WHAT ARE THE
Money laundering and terrorism financing laws in Kenya?
Proceeds of Crime and Anti-Money Laundering Act (POCAMLA) and the Prevention of Terrorism Act (POTA)
- Customer Due Diligence (CDD): Regulated entities, including banks, financial institutions, money services businesses, lawyers, accountants, real estate agents, dealers in precious metals and stones, and other designated non-financial businesses and professions (DNFBPs), are required to establish and implement risk-based CDD measures. This includes verifying the identity of customers, obtaining beneficial ownership information, and assessing the risk associated with each customer.
- Enhanced Due Diligence (EDD): In cases where there is a higher risk of money laundering or terrorism financing, regulated entities are required to apply enhanced due diligence measures. This may include obtaining additional information, conducting enhanced monitoring, and obtaining senior management approval for high-risk relationships.
- Suspicious Transaction Reporting: Regulated entities must report any knowledge, suspicion, or reasonable grounds to suspect money laundering or terrorism financing to the Financial Reporting Centre (FRC) of Kenya. The reports should be made promptly when suspicion arises.
- Record-Keeping: Regulated entities must maintain records of transactions, customer identification information, and supporting documentation for a period of at least five years from the date of the last transaction. These records should be readily available for examination by regulatory authorities.
- Compliance Programs: Regulated entities are expected to establish and maintain effective AML/CFT compliance programs. This includes implementing internal policies, procedures, and controls to detect, prevent, and report money laundering and terrorism financing activities. Staff training and regular independent audits are also important components of these programs.
- International Cooperation: Kenya actively cooperates with international counterparts in combating money laundering and terrorism financing. This involves exchanging information, cooperating on investigations, and providing assistance to other jurisdictions when requested.
WHAT ARE THE
Key obligations reporting entities have under the laws of Kenya?
The key obligations under the AML/CTF laws in Kenya include:
- Customer Due Diligence (CDD) – Banks, financial institutions, insurance companies, real estate agents, and other reporting entities must conduct CDD to verify customer identities, determine beneficial ownership, and assess risk levels. Enhanced due diligence is required for high-risk customers, including politically exposed persons (PEPs) and entities in high-risk jurisdictions.
- Reporting Suspicious Transactions – Reporting entities are required to submit Suspicious Transaction Reports (STRs) to the Financial Reporting Centre (FRC) if they detect transactions that may indicate money laundering, terrorism financing, or other illicit activities. They must also file Currency Transaction Reports (CTRs) for transactions above specified thresholds.
- Record-Keeping – Entities must maintain records of transactions, customer identification data, and business correspondence for at least seven years. These records should be readily available for regulatory review and potential investigations.
- Compliance Programs – Covered entities must implement AML/CFT policies, internal controls, and risk management frameworks. This includes appointing a compliance officer, conducting regular staff training, implementing independent audits, and ensuring adherence to AML/CFT regulations.
- Politically Exposed Persons (PEPs) – Institutions must apply enhanced due diligence measures for PEPs, including gathering additional background information, closely monitoring transactions, and obtaining senior management approval for business relationships with such individuals.
- Beneficial Ownership Disclosure – Companies and partnerships must disclose beneficial ownership information to the relevant authorities, ensuring transparency in corporate structures and preventing the misuse of legal entities for money laundering and terrorism financing.
- Freezing and Reporting of Terrorist Assets – Entities must identify and freeze assets linked to individuals or organizations designated under terrorism financing laws and promptly report such actions to the Financial Reporting Centre and relevant authorities.
- Third-Party and Correspondent Relationships – Financial institutions must assess and monitor correspondent banking relationships and third-party service providers to mitigate AML/CFT risks. Enhanced scrutiny is required for relationships involving high-risk jurisdictions.
WHO ARE THE
ML/TF regulators in Kenya and what functions do they perform?
In Kenya, the regulators responsible for overseeing and enforcing anti-money laundering (AML) and counter-terrorism financing (CTF) measures are primarily:
Financial Reporting Centre (FRC) – The FRC is the primary regulatory body responsible for preventing and combating money laundering and terrorism financing in Kenya. It receives, analyses, and disseminates financial intelligence, issues AML/CTF guidelines, and ensures compliance with reporting obligations.
Central Bank of Kenya (CBK) – The CBK regulates and supervises financial institutions, ensuring that banks, microfinance institutions, and payment service providers implement effective AML/CTF measures. It issues regulations, conducts compliance audits, and enforces penalties for non-compliance.
Capital Markets Authority (CMA) – The CMA oversees Kenya’s capital markets, ensuring that stockbrokers, investment banks, and other market participants comply with AML/CTF regulations to prevent illicit financial flows.
Insurance Regulatory Authority (IRA) – The IRA supervises the insurance sector, ensuring that insurance companies and intermediaries comply with AML/CTF laws and implement risk-based compliance programs.
Sacco Societies Regulatory Authority (SASRA) – SASRA regulates savings and credit cooperative societies (SACCOs), ensuring they adhere to AML/CTF requirements, conduct customer due diligence, and report suspicious transactions.
Non-Governmental Organizations Coordination Board (NGO Board) – The NGO Board regulates non-profit organizations to prevent the misuse of charities for terrorism financing. It requires transparency in financial transactions and donor funding.
Asset Recovery Agency (ARA) – The ARA investigates and recovers proceeds of crime linked to money laundering and terrorism financing. It works with law enforcement to freeze and confiscate illicit assets.
Directorate of Criminal Investigations (DCI) – The DCI, through its Anti-Narcotics and Anti-Terrorism Police Units, investigates financial crimes, money laundering, and terrorism financing offenses. It works closely with the FRC and other regulatory agencies.
Office of the Director of Public Prosecutions (ODPP) – The ODPP prosecutes criminal cases related to money laundering and terrorism financing, working in collaboration with law enforcement and regulatory bodies.
Kenya is a member of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) and aligns its AML/CTF framework with international standards set by the Financial Action Task Force (FATF) to enhance its financial integrity and security.
WHAT ARE THE
Industry sectors subject to ML/TF regulations?
The regulated industries and sectors in Kenya subject to AML and CTF regulations include, but are not limited to:
Kenya's AML/CTF framework applies to both financial institutions and designated non-financial businesses and professions (DNFBPs) to ensure a comprehensive approach to preventing financial crime.
WHAT ARE THE
Penalties for non-compliance with AML/CTF laws?
In Kenya, the penalties for non-compliance with money laundering and terrorism financing laws can vary depending on the specific offence committed and the provisions violated. Here are some potential fines and penalties that may apply:
- Administrative Penalties:
- Fines: The Financial Reporting Centre (FRC) and other competent authorities have the authority to impose administrative fines for non-compliance with AML/CFT requirements. These fines can vary depending on the severity and frequency of the violation.
- Criminal Offences:
- Fines: Individuals or entities convicted of money laundering or terrorism financing offences can face fines imposed by the courts. The fines can vary based on the nature and severity of the offence.
- Imprisonment: Convictions for money laundering or terrorism financing offences can result in imprisonment for individuals involved in such activities. The length of imprisonment can vary based on the offence.
- Forfeiture of Funds and Assets:
- Authorities have the power to seize and forfeit funds and assets that are determined to be involved in or derived from money laundering or terrorism financing activities. This can include freezing bank accounts, confiscating properties, or seizing other assets.
WHAT ARE THE
Largest fines for non-compliance with AML/CTF laws?
Kenya has imposed significant fines on financial institutions for non-compliance with Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) laws. Notable enforcement actions include:
Five Major Banks Fined (2020) – In 2020, five commercial banks were collectively fined 385 million Kenyan shillings (approximately $3.75 million) for violating AML regulations. The banks penalized were:
- KCB Group – One of Kenya's largest banks, fined for failing to report suspicious transactions.
- Equity Bank – Penalized for non-compliance with AML laws.
- Co-operative Bank of Kenya – Fined for lapses in reporting suspicious activities.
- Standard Chartered Bank Kenya – Faced penalties for AML compliance failures.
- Diamond Trust Bank – Sanctioned for not adhering to AML reporting requirements.
These fines were part of broader enforcement actions following the National Youth Service (NYS) scandal, where funds were misappropriated, highlighting deficiencies in the banks' AML controls.
Increased Penalties Under Amended Regulations (2023) – Recent amendments to Kenya's AML laws have introduced stricter penalties for non-compliance. Financial institutions and their employees now face fines of up to 20 million Kenyan shillings (approximately $200,000) for failing to adhere to AML regulations.
These enforcement actions and regulatory amendments underscore Kenya's commitment to strengthening its financial system's integrity by ensuring strict adherence to AML and CTF laws.