Although many people in our nation are struggling to make ends meet, there are a select few who are living in a world of excess. These individuals are driving fancy automobiles, purchasing mansions, and calling themselves business moguls, despite the fact that no one can exactly explain the enterprises that they claim to operate.
The contrast is stark and bitter. Rising taxes and the failure of enterprises leave the majority of people struggling to make ends meet, gradually fading away their hopes for a better life.
Although the economy is growing at a 5.6% rate, the majority of people perceive this as a harsh joke. More businesses are closing due to the high cost of living, widening the gap between rich and poor.
A survey by the real estate company Knight Frank indicates that Nairobi has become the sixth-fastest-rising market in the world as a result of the 6.6% increase in property prices that recently occurred in the city.
If you are affluent, this is a time of prosperity; yet, if you are not wealthy, it is a time of uncertainty, as you watch an ever-increasing number of people sink under the weight of a broken system.
A government study indicates that trade mispricing and paper falsification lead to significant illegal money flows. The report also reveals compliance gaps in industries such as real estate and casinos.
The scope of Kenya’s shadow economy is becoming a topic of inquiry as the number of probes continues to grow.
Following the publication of a report by The Financial Reporting Centre (FRC), an agency within the National Treasury, which explained that the most suspicious transactions involve funds coming to Kenya from Somalia, the United Arab Emirates, and South Africa, followed by Uganda, the Democratic Republic of the Congo, and North America, some experts believe that illegal money is the driving force behind the economy.
The fact that monies have been exiting the nation to countries such as the Democratic Republic of the Congo, Somalia, and Mozambique, in addition to Uganda and Rwanda, is more problematic. This describes Kenya as a transit hub for financial crimes.
Kenya is losing capital investment dollars to nations with less stringent money laundering regulations, as the laundered money is illegal. According to the most recent assessments from the International Monetary Fund (IMF), both the Democratic Republic of the Congo (DRC) and Mozambique have laws that are considered inadequate.
According to the research, Kenya is a conduit for illegal financial flows, with over USD 1 billion (Sh129 billion) leaving the nation in 2023, while just $400,970,874 (Sh52 billion) entering the country. This depicts a bleak image of Kenya as a gateway for foreign exchange.
The euro transactions showed a total of €34,119,606 coming in and €2,978,317 going out. In terms of British pounds, the data showed an inflow of £334,000 and an outflow of £405,525. The report describes the inflow of 118,700,440 Kenyan Shillings (KES) into the nation and the outflow of 11,025,000 KES.
Beginning in 2017 and continuing until 2022, the agency recorded 5,100 suspicious transaction reports (STRs) per year. The overall number of reports received in 2023 was 6,633, which represented a significant rise from the tally of 6,064 in 2022.
According to the study that was released this month, “the banking sector has consistently comprised the majority of STRs reporting.”
Through the use of mobile platforms, bank transfers, remittance providers, cash smuggling, and virtual assets, the study also highlighted the movement of money, which makes it more difficult for authorities to monitor illegal operations.
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According to the study, the total number of Cash Transaction Reports (CTR) received in 2023 was 11,079. This figure represents a 9.1 percent increase in the number of CTRs received in comparison to the previous year, which had 10,159.
The results of the FRC indicate that while there has been a rise in reporting, loopholes continue to exist. This is especially true in industries like real estate, law firms, and casinos, where inadequate monitoring and enforcement continue to make it possible for illegal transactions to take place.
In his explanation, prominent lawyer Ahmednassir Abdullahi, who had previously criticized Parliament for failing to thoroughly investigate Cabinet appointments during the vetting process this year, said that the primary reason politicians enter politics is to earn a fortune.
At the same time that politicians in industrialized nations strive to make a difference in the world, he bemoaned the fact that their counterparts in East Africa seem to be more concerned with their own personal prosperity.
In the year 2022, everyone has disclosed their net worth. As an example, X, who was Y years old, had a net worth of 250 million Kenyan Shillings. This brings the total to Sh350 million,” he added. “Eighteen months later, X announces a net gain of Sh100 million, taking the total to Sh350 million.”
“The vetting committee is not expecting you to make Sh250 million in your prime 25-year life span,” the committee said. If you did not have any other enterprises, how did you manage to generate 100 million dollars in 18 months on a salary of two million shillings per month?
In a news article, the government concedes that a covert economy exists and flourishes behind the scenes. Illegal money fuels this economy, flowing through casinos, law companies, real estate transactions, and local savings and credit cooperatives (SACCOs).
The Financial Reporting Centre (FRC), an organization within the National Treasury, along with economic experts, has issued a warning that the illicit activity known as “Wash Wash” occurring on Nairobi’s streets poses a significant threat to the integrity of Kenya’s financial system.
This situation is causing the government to borrow more money, thereby denying residents access to essential public services and enabling billions of dollars in corrupt transactions to escape the nation.
The Financial Reporting Council (FRC) has released research that throws more light on the worrying extent of money laundering. The paper reveals how criminals take advantage of weak rules, trade mispricing, and cross-border financial operations in order to launder massive amounts of money.
In 2023, reporting institutions received a total of 6,631 complaints, and two reports came from walk-in cases or whistleblowers. This month’s research reveals a twelve percent increase compared to 2022.
The Financial Reporting Council (FRC) discovered a pattern of money laundering based on commerce after studying suspicious transactions linked to tax offenses.
At a certain point in time In response to suspicions of tax fraud and money laundering, the Directorate of Criminal Investigations (DCI) issued a statement to the directors of Green Seal Properties and Zefus Properties Limited on May 16.
The statement was for the purpose of recording the directors’ statements. This new information sheds light on the intricacy and scope of financial crimes in Kenya, highlighting the degree to which illegal financial activities are pervasive in important industries such as the corporate world and the real estate market.
According to the study, it is common practice to invoice products or services at either inflated or deflated prices in order to conceal the true nature of transactions.
The research emphasizes that increased activity among enterprises and government agencies during the closure of the financial year is responsible for the increase in STRs during June, July, and August. The settlement of outstanding commitments marks this period.
In addition, the research states that in the year 2023, law enforcement authorities were prosecuting 296 complaints, which represents an increase of 83% compared to the previous time period. According to the report, the Department of Criminal Investigation (DCI), the National Investigation Service (NIS), and the European Anti-Corruption Commission (EACC) have all increased their investigations.
The DCI has increased its caseload to 66 cases over the course of two years, while the EACC’s efforts have increased by 218%. Additionally, the KRA is investigating 79 instances related to tax-related money laundering.
According to the report, the Centre received 511 inquiries from law enforcement authorities in 2023 about incidents that included money laundering.
Over the course of two years, the EACC saw a 218 percent rise in the number of probes, which amounted to 71 in total. Of these, 4 were under review, and 67 were under investigation.
The research titled “Analysis of STRs connected to foreign accounts identified risks such as foreigners creating accounts with minimal KYC documents, preferring numerous cash contributions, and internet wire transfers to/from offshore intermediaries.” These are just a few of the risks that this analysis has identified.
The NIS initiated 154 investigations, marking an increase of 80 percent. Of these, sixty were responsible for the gathering of new material, ninety-four provided further data, ninety-nine were shared with law enforcement, and sixty-five are still being collected.
When the KRA initiated 83 investigations—a 52 percent increase—there were 79 investigations under investigation and four under review.
The American Revenue Agency (ARA) began 84 investigations, which is a forty percent increase. Of these, 76 are now under investigation, 11 have resulted in judgments, 18 have forfeiture petitions, 28 are under preservation, and 26 are under inquiry and investigation.
The Standard conducted interviews with economists who characterized the issue of money laundering as a complex challenge for the economy.
The government is losing development capital and tax income as a result of money being siphoned away via corruption and stashed in tax havens.
Dr. Mumo Muindi, a development economist, stated that this suggests a need for increased borrowing due to the reduction in capital expenditures.
In the course of presenting audit findings for a variety of nations, the auditor general called out a number of governors for their enormous legal expenses, despite the fact that they had legal departments. This comes at a time when the 47 counties are struggling to deal with outstanding legal fee bills that total Sh56 billion.
According to the study, the Office of the Auditor General (OAG) said that the Nairobi City County Government was in debt to the tune of ten billion shillings. “As of this moment, the county has distributed a total of Sh287 million to a number of different legal companies,” said Johnson Sakaja, the governor of Nairobi.
In its research, the Financial Reporting Council (FRC) emphasized the rising role that professional institutions play in promoting illegal transactions. These institutions include law firms and real estate companies. The use of law firms for the purpose of money laundering is becoming more common, while real estate is becoming an increasingly fertile ground for the concealing of illegal income and sources of corruption.
The study identified several real estate companies and twenty-four of Kenya’s forty-seven casinos as having violated anti-money laundering (AML) rules due to their failure to comply with these standards. According to the findings of the inspections, these companies often do not have enough anti-money laundering procedures, personnel training, or due diligence on their clients.
According to the research, Kenya’s position, in conjunction with its lack of robust regulatory structures, makes it an appealing conduit for the laundering of money across international borders and the funding of terrorist organizations. The FRC research uncovered a concerning trend of cash flowing between nations with established links to terrorism, such as Somalia, Uganda, and Kenya.
The analysis, which examines the year 2023, included profiles of eighty real estate agencies, of which twenty-four were of high risk. In addition, the Centre examined 47 casinos and determined that 24 of them posed a significant risk.
Compliance with anti-money laundering (AML) and countering the financing of terrorism (CFT) procedures was the primary focus of these inspections. These measures included customer due diligence, transaction monitoring, reporting suspicious activity, record-keeping, and financial penalties connected to terrorist funding and proliferation finance.
In addition, the proliferation of mobile platforms, remittance providers, and virtual assets has made it more difficult to monitor actions related to money laundering. The study outlined various methods, such as using proxies, stolen identities, or storing illicit money with mules or valuable assets for later use. It is common practice to utilize these monies to support a variety of illegal activities, such as terrorism, recruiting, operations, and the acquisition of weapons.
Given Kenya’s strategic position and its proximity to nations known to engage in terrorist operations, the analysis concludes that Kenya faces the risk of becoming a crucial hub for funding terrorist activities.
The study revealed that money laundering persists in Kenya, despite increased monitoring and ongoing investigations. Insufficient enforcement in crucial areas exacerbates this issue. According to the report, the real estate industry is a hub for corrupt people and criminal companies, which in turn drives up property prices and distorts the housing market.
It was stated in the report that the majority of foreigners who were involved in money laundering were arrested because they did not possess the necessary documents to be in the country, their work permits did not correspond to the activities they were engaging in, they were registered in Kenya but did not have a physical address, their clients were not citizens or residents of Kenya, the legal structure of the company had been altered multiple times, and they were a foreign entity with complex ownership structures.
Red flags associated with foreigners included accounts funded by multiple cash deposits followed by wire transfers, all online transactions, the transfer of funds from one overseas intermediary to multiple overseas intermediaries, the provision of irrelevant documents, the falsity or counterfeiting of documents, and the movement of funds that did not align with the stated purpose of the document.
Utilizing consulting agreements to conceal and legitimize the transit of illegal funds is the foundation of service-based money laundering, which is based on the exploitation of the trade in services or other intangibles. It is common practice to employ foreign account typologies to incorporate unlawful monies into the normal financial system. These account typologies span a broad variety of non-quantifiable services. The research also highlighted other themes, including software providers from the gaming and business software industries, the financial services sector, and virtual asset wealth management.
Economist Dennis Kabara noted that “money laundering has had a disproportionately negative impact on the economy, which has resulted in overall price increases across all industries.” Money laundering has impacted the real estate market, contributing to the high cost of homes. Not only has this compromised the government’s ability to deliver services, but it has also artificially distorted the value of the shilling.
“Money laundering is the reason Kenya has to borrow a significant amount of money, following lost tax income and investment capital,” he stated. Increases in inflation and interest rates, as well as a decrease in foreign direct investments, are all indirect consequences of this.
The government’s efforts to stop money laundering have struggled to keep up with the situation. CBK and other experts contend that even while the Proceeds of Crime and Anti-Money Laundering Act (POCAMLA) of 2017 has been an important instrument in the fight against illegal financial flows, tougher measures are required to plug the regulatory gaps that continue to make illegal activity possible.
The Financial Reporting Council (FRC) has issued a study that advocates for more stringent regulatory frameworks and stricter enforcement of anti-money laundering rules. It emphasizes the need for heightened vigilance and coordination between local and international law enforcement authorities in order to bridge these loopholes and put a stop to the tide of financial crime.
Via Standard Group
