Kenya could face international trade restrictions if it fails to enforce money laundering and terrorism financing laws, putting the countryâ€™s economy in jeopardy.
Under recommendations of the Financial Action Task Force (FATF), Kenya is said to have deficiencies in addressing issues of money laundering (AML) and terrorist financing and has not made sufficient progress in addressing the deficiencies.
It now has up to October 12 to put in place mechanisms to ensure compliance or risk being categorised with Iran and North Korea which are facing international sanctions due to their nuclear development programmes and claims of providing support to terror groups.
According to Virginia Commonwealth University Professor cum financial services advisor Neil B. Murphy, the original concern of FATF was to check money laundering activities, but this has since expanded to terror financing, financing proliferation of weapons of mass destruction and corruption.
â€œCountermeasures can range from refusing to deal with banks to imposing higher or costlier customer due diligence standards on banks, which affect the countryâ€™s international trade practices,â€ Prof Murphy said.
He was speaking earlier this week during an Anti-Money Laundering function at the Kenya School of Monetary Studies.
The banking industry will be the most hit, with multinationals operating in the country likely to close shop or scale down operations.
Last month, Standard Chartered Bank (UK) had to pay a Sh2.9 billion ($340 million) fine to forestall losing is banking licence in New York after it was accused of doing business with Iran.
FATF, an intergovernmental, policy-making body established in 1989, works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.
According to the Mr Jackson Kitili, the interim director of the Financial Reporting Centre (FRC), which is still being constituted ahead of its official launch on October 4, the centre would be required to investigate activities in different sectors, including financial services.
This would also include non-financial entities like casinos, car dealing and real estate to check suspicious cases that may relate to money laundering and terrorist financing.
The institutions will be required to report cases of suspicious transactions to the FRC, which are often related to money laundering, within two weeks, failing which they will face prosecution or have their licences revoked.
â€œThat calls for FRC to look at each sector, particularly those institutions that are not effectively supervised, to monitor cases of suspicious transactions that could be related to money laundering or terrorism,â€ Mr Kitili said.
As part of FATF recommendation, the FRC was established four months ago through the Proceeds of Crime and Money Laundering Act 2009, as a national agency responsible for receiving, analysing and disseminating disclosures of financial information.
Central Bank of Kenyaâ€™s manager at the Bank Supervision Department cum legal advisor to the FRC, Mr James Manyonge, said the country would not want to reach a level where the cost of banking services become inaccessible and remittances to the country negatively affected due to failure to operationalise the regulations.
â€œYou (international community) cannot ignore Kenya, given the size of its economy and the risks emanating from the country due to lack of such mechanisms,â€ Mr Manyonge said.
However, success rates in fighting ML activities, even in countries like the Netherlands which have many years of experience and key expertise in AML, are almost negligible.
According to UNODC Consultant Jans Beens, of the about 200,000 cases of suspicious transactions that are reported annually to authorities in the Netherlands, 20 per cent (40,000) are forwarded for investigations.
Of these, only 0.5 per cent (200 cases) are forwarded for prosecution with a handful of these getting successfully prosecuted.
A recent report by the Central Bank of Switzerland and Transparency International show that Sh72 billion and Sh700 billion respectively has been stashed away by Kenyans in foreign accounts in money laundering activities.