Lack of regulator in real estate frustrates plan to monitor deals

Lack of a regulatory body in Kenya’s real estate industry is frustrating efforts to establish whether the sector’s rapid growth is being fuelled by illegal money.

Financial Reporting Centre legal advisor James Manyonge said the institute has found it hard to enforce compliance to the proceeds of Crime and Anti-Money Laundering Act in the industry due to the fragmented nature.

“It is a challenge to monitor suspicions transaction in the real estate sector due to lack of a uniform and recognised regulatory body,” he said.

He was speaking during a sensitisation workshop on the role of journalists in combating terrorism financing and anti-money laundering organised by the Kenya School of Monetary Studies.

The Financial Reporting Centre (FRC) is an arm tasked with assisting in the identification of proceeds of crime and combating money laundering through working with regulatory bodies in the country.

The centre works with banks, financial institutions, cash dealers and members of professional bodies who are required to report transactions deemed suspicious and cash transactions that exceed $10,000.

“We are trying to establish a mechanism of enforcing compliance but that is going to take time due to the fragmentation,” said Mr Manyonge.

SOMALI PIRATES

Kenya’s real estate sector has been experiencing phenomenal growth with land and property prices shooting up, but there is a feeling that the high prices could be a result of criminals using the sector to ‘clean’ ill-gotten money.

Last month, a survey by The Mortgage Company and HassConsult, said that only a fifth of Kenyans living in urban areas can afford a home loan priced at Sh1 million and above.

It means that out of the country’s nine million households, only two million can afford a Sh1 million mortgage. This begs the question, who is driving up demand in the business?

In 2012, CBK governor Njuguna Ndung’u lamented over the Country’s low mortgage growth despite the market tripling in size between 2006 and 2010. There are currently only 20,000 mortgage accounts in Kenya.

Contrary to the FRC’s concerns, however, the World Bank, United Nations and Interpol report last year ruled out pirate cash inflows as being behind Kenya’s real estate boom instead saying the business is primarily driven by money from bank loans and diaspora remittances.

The trio were investigating how the Sh35.1 billion ($413 million) that Somali pirates made between 2005 and 2012 mainly from hijacking ships in Indian Ocean was spent after reports emerged that the cash was being ‘cleaned’ through real estate.

The FRC was constituted in 2012 at a time when Kenya was facing international trade restrictions due to deficiency in its anti-money laundering and terrorism financing legal framework.

Mr Manyonge said that since then, the level of compliance among reporting institutions has been growing.

In 2013, 110 suspcicious transaction reports were filed, most of which came from commercial banks and telcoms.

Following completion of investigations on 59 of these reports, 53 have been forwarded to law enforcement agencies for action.

The number of reports of cash transactions of over $10,000 so far this year already surpasses those made in 2013.

Mr Manyonge said Kenya is well on its way out of the Financial Action Taskforce’s list of high risk countries that officials from the Finacial Action Taskforce, an inter-governmental body that combats money laundering and terrorism financing, had visited Kenya earlier this year to monitor the work carried out by the FRC, regulatory bodies and law enforcement agencies.

Kenya, he said, is well on its way out of the Financial Action Taskforce’s list of high risk countries.