Category 4

How we can plug Kenya’s systemic graft loopholes

Kenya has had numerous scandals in the past few years with the most recent being the lost of billions of shillings at the Kenya Medical Supplies Agency through procurement malpractices in the middle of a global health pandemic.

Just as we were wrapping our heads around the nerve wrecking scandal, President Uhuru Kenyatta revealed that the government was losing close to Sh2 billion daily to corruption.

As a compliance expert, I sat down to reflect on the Sh2 billion opportunity loss and what can be done differently to prevent such financial hemorrhage through corruption.

Money laundering has significant economic and social consequences, especially for developing countries and emerging markets. Corruption thrives where laws and regulations are weak, where enforcement is lax and/or where there is political interference.

Kenya has sufficient laws and adequate regulatory bodies to ensure enforcement. Financial institutions, through which proceeds of crime are channeled, have policies and procedures for combatting money laundering, terrorist financing and other related threats to the integrity of the financial system.

There is also a myriad of internal controls in place, including performing due diligence when opening accounts, determining the legitimacy of funds and transactions and conducting frequent audits of the Anti-Money Laundering programme. For payments, appropriate documentation must be provided to demonstrate the underlying reason for the transfer of funds for all transactions above Sh1 million.

Telecom mobile payment platforms have also set limits on individual transactions and total amounts that can be transferred within a day, making it very burdensome and costly to launder money through the platform.

Proceeds of Crime and Anti Money Laundering Act (POCAMLA) prescribes that any activity or transaction deemed suspicious should be reported to the Financial Reporting Centre (FRC). Undoubtedly, Kenya has adequate control systems to prevent the financial system from being misused for money laundering or terrorist financing activities.

Why then would Kenya be said to lose Sh2 billion per day through corruption despite the above measures? How best would we track and trace the perpetrators of these economic injustices? Are there systemic loopholes or is just non- compliance?

Financial institutions perform due diligence through Know Your Customer (KYC) essentially to they ascertain who their customers are and the nature of transactions they are conducting. This is a critical aspect of combating all forms of illicit financial activity. Therefore, in the fight against economic injustice, KYC compliance is King.

The government has introduced two initiatives which I believe can be enablers to the enhancement of the KYC process if well optimised. These are the introduction of open sourcing in the government procurement process and the disclosure of beneficial information of companies. These initiatives reinforce the Central Bank of Kenya Prudential Guidelines on the Proceeds of Crime and Money Laundering Prevention and Combating the Financing of Terrorism.

Government procurement process is not only complex but also lengthy with various stages and a flood of documentation. A review of transaction documents by a bank official may not reveal biased supplier selection, duplicated payments or even the failure to implement government contracts as per terms and conditions.

The President issued an Executive order (EO) on the Procurement of Public goods, Works and Services by Public Entities in 2018 allowing the public access of information, including the items or services purchased, contract prices, and the particulars of the suppliers including owners, directors and beneficial ownership.

It allows the highest level of public scrutiny at all units of public administration, thereby improving the management of resources for public good. Implementation of this Executive order has been slow and allegations of procurement malpractice remain. We are yet to see any punitive action taken against public officers who appear to have contravened these orders based on reports and pronouncements by both the government and civil society.

The Companies (Beneficial Ownership Information) Regulations, 2020 were created to promote transparency in the ownership of Kenyan companies. In this regard, all companies are required to lodge with the Registrar of Companies, a copy of its register of members including information relating to beneficial owners.

Compliance with this regulation will bring us a step closer to achieving financial integrity because it will shed light on true ownership structures within companies. We hope that this will be one of the turning points towards identifying the individuals who are suspected to ultimately benefit from the proceeds of corruption.