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Block money laundering to fight menace

Thursday January 24 2019

Money laundering

People run away from the scene of a terrorist assault at Dusit complex in Nairobi on January 15, 2019. Opinion is sharply split about the place and capacity of Kenya’s watchmen in the emerging anti-terrorism architecture. PHOTO | RAPHAEL AMBASU | AFP 

LEONARD WANYAMA
By LEONARD WANYAMA
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Last week’s terrorist attack in Nairobi provides an opportunity to strengthen Kenya’s anti-money laundering and counter-terrorism financing (AML/CTF) frameworks.

Then, President Uhuru Kenyatta promised that security agencies “ … will seek out every person that was involved in the funding, planning and execution of this heinous act”.

Recall that, on Jamhuri Day, last year, he said his government was keen to prevent illicit financial flows.

Money laundering and terrorism financing are major elements in the execution of terrorist plots.

However, an amendment to the Tax Procedures Act 2015, introduced by the Finance Act 2018, weakens financial reporting, investigations and surveillance mechanisms by the Financial Reporting Centre, Central Bank and other regulators.

LAWS

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The AML/CFT regulatory frameworks are governed by the Proceeds of Crime and Anti-Money Laundering Act 2009 (Pocamla) and Prevention of Terrorism Act 2012 (Pota).

Pocamla seeks to criminalise money laundering and provide measures for combating it, among other tasks.

Other than formalising the establishment of the Assets Recovery Agency (ARA), Pocamla also targets economic crimes.

Following a 2017 amendment, the law now imposes penalties to culprits as a means of tackling corruption, curbing financing of terrorism and preventing drug trafficking.

The amendment has also legislatively emboldened the multiagency co-ordination between National Task Force on Anti-Money Laundering and Combating the Financing of Terrorism such as DCI, DPP, KRA, FRC and EACC.

LOOPHOLE

However, last year, the Finance Act 2018 amended the Tax Procedures Act 2015, exempting money remitted from a foreign country under amnesty from the provisions of Pocamla.

The section extends a pre-existing tax amnesty for money transfers repatriated from incomes or investments in foreign countries by one year to encourage the remittances.

But that opens a loophole in the financial system that could be exploited to repatriate proceeds of terrorism and crime.

It also opens the country to security threats because such a blanket exemption weakens know-your-customer rules and disclosure procedures under the Pocamla and the CBK Prudential Guidelines.

This opens ways for the entry of suspicious funds that could fund terrorism and other crimes.

ILLICIT

But inasmuch as the amendment excludes funds from proceeds of terrorism, poaching and drug trafficking, the money is not labelled.

First, illicit money is always disguised as legitimate and it’s only upon inquiry that its legality or otherwise can be ascertained.

Secondly, there are many other sources of illegitimate funds that would be a subject to scrutiny in relation to money laundering and terrorism financing.

Therefore, it is only upon inquiry that the suspect origin of funds can be detected.

Consequently, a forthcoming tax justice study by a legal expert, Dr Eric Kibet, recommends that the National Assembly and the Executive repeal Section 37 B (4) of the Tax Procedures Act 2015.

Mr Wanyama is co-ordinator, the East Africa Tax and Governance Network (EATGN). [email protected] @lennwanyama

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