fbpx

Nairobi Struggles To Gain International Financial Center Status

Nairobi Struggles To Gain International Financial Center Status

Kenya has been on the watch list of the Financial Action Task Force (FATF) – an international standards body on anti-money laundering and criminalizing financing terrorism – as a jurisdiction with key deficiencies in controlling dirty cash.

While the East African country has covered significant ground in passing the regulations and setting up structures to fight terrorism financing and money laundering, it remains on a tight leash and cannot freely transact in the global financial system.

The leash, in effect, has made US banks very cautious in honouring transactions that involve cashing checks for Kenyan banks, fearing heavy fines by the US government.

According to the Business Daily, US banks have turned the heat on their Kenyan counterparts by refusing to cash checks for local lenders that they consider having weak systems to fight money laundering and terrorism financing.

“We are still on the dark-grey list but there are indications that we shall be out by the end of June this year. After this process, what will be happening are periodic checks on our systems and processes to ensure that we comply with the required standards,” John Wanyela, Board Chairman of Kenya’s Financial Reporting Center (FRC) told AFKInsider.

If Wanyela’s optimism is anything to go by, Nairobi will be on the fast lane to join the league of Zurich, New York, London, Johannesburg, Dubai and Tokyo as international financial centers.

“We had discussions earlier this year but I would not like to pre-empt what was discussed during the Paris meeting in February. All I can say is that we have made good progress although we are not out of the woods yet,” Wanyela added.

The Eastern and Southern Africa Anti-Money Laundering Group is among the eight Financial Action Task Force Style Regional Bodies that form part of the FATF global network that has been monitoring process made by Kenya to sever the dirty cash lifeline.

Addressing strategic deficiencies

Six African countries – including oil-rich Angola, Sudan, Zimbabwe, Uganda, Kenya and Tanzania – continue to record progress in addressing strategic deficiencies identified in their anti-money laundering and terrorism financing regimes.

Kenya, for instance, has passed into law the Proceeds of Crime and Anti-money Laundering Regulations, 2013 and the Money Remittances Regulations, 2013.

These pieces of legislation are viewed as the Government’s commitment to effect the recommendations of the Financial Action Task Force.

“The two Acts impose anti-money laundering obligations on financial institutions as well as non-financial institutions such as casinos, real estate agencies, dealers of precious stones and metals, and non-governmental organizations,” Nicholas Kitonyi, a Kenyan-based financial analyst and writer with The Motley Fool told AFKInsider.

Countries that are in the watchdog list and under review are required to give updates on the progress made towards addressing weakness in their Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) regimes.

In the case of Kenya, a specific action plan is developed and reviewed by the relevant review group – The Africa Middles East Regional Review Group – then forwards the recommendations to the Financial Action Task Force for discussion during their.

According to Kitonyi, a public statement on the progress made by the country in addressing the deficiencies is issued. It is then forwarded to the country under review for further action. This cycle is repeated three times a year.

To get off the watch list and effectively from the process, a country needs to demonstrate that it has adequately addressed the outstanding deficiencies listed in the country’s action plan.

Kenya got on the list for its failure to criminalize terrorist financing in line with Financial Action Task Force standards and relevant conventions.

Although Prevention of Terrorism Act was enacted in 2012 to address this deficiency, the scope of terrorist activity was too narrow.