Implications of Kenya’s FATF Greylisting

Kenya’s FATF Grey Listing – A Wake up Call to Fight IFFs in the country

Kenya’s greylisting by the Financial Action Task Force (FATF) on 23rd February 2024 has set an alarm in the nation’s financial sector since it poses challenges in international trade. This has resulted from deficiencies in anti-money laundering (AML) and counter-terrorism financing (CFT) controls, exposing Kenya’s vulnerability to illicit financial flows (IFFs).

What are IFFs and Why do they Matter?

IFFs are often referred to as cross-border transactions of money illegally earned, transferred or used. According to Global Financial Integrity (GFI), Illicit Financial Flows (IFFs) are illegal movements of money or capital from one country to another. This can include corruption, tax evasion, trade mis invoicing, terrorist financing, money laundering and proliferation financing.

Implications of Kenya’s FATF Greylisting
Implications of Kenya’s FATF Greylisting

Research by GFI shows that every year Kenya loses billions of shillings through illicit financial flows (IFFs) driven by corruption, trade mis invoicing, money laundering and tax evasion. The country loses much needed revenue, smothering development in Kenya.

Kenya’s FAFT GreyListing

Kenya’s grey listing has a negative impact on the nation’s economy besides tarnishing its reputation. Kenya was grey listed due to: lack of a clear strategy on the prosecution of money laundering offences,inadequate investigations, or prosecutions of legal or natural persons for terrorist financing offences despite conducting several investigations related to terrorism which created a mismatch when considering the risk profile,largely unregulated Non-Profit sector hence the risk of terrorism financing abuse remains unidentifiedNational Risk Assessment (NRA) indicated that fraud, forgery and drug-related offences form the greatest risk to the country, but recovery from the said crimes was quite low as compared to recoveries made for misuse of resources and corruption.

Impact of Grey-Listing on Kenya.
  • Increased Scrutiny: Being on the grey list means stricter monitoring by international financial institutions. Potential Loss of Investments: Foreign investors may be wary of doing business in a grey-listed country therefore discourage investments crucial for Kenya’s economic growth.
  • A Call for Reform: The greylisting highlights the urgency for reforms through strengthening AML/CFT regulations, improving law enforcement capacity, and establishing public registries of beneficial ownership (who ultimately owns companies) are crucial steps.

Kenya’s greylisting is a pointer to the challenges posed by IFFs. While the road to delisting by FAFT will be challenging, it presents a unique opportunity to address vulnerabilities and create a more robust financial system. By prioritizing AML/CFT reforms and tackling IFFs, Kenya can not only improve its international standing but also safeguard its economic future and ensure resources reach those who need them most.

What Next?

  • Legislative Reforms: Updating AML/CFT laws and ensuring effective implementation is critical.
  • Law Enforcement Enhancement: Equipping investigative agencies with resources and expertise to tackle complex financial crimes is essential.
  • Public Awareness: Educating the public on IFFs and their impact can foster a culture of financial transparency.

Author: Gladys Njoki

Leave a Reply

Your email address will not be published. Required fields are marked *