Why the Government is Set to Spy on Accounts of Top-ranking State Officials

The Government is set to start spying on accounts held by top government officials,  including the Head of State. This is according to an agreement reached in 2022 with the International Monetary Fund (IMF) aimed at preventing the country from being locked out of the global financial system for money laundering.

The Treasury has told the IMF that the State will track the flow of cash of politically exposed persons, including their bank accounts, to match their known income and their financial dealings.

The Financial Reporting Centre (FRC), the anti-money laundering czar, is preparing changes to the law that will require financial institutions to reveal sources of cash for top politicians, families and business associates.

The proposed amendments to the Proceeds of Crime and Anti-Money Laundering Act and Regulations are aimed at preventing the laundering of illicit proceeds from corruption.

The proposed changes follow a damning report by an international anti-money laundering team that flagged deficiencies in Kenya’s decade-old anti-money laundering law on reporting financial transactions done by politically exposed persons (PEPs), families and allies.

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PEPs include the president, ministers, MPs, parastatal CEOs, high-ranking judges, high-ranking military officers and board members of top firms.

“To help prevent the laundering of illicit proceeds from corruption, the authorities plan by June 2023 to submit to the National Assembly, draft amendments to the Proceeds of Crime and Anti-Money Laundering Act and Regulations to address gaps in the AML/CFT legal framework, including requirements on politically exposed persons [PEPs], in line with FATF standards,” the IMF disclosed in the report following approval of Sh55.07 billion ($447.39 million) disbursement to Kenya on Monday.

“To this end, the authorities aim to prioritize ensuring compliance by banks with enhanced due diligence measures for higher risk customers, including PEPs, through AML/CFT risk-based supervision.”

PEPs are generally persons entrusted with prominent public functions and are susceptible to being involved in corruption because of their position of influence.

Kenya has a history of multi-billion shilling scandals that have failed to result in high-profile convictions.

This has angered the public, who accused top officials of acting with impunity and encouraging graft among those in lower posts.

The State scandals often involve bogus tenders and suppliers that allegedly result in the theft of hundreds of millions of shillings, turning public servants on low pay into overnight multi-millionaires.

Public servants are required by law to reveal their incomes, bank deposits and assets such as land, buildings and vehicles once every two years.

The filing must also capture the wealth of their spouses and children below 18 years.

Several top public servants are fighting asset freezes and seizures after investigations revealed secret bank accounts, cars, and apartments that could not match their pay.

This is a pointer that some civil servants fail to make full disclosures in the wealth declaration forms.

Financial Action Task Force (FATF) — the global money laundering and terrorist financing watchdog — requires financial institutions to conduct “enhanced ongoing monitoring” of business relationships involving PEPs.

The amendments to Kenya’s money laundering law will be modelled on the requirements set by FATF and followed in the developed world.

Kenya will be required to have appropriate risk-management systems in place to determine whether a customer or beneficial owner is a PEP and “take reasonable measures to establish the source of wealth and source of funds”.

Where there are higher risks identified, financial institutions led by banks are required to conduct enhanced scrutiny on the whole business relationship with a PEP and make a suspicious transaction report to the FRC.

The Kenya 2022 Mutual Evaluation Report by the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), the FATF-style regional body, identified major gaps in the AML/CFT legal framework in conducting enhanced customer due diligence on PEPs.

“The majority of FIs[financial institutions] apply basic CDD[customer due diligence] measures satisfactorily, while the commercial banks and MFBs [micro-finance banks] seem to apply a broader range of CDD measures, including risk-based ongoing due diligence, and specific measures towards correspondent banking relationships (CBRs), new technologies, wire transfers, and high-risk jurisdictions,” the report stated.

“However, politically exposed persons (PEPs) – especially domestic PEPs and foreign Heads of State – are insufficiently identified mostly due to lack of effective systems for PEP identification and a deficient legal definition.”

The report adds: “A limitation was also found on the factors considered when assessing ML/TF risks that may arise due to the development of new products and new business practices (including new delivery mechanisms, and the use of new or developing technologies) about both new and pre-existing products.”

The Proceeds of Crime and Anti-Money Laundering Act (Procamla) requires financial and designated non-financial institutions and professionals to report any suspicious or unusual transaction to the FRC — the agency operationalised in April 2012 to identify and combat money laundering and financing of terrorism.

Besides reporting unusual deals, the Procamla regulations require designated firms to submit to the FRC an annual compliance report by January 31 of the following year.