An amendment to Kenya’s legislation against money laundering and terrorist financing was signed into law on 17 June. The act aims to address deficiencies that saw Kenya grey-listed in February 2024 by the Financial Action Task Force (FATF), after remaining off the list for 10 years.
Grey-listing means the country is under increased monitoring and is working with FATF to improve its ability to counter money laundering and terror financing using existing laws, policies and strategies. Being on the list harms Kenya’s investment attractiveness and undermines its credibility as a reliable regional partner.
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FATF found that Kenya could not show any successful investigations or prosecutions of money laundering despite its high-risk profile, and lacked a clear strategy to do so. Terrorist financing investigations and prosecutions were also inadequate, despite the country conducting several such investigations.
Although Kenya has numerous non-profit organisations (NPOs), FATF said the sector was largely unregulated – presenting a risk for terrorism financing. It recommended legal revisions ‘to ensure that mitigating measures are risk-based and do not disrupt or discourage legitimate NPO activity.’
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Kenya’s opaque handling of beneficial ownership disclosures could allow politically exposed persons to own and launder corruption proceeds through fake entities. Inadequate monitoring of entities such as savings and cooperative organisations, law firms, real estate agencies, casinos and gambling companies was also noted. And Kenya lacks frameworks to regulate virtual assets and service providers, risking their use, including cryptocurrencies, in money laundering and terrorist financing.
The country has taken steps to address these concerns. The Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), which provides mutual evaluation reviews for member states, noted Kenya’s progress in resolving some technical compliance shortcomings. By August 2024, 29 of the 40 ESAAMLG recommendations were considered adequately addressed.
Perhaps Kenya’s most significant progress has been passing the 2025 Anti-Money Laundering and Combating of Terrorism Financing Act, which itself amended several other relevant laws.
High Court Advocate Wendy Muganda said the act introduced significant changes. It enhances the Financial Reporting Centre’s oversight over banks, financial institutions and designated non-financial businesses and professions. These entities must now implement enhanced due diligence on high-risk customers, politically exposed persons and large cash transactions.
The act also introduces stricter know-your-customer requirements and mandates more frequent reporting of suspicious transactions to the Financial Reporting Centre. Stricter penalties and increased criminal liability are mandated for those who don’t comply with the new provisions. The act also makes it hard for criminals to hide illicit funds in shell companies, and strengthens cross-border information sharing.
However, key hurdles remain – particularly the government’s commitment to enforcing the provisions, especially against well-connected individuals who may use their positions to launder the proceeds of crime and corruption.
Also, the country has historically struggled to implement similar laws and policies. Organisations such as the Financial Reporting Centre, Ethics and Anti-Corruption Commission and other specialised agencies need additional resources and independence to work effectively.
Bernadette Nzomo, Research and Policy Head at Kenya’s Public Benefit Organisations Regulatory Authority, said government had identified eight potential features of NPOs that may be ‘at risk’ of terrorist financing. The authority can initiate investigations with other state agencies and take action against those engaging in terrorist financing and money laundering. Investigations of NPOs would be done with minimal disruptions to their service delivery, she said.
However, there are concerns that these institutions might be used to target political opponents as a means to settle scores and undermine justice and fairness.
According to a civil society activist who requested anonymity, ‘There are fears that the government’s regulatory agencies may use the new laws and recommendations from the FATF to constrict civic space and clamp down on vocal civil society organisations that call for accountability, good governance and adherence to human rights.
“A prominent human rights organisation was once blacklisted for terror financing for being vocal against enforced disappearance and extra-judicial killings. We must ensure that it does not happen.”
Youth protesters were recently charged under terrorism laws, showing how laws can be used in Kenya to constrict civic space. In 2021, FATF even launched a review of the unintended consequences of its measures, investigating whether they were responsible for derisking, financial exclusion and suppressing NPOs and human rights.
Political will is the biggest factor determining whether the amendments are effectively implemented and FATF-cited deficiencies are remedied. The government must also empower state regulatory and compliance agencies to curb money laundering, corruption and associated organised crimes.
Public awareness is needed to explain the amendments to stakeholders and allay fears and misconceptions. An example of such outreach is the “Talk to Your Regulator initiative” organised by the Kenya NPO Working Group on FATF in partnership with the Public Benefit Organisations Regulatory Authority.
By strengthening laws and closing loopholes in the financial and NPO sectors, the Anti-Money Laundering and Combating of Terrorism Financing Act is a step in the right direction for Kenya. It will hasten the country’s removal from the FATF grey list, boosting investor confidence.
If implemented with the right motives and resolve, transnational criminal networks and terrorist organisations will struggle to invest the proceeds of crime and move funds through Kenya’s financial institutions and NPO sectors.
Halkano Wario, East Africa Regional Organised Crime Observatory, ENACT, Institute for Security Studies (ISS) Nairobi
ENACT is funded by the European Union and implemented by the Institute for Security Studies in partnership with INTERPOL and the Global Initiative against Transnational Organized Crime.
(This article was first published by ISS Today, a Premium Times syndication partner. We have their permission to republish).
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