Kenya’s elite siphoned Sh328 billion of World Bank aid payments to offshore accounts in two decades, a new study shows.
The news comes as the European Union prepares to sanction Mauritius, a tax haven, over money laundering and terror financing.
"Elite Capture of Foreign Aid: Evidence from Offshore Bank Accounts", published in February, offers details of how the Kenyan ruling elite connive to enrich themselves by wiring foreign aid money meant to help the vulnerable to foreign offshore accounts.
The study was conducted by Bob Rijkers of the World Bank, Jorgen Juel Andersen of BI Norwegian Business School, and Niels Johannesen of the University of Copenhagen. It covers two decades between 1990 and 2010.
The study compared data on aid disbursements from the World Bank with foreign deposits from the Bank for International Settlements (BIS), focusing on 22 aid-dependent countries including Kenya, Uganda and Tanzania.
Jordan topped the list globally with over Sh350 billion of aid to the Middle East country siphoned, followed by Kenya.
Ivory Coast was third at Sh128 billion, while the Democratic Republic of Congo was fourth with Sh110 billion of aid money stolen.
POPULAR HIDING SPOTS
The money was carted away to tax havens such as Switzerland, Luxembourg, the Cayman Islands and Singapore whose legal frameworks emphasize secrecy and asset protection.
Part of the loot was also banked in non-tax havens such as Germany, France and Sweden, according to the report issued by the World Bank.
“We document that aid disbursements to the most aid-dependent countries coincide with significant increases in deposits held in offshore financial centres known for bank secrecy and private wealth management.
“Our estimates suggest a leakage rate of around 7.5 per cent for the average highly aid-dependent country. Aid capture by ruling politicians, bureaucrats and their cronies is consistent with the totality of observed patterns,” the study says.
“This mechanism cannot explain why the money only flows to havens. It seems less likely that the results reflect profit shifting by multinational firms, the effect of aid on income through aggregate demand and portfolio adjustments by commercial and central banks,” the report says.
According to the document, the ruling elite in Tanzania siphoned Sh61.89 billion and Uganda Sh28.55 billion during the period under review.
In Rwanda, Sh20.09 billion was stashed away, while Burundi’s ruling elite carted away Sh12.9 billion.
World Bank Country Director for Kenya Felipe Jaramillo said the report was an independent study conducted by researchers from the lender and other institutions.
He said it was not sanctioned by the lender. “I had raised some issues with the methodology of the report,” he said.
Kenya has been fighting to recover some of the money stashed in tax havens.
In 2018, President Uhuru Kenyatta signed an agreement with the then President of Switzerland Alain Berset to help recover assets stashed in Swiss banks.
Last week the European Commission added Mauritius, Panama and nine other countries to its list of countries that pose a financial risk to the bloc because they are linked to money laundering and terrorism financing.
Mauritius has become a favourite destination for Kenyans out to hide their wealth from the taxman.
Some of Kenya’s wealthy individuals have registered their companies through subsidiaries in Port Louis, Mauritius, due to its favourite tax regime.
Countries on the list “pose significant threats to the financial system of the European Union”, the EU draft document says.
Under EU laws, banks and other financial and tax firms are obliged to scrutinise clients who have dealings with countries on the list.
In a statement on its website, the European Commission said the revised list will be submitted to the European Parliament for approval within one month and the country status of the new listing will take effect on October 1.
The Kenyan elite have also registered firms in Mauritius because of tax benefits.