-related proceeds, as well as other funds from unregulated
Somali sectors, including the khat and charcoal trades.
Goods reported as transiting Kenya are not subject to customs duties, but authorities acknowledge many such goods are actually sold in Kenya. Trade is often used to offset transactions in regional hawala networks.
