Workers at a construction site in Eldoret town, Kenya. PHOTO | FILE | NMG
More than half of private companies that have been reported for money laundering are in the construction sector, according to a government report that sheds fresh light on the prevalence of shady dealings in the cash-intensive sector.
The National Risk Assessment On Money Laundering and Terrorism Financing of Legal Persons and Legal Arrangements – Kenya report the Business Registration Service (BRS) publishes shows 10,733 registered private companies were reported for money laundering in 2022.
More than half (56.5 percent) of the private firms that were reported for money laundering were involved in the construction sector, signalling the rapidly growing sector as a preferred conduit.
This was followed by real estate (8.07 percent), manufacturing (7.17 percent), money transfer agents (5.83 percent), consultancy (4.48 percent), textiles (4.04 percent) and retailers (3.14 percent).
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“The legal structures that had been abused for money laundering purposes were mostly involved in construction, real estate, manufacturing and financial services,” said the report.
The construction sector is one of the fastest growing in Kenya and contributed 7.1 percent of the GDP in 2022, Kenya National Bureau of Statistics shows.
This has been fuelled by major projects in recent years like the Nairobi Expressway, the Standard Gauge Railway, the Lamu Port, construction and rehabilitation of roads as well as thousands of commercial and residential buildings.
Legal entities are used by individuals for corruption, tax evasion, sanctions evasion, shielding assets from confiscation, money laundering, terrorist and proliferation financing and other crimes.
This places Kenya under surveillance in what is known as the grey list alongside 21 other countries by global anti-money laundering watchdog Financial Action Task Force (FATF).
It shows that trusts and private companies in particular are the most used legal entities for money laundering compared to public companies, foreign companies, partnerships, unlimited companies and companies limited by guarantee.
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“Review of the enforcement data shows that Private Limited Companies were the most frequently abused legal structure for money laundering purposes in Kenya in comparison to other legal structures,” said the report.
According to BRS, there were 690,222 private companies registered in Kenya by December 2022, out of which 395 were reported in relation to terrorism financing incidents and a total of 10,733 reported for money laundering.
“Private limited companies (98.09 percent) were the highest legal structures associated with money laundering. Further, out of the 98.09 percent cases involving private limited companies, 43.51 percent of the cases involved abuse by directors of the company, employees were also involved to a great extent,” said the report.
This has placed Kenya under high surveillance in what is known as the grey list alongside 21 other countries by global anti-money laundering watchdog Financial Action Task Force (FATF).
According to the FATF, being grey-listed or black-listed means that the country is not effectively implementing measures to combat money laundering and terrorist financing according to its standards, including the management of an efficient, up-to-date, and accurate register of beneficial ownership.
This could lead to a decline in confidence by global financiers in Kenya’s financial system, which could lead to capital flight as investors, both domestic and international, may withdraw their funds due to concerns about the integrity of the financial system, say analysts.
“Based on the findings ... it is recommended that the country reviews the laws governing the trust regime in Kenya and put in place measures to mitigate or deter their use for money laundering and terrorism financing purposes,” states the report.
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