What has changed in new anti-money laundering rules?

The Treasury is collecting views on the regulations that will operationalise the amended Anti-Money Laundering and Combating of Terrorism Financing law.

The regulations will align the law that came into effect on September 15 after receiving assent on September 1 with the Proceeds of Crime and Anti-Money Laundering Regulations, 2013 (POCAMLA).

The changing global financial landscape, characterised by the increased digitisation of money transfers, has been one of the main reasons behind the seven-year push to review the POCAMLA laws.

With the drafting of the regulations, therefore, Kenyans can expect to see changes in cash reporting requirements, where previously untouched institutions are now required to participate in combating illicit financial flows.

What is Kenya’s background in effecting anti-money laundering laws?

In 2010, the Financial Action Task Force (FATF), the global money laundering and terrorism financing watchdog, placed Kenya on its grey list of countries that were deemed to carry a high risk of exposure to money laundering, drug trafficking, corruption and terrorism.

This prompted the strengthening of the Proceeds of Crime and Money Laundering Act of 2009 (POCAMLA) through new regulations issued in 2013, prompting the removal of the country from the list in 2014.

By 2016, however, emerging weaknesses in the laws were already being identified, most notably by the Central Bank of Kenya (CBK) which flagged the “informal and anonymous” large cash transactions in the banking sector that left it vulnerable to money laundering and terrorism financing.

Part of the remedy was the introduction of additional guidelines requiring those depositing at least $10,000 to disclose the source of the cash, where the money was going, what it was going to be spent on and the direct and indirect beneficiaries.

The tougher guideline on the reporting threshold was, however, the subject of a review push by the Executive, which argued that they had inconvenienced many people and businesses, but the CBK managed to resist the push to remove the threshold.

In 2017, there were further amendments to the POCAMLA, which, among other things, imposed stiffer penalties for non-compliers, and formalised the establishment of the Assets Recovery Agency (ARA) to handle cases of recovery of the proceeds of crime and money laundering.

What are some of the changes introduced by the 2023 Amendment Bill, and the subsequent regulations?

Primarily, the new changes are meant to align the country’s anti-money laundering laws to FATF standards, which include the relaxation of the cash reporting threshold to $15,000 from the previous $10,000.

The 2023 amendments have also expanded the net of designated and non-designated financial institutions required to register with the anti-money laundering watchdog, to include real estate agencies, saccos, casinos, forex bureaus and life insurance brokers.

Others are institutions dealing in precious metals and precious stones, accountants who are sole practitioners or partners in their institutions, and non-governmental organisations.

Efforts to bring lawyers under this remit, however, failed due to a need to protect client-attorney privileges. The Law Society of Kenya has instead been designated as a self-regulating body in line with the FATF standards.

These institutions shall also be required to have Anti-Money Laundering Reporting Officers, who will be at the management level and are required to independently report directly to the Financial Reporting Centre cases of suspected illicit financial activity.

The amendment also gives power to the Capital Markets Authority and the Insurance Regulatory Authority to enforce compliance with the Act among their licensees.

The CBK will also have expanded powers to vet beneficial owners of banks, in addition to the current remit covering directors and senior managers.

Are there changes in penalties for flouting the rules?

The amendments stipulate that those falling foul of the illicit cash laws will be levied fines of up to 50 percent of the flagged cash volumes, and/or a jail term of up to five years.

Currently, the law does not prescribe a jail term for such individuals but imposes a fine of up to 10 percent of the cash volumes involved.

Which countries are on the FATF black and grey lists?

As of the latest assessment dated June 2023, the blacklist of countries at high risk of money laundering and terrorism financing had three countries, namely North Korea, Iran and Myanmar.

The grey list on the other hand had 26 in total that include Kenya’s EAC neighbours Tanzania and Uganda, and the continent’s two largest economies Nigeria and South Africa.

Kenya’s heightened exposure, which prompted the updating of laws, is partly tied to its position as the East Africa’s key business and travel hub.

A 2021 task force report on the National Risk Assessment on Money Laundering and Terrorism Financing said this geo-positioning, trade inter-connectedness and high fintech use has increased the country’s vulnerability to money laundering and terrorism financing.

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