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EXPLAINER: Kenya Added To The International Money Laundering Grey List And What That Means

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The Financial Action Task Force, FATF, international crime watchdog on Friday added Kenya and Namibia to its ‘grey list’ of countries that need increased monitoring, due to inadequate curbs against money laundering and terrorism financing.

“At this Plenary, the FATF added Kenya and Namibia to the list of jurisdictions subject to increased monitoring,” the finance watchdog said in a statement.

Kenya’s Treasury had already said earlier on Friday that it had been put on the ‘grey list’. It said it was fully committed to implementing the FATF’s action plan and that the move would only have ‘minimal effects’ on the East African nation’s financial stability.

A report from the FATF last year said Kenya mainly faced risks from flows of money linked to terrorism financing from both inside and outside its borders, while cryptocurrencies posed further risks.

There are several militant groups operating in the region around Kenya, including the al-Shabab group in neighboring Somalia, which is linked to al-Qaida and has launched several attacks in Kenya in the past.

Namibia’s Financial Intelligence Centre said earlier on Friday that putting the southern African nation on the ‘grey list’ could have negative impacts on its foreign direct investment.

What ‘Grey List’ Mean For Kenya

The decision has serious implications for the country, more specifically its financial services sector as well as its ability to attract investment.

Grey listing refers to a country being placed on a list of countries under increased monitoring by the Financial Action Task Force (FATF), the global money laundering and terrorist !nancing watchdog. The FATF evaluates each member country’s implementation and effectiveness of measures to combat money laundering and the !nancing of terrorism.

Kenya has been placed on FATF’s grey list because it does not have suf!cient mechanisms in place to monitor and combat money laundering and terrorist financing activities.

The country undertook to work with the FATF to identify strategies and time frames to improve its monitoring mechanisms. Specifically, it undertook to work with the FATF on eight speci!c topics. These include increased investigation and prosecution of money laundering and terrorist !nancing activities.

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It’ll also enhance its capacity to identify, seize and con!scate the proceeds of such crimes.

Senior Banker and Economist Mohamed Wehliye alludes that lawyers are part of the problem that Kenya is facing, “One of the reasons we’ve been grey listed by FATF is because lawyers have been diluting AML/CTF legislation. 1st, they did monkey business with MPs to remove themselves from purview of AML/CTF laws. Later they agreed to self regulate as opposed to being full reporting agents.” He said.

“We are now grey listed and the whole country suffers because greedy lawyers want to conceal transactions in ‘clients accounts’ for the corrupt & all sorts of thieves. Being grey listed means we are now seen as a wash wash country run by lawyers!” He continued.

“An analysis of SWIFT data between 2004 and 2014 indicated that Grey-Listing by FATF appears to lead to a reduction of up to 10% in payments received by the listed country from the rest of the world. As a country where remittances are number 1 FX eaner, this will hit us hard!” Wehliye warned.

“Recent study by IMF in 2021, which used machine learning techniques, also found that there was a significant effect of Grey-Listing on capital inflows, with a decline on average of 7.6% of GDP when the country is added to the Grey List. This isn’t good for our ailing currency.”

“The results also suggest that FDI inflows decline on average by 3.0% of GDP, portfolio inflows decline on average by 2.9% of GDP, and other investment inflows decline on average by 3.6% of GDP. The regime needs to immediately start a project to remove Kenya from the list!” Concludes Wehliye.

Kenya also needs to improve its terrorist financing risk assessment to inform its strategy to counter the !nancing of terrorism activities. In addition, it needs to ensure the effective implementation of targeted !nancial sanctions, and create effective mechanism to identify individuals and entities targeted by such sanctions.

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Though the FATF does not explicitly require increased due diligence, grey listing will nevertheless in effect require increased due diligence. Banks dealing with cross-border !nancial “ows and companies wanting to invest in Kenya will have to vet their clients and the sources of client income better before they invest.

This can be costly and, therefore, discourage investment. The increased risk associated with Kenya could also result in higher interest rates and cost of capital.

The higher costs that domestic and international companies will incur when they trade or invest across Kenyan borders will put upward pressure on the cost of living of ordinary South Africans.

However, of probably even more significant to ordinary Kenyans is that the grey listing will likely deter foreign investment, which is needed to stimulate economic growth and job creation.

What needs to happen for the grey listing to be lifted?

Kenya needs to work with the FATF to identify strategies and time frames to improve its monitoring mechanisms. It must then implement these improvements at the latest by January 2025. This might require improved legislation and better monitoring mechanisms to red-flag potential money laundering and terrorist funding flows.

Although the country recently made a belated effort to improve its legislation to avert being grey listed, it will need to do more. Doing so will require a dedicated focus from the government to pass additional relevant legislation, fund the investigative authorities to combat money laundering and terrorist !nancing activities, and ensure the effective and speedy prosecution of individuals and institutions undertaking such crimes.

With the recent history in Kenya of state capture for private gain by individuals, some of whom are themselves probably guilty of money laundering, the onus will be on the government to show that it is serious about implementing effective legislation and mechanisms to combat money laundering and terrorist funding.

Thus, to get out of the rut of grey listing the country will have to fight the rot of money laundering and terrorist funding. The jury, or in this case the Financial Action Task Force, is still out on whether it will succeed in doing so.

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What to expect 

In February 2024, Kenya made a high-level political commitment to work with the FATF and ESAAMLG to strengthen the effectiveness of its AML/CFT regime. Since the adoption of its MER in September 2022, Kenya has made progress on some of the MER’s recommended actions including by making amendments to its AML/CFT legislation to bring its framework in closer compliance with the FATF recommendations and establishing a case management system to better manage its international cooperation requests. Kenya will work to implement its FATF action plan by:

(1) completing a TF risk assessment and presenting the results of the NRA and other risk assessments in a consistent manner to competent authorities and the private sector and updating the national AML/CFT strategies; (2) improving risk-based AML/CFT supervision of Fls and DNFBPs and adopting a legal framework for the licensing and supervision of VASPs; (3) enhancing the understanding of preventive measures by Fls and DNFBPs, including to increase STR filing and implement TFS without delay; (4) designating an authority without delay; (4) designating an authority for the regulation of trusts and collection of accurate and up-to-date beneficial ownership information and implementing remedial actions for breaches of compliance with transparency requirements for legal persons and arrangements; (5) improving the use and quality of financial intelligence products; (6) increasing ML and TF investigations and prosecutions in line with risks; (7) bringing the TFS framework in compliance with R.6 and R.7 and ensure its effective implementation; and (8) revising the framework for NPO regulation and oversight to ensure that mitigating measures are risk-based and do not disrupt or discourage legitimate NPO activity.


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