Massive movement of hard cash into Kenya, mostly in US dollars, prompted a regional anti-money laundering watchdog to issue a damning verdict on the country’s preparedness in the fight against dirty cash.
The Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), which monitors how the region is implementing global measures against dirty cash, notes that Kenya received a suspect Sh72.2 billion in cash in the four years to 2021 that was not sufficiently explained.
The agency has in its report now asked the Kenyan government to strengthen its strategy in the fight against money laundering and terrorism financing or risk being grey-listed, a decision that would hurt the standing of Nairobi as the financial centre of the region.
The report says its analysis of the cross-border currency movement revealed that between 2017 and 2021, a total of $1.85 billion (Sh262 billion), €6.97 million (Sh1 billion), £7.80 million (Sh1.4 billion) and Sh482.84 million had left Kenya in cash.
In the same period, Kenya received $455.35 million (Sh64.4 billion), €34.34 million (Sh5.3 billion), £11.69 million (Sh2.1 billion) and Sh482.84 million. This adds up to about Sh72.2 billion using the current exchange rates.
The main port of entry for this cash was Jomo Kenyatta International Airport (JKIA). Kenya attributed the huge cross-border physical movement of cash to the robustness of its financial system as many financial institutions across the region channel their financial needs through it.
Kenya is a gateway into the region and also a financial hub with its commercial banks having operations in a number of the neighboring countries.
For example, Kenyan banks engage cash in-transit courier companies to move physical cash to their foreign branches.
"Also, several international humanitarian agencies, NGOs, agencies and embassies based in Kenya move physical currency within the region. Cash is preferred to electronic transfer to address liquidity challenges in those jurisdictions," said ESAAMLG in the mutual evaluation report for Kenya.
The assessment team noted that while the reasons given may be legitimate for the outflow, they could not explain the dollar inflows.
“While this may be a legitimate purpose of the USD outflow, the same reason cannot apply in relation to USD inflow and movement of Kenyan shillings in both directions,” the report said.
The assessment team, which came to Kenya between January 31 to February 11, 2022, for an onsite visit, was concerned that the Financial Reporting Centre (FRC) was not sufficiently analysing the cash transaction reports to develop patterns or linkages to any possible offences leading to money laundering or terrorism financing.
"In view of this, the AT (assessment team) is of the view that the FRC should still analyse the data for strategic purposes to confirm the validity of the source and destination as well as the purpose of the funds," the report noted.
Kenya is far ahead of its regional peers in the East African Community—Tanzania, Uganda, South Sudan and Tanzania— which are all on the grey list, meaning they are under increased monitoring when it comes to risks of money laundering and terrorism financing. But experts note that the gaps exposed by the report could hurt its efforts.
“I think we have a robust system of monitoring because banks have to report. But nothing is foolproof, there is a need for enhancement,” said Bernard Kiragu, the managing partner at corporate governance consultancy firm Scribe Services.
According to Mr Kiragu, although most of the money comes into the country in cash, they ultimately end up in banks, where cash transactions of amounts of $10,000 and above are vetted for anti-money laundering and combating the financing of terrorism (AML/CFC).
“Cash transactions are very rare. I don’t expect someone would do really much in cash. By and large, the money still ends up in banks. So we are not that bad,” added Mr Kiragu, noting that there is a need for enhanced training of bank staff.
This comes at a time Kenya is making changes to the law to increase the reporting threshold by 50 percent to $15,000.
Kenya avoided being grey-listed like Uganda and South Africa. However, it was asked to expedite the listing of lawyers and notaries as reporting agencies.
“Kenya has not demonstrated that competent authorities conducting investigations of money laundering, associated predicate offences and terrorist financing are able to ask for all relevant information held by the Financial Intelligence Unit (FIU),” noted the evaluation report.
The FRC is expected to receive a cross-border currency declaration report from the Kenya Revenue Authority (KRA) for currency coming in and out of the country that is more than $10,000.
The details in the report include the traveller, the means of transport, the destination and amounts in various currencies.
Customs officials have intercepted individuals, both nationals and foreigners, with huge sums of unexplained cash that the government fears are illicit.
The law requires cash of $10,000 (Sh1.42 million) and above to be declared in what is aimed at fighting money laundering.
In October last year, customs officials arrested six women who had concealed $857,300 (Sh122 million) in luggage containing shoes and clothes at the Customs Area at the JKIA.
"As usual, the bags were scanned to establish what they contained," said the KRA in a statement.
In February last year, a Kenyan man travelling from Burundi was arrested at the same airport with $2 million (Sh284.6 million) in foreign currency, which he did not declare as required by law.
In November 2021, the KRA and Posta officials said they had recovered $28,000 (Sh3.1 million) concealed in a jacket shipped into the country as a parcel from South Carolina State, USA.
Posta staff working jointly with the KRA customs officials based at City Square Post Office, Nairobi recovered the money in a suitcase containing clothes and books sent to a Nigerian national.
In December 2020, a Nigerian national Mauzu Bala, was arrested by the Assets Recovery Agency (ARA) with over Sh100 million — in 880,000 US dollars, 60,000 euros and 63,000 Nigerian naira — stacked in his handbag.
