Jun.11, 2010

Kenya finally has an anti-money laundering law: The Proceeds of Crime and Anti-Money Laundering Bill, 2009 received presidential assent on 31 December 2009, making it law. This law is the Proceeds of Crime and Anti-Money Laundering Act, 2009 (the “Act”). The Act is set to commence by notice but in any event not later than six months from the date of its assent. The Act seeks to create a comprehensive legislative framework to combat the offence of money-laundering in Kenya and to provide for the identification, tracing, freezing, seizure and confiscation of the proceeds of crime among other things. Anti Money Laundering legislation has come a long way since its inception in 2007. The government had published a bill in 2007 and another in 2008, none of which were passed into law during the years they were published.

Before the enactment of the Act, money laundering legislation in Kenya was weak and fragmented. Money laundering was primarily being dealt with under the Narcotic Drugs and Psychotropic Substances (Control) Act, 1994 (the “Narcotics Act”) which only dealt with proceeds of drug trafficking and the Central Bank of Kenya Guideline on Proceeds of Crime and Money Laundering (Prevention) (the “CBK Guideline”) which only applies to banking institutions licenced under the Banking Act.

The Act, which repeals the anti-money laundering provision in the Narcotics Act, applies to all persons whether individual or corporate and to the proceeds from any criminal activity. The CBK Guideline however continues in force and banking and financial institutions will therefore be required to comply with both the Act and the CBK Guideline.

What is Money Laundering?

The definition of “money laundering” under the Act is wide and includes entering into a transaction involving property which one knows or ought to reasonably have known that it is or forms part of the proceeds of crime regardless of whether such transaction is legally enforceable or not and which has the effect of concealing or disguising the nature or ownership of the property or assisting a person who has committed an offence to avoid prosecution or concealing any proceeds of crime.

The definition also covers acquisition, use or possession of property which at the time of acquisition, use or possession, one knows or ought to reasonably have known that it is or forms part of the proceeds of a crime committed by another person.

Other related offences include assisting someone to benefit from proceeds of crime, malicious reporting, making false or fraudulent statement or entry and failing to report suspicion of proceeds of crime. It is also an offence to fail to comply with the provisions of the Act. Offences extend to natural persons, body corporates and officers and directors of body corporates who may be found personally liable for offences committed by their organisations.

Penalties for Money Laundering

Offences under the Act attract penalties of up to a 14 year jail term and/or a maximum fine of KES5,000,000 (approx. USD70,000) in the case of an individual and KES25,000,000 (approx. USD350,000) for a body corporate or the value of the property involved in the offence, whichever is higher. Other penalties include criminal forfeiture of the proceeds of crime, civil forfeiture of property including civil proceedings for recovery of property.

Administrative Structure

The Act establishes several bodies which include the Financial Reporting Centre (the “Centre”), whose principal role is to assist in the identification of the proceeds of crime and the combating of money laundering, the Anti-Money Laundering Advisory Board whose function is to advise the Director of the Centre on the performance of his functions under the Act and the Assets Recovery Agency (the “Agency”) whose role includes the conduct of recovery proceedings of property which is or forms part of the proceeds of crime.

The Act also establishes Criminal Assets Recovery Fund which shall comprise, inter alia, property and moneys forfeited under the Act.

The Act grants police officers and the Agency extensive information gathering powers including powers of entry, search and seizure and provides for international assistance in investigations and proceedings relating to money-laundering.

Reporting Institutions

The Act stipulates the institutions which are required to report any suspected money laundering activity to the Centre. Reporting institutions include financial institutions and designated non-financial businesses such as casinos, real estate agencies, dealers of precious stones and metals, non-governmental organisations and accountants.

It is interesting to note that though lawyers were designated as reporting institutions in the Bill, an amendment was made to the bill before it was passed into law removing lawyers and the Law Society of Kenya from the lists of reporting institutions and supervisory bodies respectively. Supervisory bodies such as the Capital Markets Authority and the Retirement Benefits Authority also have some reporting obligations. Under the Act, the Minister may on the Advice of the Centre, declare any other business or profession in which the risk of money laundering exists, as a reporting institution.

Reporting institutions are obliged to monitor and report to the Centre suspected money laundering activities, verify customer identity including that of existing customers, establish and maintain customer records and establish and maintain internal reporting procedures.

Supervisory bodies such as the Central Bank of Kenya, the Insurance Regulatory Authority, the Betting & Licensing Board, the Capital Markets Authority, the Retirement Benefits Authority, the Institute of Certified Public Accountants of Kenya, the Estate Agents Registration Board and the Non-Governmental Organisations Co-ordination Board are also obliged to report suspicious activities to the Centre.

The reporting threshold for reporting institutions in relation to cash transactions is put at USD10,000.00 or its equivalent in any other currency irrespective of whether or not such transactions are suspicious. This means that a reporting institution would have to report to the Centre any cash transaction whose value is or exceeds USD10,000 or its equivalent in other currency. A person who transports monetary instruments of USD10,000 or its equivalent in any other currency into or out of Kenya is also required to declare in a prescribed form at the port of entry or exit.

It is noteworthy that the Act overrides any obligations of secrecy or disclosure imposed by any other law (save for few exceptions relating to advocate-client communication) and grants reporting institutions which perform any act in good faith and in furtherance of their obligations under the Act immunity from legal proceedings.

Extradition

The Act applies extra-territorially and the conduct of a person outside Kenya will constitute an offence if the conduct would constitute an offence under Kenyan law had it occurred in Kenya. As such, offences under the Act are extraditable offences.

Conclusion

The Regulations required to be promulgated under the Act have not yet been formulated. This would make it almost impossible to implement the Act upon its commencement. Likewise, the Minister of Finance is yet to gazette a commencement date for the Act despite the fact that the 30 June 2010 deadline is drawing near. It is unclear what will happen to the Act after 30 June 2010 should the commencement date fail to be gazetted or should the Regulations and administrative structure fail to be in place. It will be interesting to see whether this new law once implemented, will meet its core objective of combating the offence of money laundering.