According to the 2007 U.S. Department of State (DoS) Report, Kenya does not have an effective anti-money laundering (AML) regime and has not yet criminalized terrorist financing. The 2007 World Bank Annual Report on Kenya notes that Kenya has taken steps towards implementing Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) legislation; and has also been building capacity against money laundering and terrorism financing, notably with the establishment of the National Task Force on Anti-Money Laundering and Combating Financing of Terrorism in 2003. The 2007 U.S. DoS report also refers to the 2006 anti-money laundering proposed legislation titled "Proceeds of Crime and Anti-Money Laundering Bill," which was expected to be reintroduced in 2007. However, no further information is available as to the passage of the bill. Further, the World Bank informs that the Central Bank of Kenya (CBK) has plans to adopt an AML policy to be followed by all financial institutions licensed under the Banking Act. Kenya has also continued to enhance the investigative capacity of the Kenya Anti-Corruption Commission and the Office of the Attorney General. However, the reform process appears to have suffered a setback with a challenge to the CBK's AML related supervisory authority by court rulings.

General Overview

According to a 2007 U.S. Department of State (DoS) report, Kenya does not have an effective anti-money laundering (AML) regime, and has not yet criminalized terrorist financing, and has ineffective rules on freezing and seizure of funds related to money laundering and terrorism financing. The "Kenya Country Assistance Strategy Progress Report, 2004-2008," published by the World Bank in 2007 states that Kenya introduced anti-money laundering (AML) and proceeds of crime legislation at the end of 2006 pursuant to the Kenyan Governance Action, and a draft bill to that effect was finalized in October 2006 and was expected to be passed by May 2007. The 2007 U.S DoS report also refers to the 2006 anti-money laundering legislation titled "Proceeds of Crime and Anti-Money Laundering Bill," which was expected to be reintroduced in 2007. However, no further information is available as to the passage of the bill.

Per the 2007 World Bank Report, the Central Bank of Kenya (CBK) planned to adopt an AML policy to be followed by all financial institutions licensed under the Banking Act by June 2007. The 2007 IMF Report titled "Kenya: Poverty Reduction Strategy Annual Progress Report - 2004/2005," adds that, along with steps towards implementing Anti-Money Laundering/Combating Financing of Terrorism (AML/CFT) legislation; Kenya has also been building capacity against money laundering and terrorist financing, notably with the establishment of the National Task Force on Anti-Money Laundering and Combating Financing of Terrorism in 2003. Further, per the 2007 World Bank Report, Kenya has continued to enhance the investigative capacity of the Kenya Anti-Corruption Commission (KACC) and the Office of the Attorney General. However, no further information regarding Kenya's progress in these areas is publicly available. The reform process, according to the 2007 World Bank Report, also appears to have suffered a setback with a challenge to the CBK's AML related supervisory authority by court rulings.

The 2007 U.S. DoS Report adds that Kenya is fast becoming a major hub for money laundering, and recommends that to stem the tide, Kenya should pass effective AML legislation at the earliest, create a financial investigation unit (FIU), reinforce cooperation between law enforcement agencies in the country, including the CBK and the Ministry of Finance, and tighten licensing and supervision of financial institutions. According to the same report, law enforcement authorities in Kenya include the CBK's Banking Fraud Investigation Unit (BFIU), the Kenya Police (through the Anti-Narcotics Unit and the Anti-Terrorism Police Unit), the Kenya Revenue Authority (KRA), and the KACC. The 2007 U.S. DoS report also refers to a major money laundering case in Kenya where Charterhouse Bank management committed account irregularities, and evaded taxes, import duties and audit to launder funds to the tune of $500 million from 1999 to 2006. The Charterhouse managers were also found guilty of violating the CBK's basic know-your customer guidelines and the CBK Prudential Guidelines for suspicious transactions reporting (STR), record keeping, internal controls, audit evasion, and illegal transfer of funds. The Bank's license was revoked, but investigations revealed a pervasive abuse of the country's inadequate ML regime, and laundered funds worth $100 million every year. The 2007 IMF Report finds that in 2005-2006, the KACC prosecuted 78 ML and economic crime cases, with an estimated value of Kenyan Shilling (Ksh) 8.5 billion.

The Principles

1. Legal Systems and Related Institutional Measures

NC

The 2007 U.S. DoS report states that Kenya does not have an effective AML regime However, according to the same report, there are certain provisions of related Acts that criminalize money laundering. For instance, Section 49 of the Narcotic Drugs and Psychotropic Substance Control Act of 1994 criminalizes money laundering related to narcotics trafficking with a 14 year prison sentence. Further, Legal Notice No. 4 of 2001 and the CBK Guidelines on Prevention of Money Laundering also make money laundering a criminal offense. The 2007 U.S. DoS report notes that there have been no money laundering prosecutions under these provisions. According to the report, the Government of Kenya proposed a Proceeds of Crime and Anti-Money Laundering Bill in November 2006 to substantially expand its money laundering regime, with provisions on STR, the creation of an FIU, confiscation, freezing and seizure of proceeds of crime, and designated nonfinancial businesses and professions (DNFBPs); the bill lapsed in December 2006, but the Government intended to table it again in 2007. However, no further information is available as to the passage of the bill.

The 2007 U.S. DoS report further notes that despite being a party to the United Nations (UN) Convention for the Suppression of Financing of Terrorism, Kenya does not criminalize TF as required by the United Nations Security Council Resolution (UNSCR) No. 1373. The Suppression of Terrorism Bill has been introduced in 2003, and redrafted in 2006, but faces stiff opposition from human rights and Muslim groups. The CBK also does not distribute the list of persons included on the UN 1267 Sanctions Committee's consolidated list or the United States Office of Foreign Asset Control (OFAC) designated list to the regulated financial institutions, but uses its bank inspection process to identify those on the OFAC list. However, this power also does not appear very effective.

The 2007 U.S. DoS Report adds that seizure and forfeiture laws are ineffective. Law enforcement authorities include the CBK's Banking Fraud Investigation Unit (BFIU), the Kenya Police (through the Anti-Narcotics Unit and the Anti-Terrorism Police Unit), the Kenya Revenue Authority (KRA), and the KACC. However, their powers are seriously limited by legislative handicaps and corruption. In this regard, the Report recommends Kenya pass enabling legislation and increase cooperation between law enforcement authorities, including the CBK and the Ministry of Finance (MoF). In addition, their powers, training and monitoring capabilities need to be enhanced. Additionally, according to the 2007 U.S. DoS Report, cross-border currency controls are lax, although the September 2002 Guidelines require foreign exchange dealers to ensure that cross-border flows are not illegal financial transactions.

2. Preventive Measures - Financial Institutions

II

There is insufficient information publicly available regarding Kenya's compliance with this Principle. Per the 2007 U.S. DoS report, Kenyan financial institutions are supervised by the CBK. The amended Banking Act, the CBK, and the Kenya Bankers Association (KBA) Guidelines have provisions for customer identification, record keeping, especially for foreign currency transactions, suspicious transactions reporting, and disclosure of information by the CBK to domestic or foreign financial regulatory authorities. However, enforcement mechanisms do not exist, and there have been no money laundering prosecutions, convictions, or arrests, encouraging serious and recurrent violations. STR is discouraged because of inadequate "safe harbor' provisions, that effectively penalize STR-reporting institutions. The 2007 U.S. DoS report further notes that the CBK does not distribute the list of persons included on the UN1267 Sanctions Committee's consolidated list or the United States Office of Foreign Asset Control (OFAC) designated list to the regulated financial institutions, but uses its bank inspection process to identify those on the OFAC list. However, this power also does not appear very effective.

3. Preventive Measures - Designated non-Financial Business and Professions

II

There is insufficient information publicly available regarding Kenya's compliance with this Principle. However, according to the 2007 U.S. DoS report, Kenyan DNFBPs, like foreign exchange bureaus and mortgage companies, are supervised by the CBK, whereas casinos are supervised by the Minister of Home Affairs. However, the Report finds the supervision of this sector to be ineffective. The CBK has however enforced new guidelines under the Central Bank of Kenya Act in 2007 to regulate foreign exchange bureaus. Further, the Report notes that a bill to be tabled in Parliament in 2007 places STR requirements on DNFBPs, including casinos, real estate agencies, precious metals and stones dealers, and legal professionals and accountants.

4. Legal Person and Arrangements & Non-Profit Organizations

II

The 2007 U.S. DoS report observes that charitable and nonprofit organizations (NPOs) in Kenya are registered with the government and fall under the oversight of the National Non-Governmental Organization Coordination Bureau, a government agency. The NPOs are required to file annual returns with the Bureau, though enforcement is weak, and returns are either incomplete or inaccurate, undermining transparency. However, there is little information publicly available directly addressing Kenya's compliance with this Principle.

5. National and International Co-operation

II

According to the 2007 U.S. DoS report, Kenya is a signatory of the 1988 UN Drug Convention, the UN International Convention for the Suppression of the Financing of Terrorism, the UN Convention against Transnational Organized Crime, and the UN Convention against Corruption. Kenya is also an active member of the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG), a Financial Action Task Force (FATF)-style regional body, and has informal information sharing arrangements with the United States and the United Kingdom. Nonetheless, there is insufficient information publicly available regarding Kenya's compliance with this Principle.