KENYA SUBMISSION FOR INSCR PART II, MONEY

UNCLAS NAIROBI 000259

SIPDIS

SIPDIS

DEPT FOR EB/ESC/TFS
USAID FOR AFR/EA
JUSTICE FOR OIA AND AFMLS
TREASURY FOR FINCEN

E.O. 12958: N/A
TAGS: EFIN KCRM KTFN PTER SNAR KE
SUBJECT: KENYA SUBMISSION FOR INSCR PART II, MONEY
LAUNDERING AND FINANCIAL CRIMES

REF: 05 STATE 210324

SENSITIVE BUT UNCLASSIFIED. FOR USG USE ONLY.


1. Per Ref A request, below is post's submission for Part II
of the INSCR Report on Money Laundering and Financial Crimes.
Unfortunately, there has been very little change in the
conditions, laws, or policies surrounding money laundering
and financial crimes (and many other issues) since last
year's submission. Therefore, the text below is a lightly
edited version of last year's published report on Kenya. A
red-lined version has also been e-mailed to
rindlerep@state.gov and Kenya Desk Officer Susie Pratt.


2. Begin Text

As a regional financial and trade center for East, Central,
and Southern Africa, Kenya's economy has a large informal
sector and a thriving network of cash-based, unrecorded
transfers, primarily used by expatriates to send and receive
remittances internationally. As such, Kenya is vulnerable to
money laundering. Recently Kenya has taken steps to trace
millions of dollars of public funds that were laundered
abroad; corruption facilitated the removal of the money.

Section 49 of the Narcotic Drugs and Psychotropic Substance
Control Act of 1994 criminalizes money laundering related to
narcotics trafficking. Narcotics-related money laundering is
punishable by a maximum prison sentence of 14 years, though
up to now no clear instances of laundering of funds from
narcotics trafficking appear to have come to light. The
Central Bank is the regulatory and supervisory authority for
Kenya's deposit taking institutions and has responsibility
for 46 financial institutions and 93 forex bureaus. The
Kenyan
Parliament passed legislation at the end of 2004
strengthening
the Central Bank's supervisory authority, but without
specific
reference to money laundering.

In October 2000, the Central Bank issued regulations that
require deposit institutions to verify the identity of
customers wishing to open an account or conduct a
transaction. The regulations also stipulate that these
institutions report suspicious transactions. Under the
regulations, banks must maintain records of large
transactions and report them to the Central Bank. These
regulations do not cover nonbank financial institutions such
as money remitters, casinos, or investment companies, and
there is no enforcement mechanism behind the regulations.
Some banks do file suspicious transaction reports
voluntarily, but they run the risk of civil litigation as
there are no adequate "safe harbor" provisions for reporting
such transactions to the Central Bank. The trigger amount is
also very high: on a daily basis, all commercial banks are
required to submit reports detailing all transactions greater
than $100,000. Controls on money laundering as such are
rarely if ever applied to financial institutions or
intermediaries outside the banking sector.

Kenya has little in the way of cross-boundary currency
controls. Kenyan regulations require that any amount of cash
above $5,000 be disclosed at the point of entry or departure.
In reality this provision is rarely enforced. Central Bank
guidelines call for currency exchange firms to furnish
reports on a daily basis on any single foreign exchange
transaction above about $10,000, and on cumulative daily
foreign exchange inflows and outflows of about $100,000.
Under September 2002 guidelines, foreign exchange dealers are
required to ensure that cross-border payments are not
connected with illegal financial transactions.

The Banking Act amendment of December 2001 authorizes
disclosure of financial information by the Central Bank of
Kenya to any monetary authority or financial regulatory
authority within or outside Kenya. In 2002, the Kenya Bankers
Association issued guidelines requiring banks to report
suspicious transactions to the Central Bank. These guidelines
do not have the force of law and only a handful of suspicious
transactions have ever been reported.

Kenya is a party to the 1999 UN International Convention for
Suppression of the Financing of Terrorism. It has cooperated
fully with the United States and the UK, but does not itself

have the investigative skills, institutional capacity, or
equipment to conduct complex investigations independently. In
April 2003, the GOK introduced the Suppression of Terrorism
Bill into Parliament. The bill contains provisions that will
strengthen the GOK's ability to combat terrorism, but the
legislation is opposed by many for fear of human rights
violations, not because of the bill's antiterrorism aspects
as such. The public does support the government's attempts to
increase transparency and to clean up corruption, which
include its efforts related to money laundering.
There is no legislation permitting the seizure of the
financial assets of terrorists. All charitable and nonprofit
organizations are registered with the Government and have to
submit annual reports. Noncompliance could lead to
de-registration; however, this is rarely enforced. The
government did de-register some NGOs with Islamic links in
1998 in the wake of the bombing of the U.S. Embassy in
Nairobi, although they were later re-registered.

Kenya is a party to the 1988 UN Drug Convention. Kenya is an
active member of the Eastern and Southern African Anti-Money
Laundering Group (ESAAMLG),a FATF-style regional body. Kenya
has an informal agreement with the U.S. for the exchange of
information regarding narcotics, terrorism financing, and
other serious crime investigations.

At present the government entities responsible for tracing
and seizing assets include the Central Bank of Kenya Banking
Fraud Investigation Unit, the Kenya Police through the
Anti-Narcotics Unit and the Anti-Terrorism Police Unit, and
the Kenya Revenue Authority.

The passage of anti-money laundering legislation and the
creation of a financial intelligence unit by Kenya will help
to formalize its relationship with the U.S. and with other
countries. In 2001, the Government of Kenya formed the
Anti-Money Laundering Task Force with the mandate of drafting
a comprehensive anti-money laundering law, sensitizing the
public and government to money laundering issues, and
addressing terrorist financing. The Task Force meets
regularly
to discuss AML issues.

After the inception of the task force, a bill on money
laundering was drafted, and submitted to the Attorney General
for final revision, but the November 21 Constitutional
referendum
delayed action As of November 2005, the Attorney General had
identified 21 other statutes that would need to be amended to
be consistent with the AML bill. The Task Force has
clarified
issues raised by the Attorney General, and is waiting for the
AG
to finalize the bill and send it to the Cabinet for approval
and
transmission to Parliament. Although President Kibaki
announced
on December 7 his replacements for the Cabinet, controversy
over
the appointments continued. The difficulties of forming a
new
Cabinet, plus the President,s decision to prorogue
Parliament
will further delay action on the bill.

The key points of the draft legislation include tracing,
seizing and
freezing suspect accounts, including those involved in the
financing
of terrorism; confiscation of the proceeds of crime,
declaration of the source of funds; outlawing of anonymous
bank accounts; and introduction of mandatory reporting of
suspicious transactions above a certain amount. Some of the
provisions regarding the financing of terrorism may be
subsumed in
the Suppression of Terrorism Bill discussed above. The
proposed
legislation is not explicit on seizing legitimate business if
used
to launder money. The draft legislation provides for criminal
forfeiture
only. Actual seizure of assets and forfeiture under current
law is rare.

Once a new Cabinet is finalized and Parliament returns, Kenya

should
expedite the passage of its comprehensive anti-money
laundering
legislation and Suppression of Terrorism Bill legislation.
End text
BELLAMY