Arzu Abbasova & Thomas Mukhwana
On 23 February 2024, the Financial Action Task Force (FATF), the watchdog responsible for setting international standards on anti-money laundering and counterterrorism financing (AML/CTF), put Kenya on the list of countries under increased monitoring, commonly known as the grey list. Kenya now joins a cohort of African nations on the list including Namibia (which was also recently added), Nigeria, South Africa, Mali, Mozambique, Burkina Faso, Senegal and Cameroon. For any seasoned FATF watcher, this does not come as a surprise, as the writing was on the wall long before the official announcement, with Kenya’s Mutual Evaluation Report (MER) of 2022 signalling its impending fate.
The MER points to Kenya’s inadequate understanding of the risks related to its cash-based economy, Non-Profit Organizations (NPOs), and virtual asset service providers. Moreover, it notes there’s a lack of effort to mitigate the risks in these sectors, leaving vulnerabilities unaddressed. Notably, Kenya’s lack of a cohesive policy dedicated to the investigation and prosecution of standalone money laundering cases also raises concerns in the report.
Lots of cases, few convictions
If you follow the news lately, you’ll notice a spike in the number of cases involving gold smuggled into Kenya and assets frozen for suspicion of being dirty. Kenya’s impoverishing corruption and its position as the ideal channel to smuggle resources plundered from other Eastern African countries such as DRC and South Sudan means that the human costs are real both within and across the border.
What’s worrying and warrants Kenya’s greylisting, is how some of these cases disappear without a conviction. The best example is the recently dropped case against a financial technology company, Flutterwave, whose 45 accounts were frozen by the High Court after a request by the Asset Recovery Agency, some allegedly for credit card fraud. Surprisingly, the ARA again moved to court to withdraw the same case it had submitted, a trend a High Court judge rightfully termed as a ‘betrayal of public trust’.
There is also the issue of terrorism financing – a big threat to public safety that Kenya has failed to tackle with the seriousness it deserves. Also, until recently, beneficial ownership records were closed and lawyers were not mandated to report any suspicious deals by their clients. Only after the IMF listed it as a condition to access financing did the government finally make a move to plug that hole. Taken all together, it paints a grim picture of the country’s financial integrity.
So how does this all stack up? Let’s just say it is a report card you would not want to show your parents. Out of 40 FATF Recommendations Kenya scored non-compliant[1] in 11 and partially compliant in 26 — it’s like getting an F and D- in most subjects at school. But the disappointment does not end there, because the effectiveness of implementing anti-financial crime measures in Kenya, according to the FATF, was no better.
How does this listing affect the average Kenyan?
For starters, Kenya stands to lose some foreign aid and foreign direct investments (FDI). A few statistics from research on the economic effects of a similar EU listing state that foreign direct investment inflows drop by 3% on average. President Ruto has been on a relentless tour across the globe seeking to increase FDI, this is now under added negative pressure.
Secondly, there might be increased scrutiny from financial institutions when transacting with Kenyans. This could potentially have far-reaching consequences. It means that there might be more checks on cash flowing through Kenya. Whether it is a Kenyan working three jobs in Canada to send money back to her family in Kajiado, or a startup moving funds from the UK, banks will have to employ stricter requirements when transacting with Kenya. This will undoubtedly affect remittance in one way or another, or delay crucial transactions. Both these effects can have trickle-down impacts on Kenyan lives and businesses.
History repeating itself
Kenya’s placement on the grey list is not a new experience. The country first found itself on the list back in 2010, taking four years to demonstrate the necessary improvements to be removed. The ramifications of greylisting are multifaceted, including reputational damage, heightened scrutiny from the international financial community, a decline in foreign direct investments and so on. Having already experienced the long and hard path to redemption, its current greylisting should be a wake-up call to learn from past mistakes. Without political will and commitment at all levels and a strong system of accountability, mere removal or inclusion on the grey list will not guarantee lasting change, as history has shown.
Where do civil society and investigative journalists fit in all this?
While the government bears the primary responsibility to steer Kenya out of the grey list, there is also a significant role for civil society organisations and investigative journalists to hold the government to account and ensure that any reforms are not just cosmetic but are embedded in Kenya’s financial infrastructure. Civil society organisations and investigative journalists can leverage their expertise to drive the agenda in specific areas, such as complete transparency of beneficial ownership registries and other anti-corruption measures. They can also play a key role in raising public awareness about illicit financial flows in Kenya, fostering a broader understanding of the issues at hand, and closely monitoring and tracking all government pledges made during the period of navigating the country out of the grey list.
The harsh reality is staring Kenya in the face: the road ahead to exit the grey list is long. Yet, the task this time is even more complicated. It’s not merely about getting the country off the list, it’s also about ensuring that Kenya doesn’t find itself back on it yet again. This time, the stakes are higher, and the need for genuine, lasting change is paramount. Kenya does not need Band-Aid solutions but sustainable reforms to strengthen its financial integrity. This demands a collective effort with the government collaborating closely with civil society and investigative journalists to pave a way for a more resilient financial future for Kenya.
Arzu Abbasova is a Research Analyst for the Centre for Financial Crimes and Security Studies. She works on CFCS’s Restricting Kleptocracy project, managing related communications and engaging with stakeholders.
Thomas Mukhwana is a journalist and fact-checker based in Nairobi. He has a passion for investigative and data journalism, producing content that sheds light on critical issues in the community.
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