An operational crisis at Kenya’s financial intelligence unit could create loopholes and put Kenya back on the watch list of countries that are not doing enough to fight money laundering, drug trafficking, terrorism and corruption.

The EastAfrican has learned that operations at the Financial Reporting Centre (FRC), which is responsible for receiving, analysing and identifying doubtful transactions in the financial system, are stalling owing to the uncertainty surrounding the reconstitution of the Anti-Money Laundering Advisory Board.

“Without the board in place, we cannot implement anything and the international community is watching,” said an official, who added that the prevailing situation puts Kenya under the international spotlight.

It could impact negatively on the country’s investment climate and jeopardise the government’s quest to tap into the global capital markets to fund infrastructure programmes.

Kenya has announced plans to issue a Shariah-compliant (Sukuk) bond in the wake of its $2 billion sovereign bond that was oversubscribed by 300 per cent.

READ: Kenya eyes the Gulf region for bonds

Operations at the board, headed by former Kenya Bankers Association executive director John Wanyela, are said to have stalled following claims that the country’s National Treasury is indecisive on the renewal of the contracts of two independent directors.

The three-year contracts of Mr Wanyela and Sheila M’Mbijewe, a former member of the Central Bank of Kenya Monetary Policy Committee, expired in September. But a decision on whether they should be renewed is yet to be made.

Wanyela and M’Mbijewe were appointed to represent the private sector on the AML Board, with the former as chair. The board is critical to the functioning of the Financial Reporting Centre.

According to National Treasury Cabinet Secretary Henry Rotich, plans to put together a new board have been hampered by fresh proposals for amendments to the Proceeds of Crime and Anti-Money Laundering Act of 2009 to improve the effectiveness of the FRC.

“We have proposed several amendments to the anti-money laundering law that provide for the restructuring of the FRC to make the institution more effective. This has delayed the process of reconstituting a new board,” Mr Rotich told The EastAfrican. “We are in the process of doing what we are supposed to do but I’m still consulting on whether to reconstitute a new board before the amendments.”

He noted that institutions such as the Insurance Regulatory Authority and the Capital Markets Authority are facing similar challenges in view of the ongoing parastatal reforms.

“Some boards don’t have quorum while others have quorum but their terms have expired,” said Mr Rotich.

The FRC is mandated to assist in the identification of the proceeds of crime and the combating of money laundering.

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It is also expected to provide information on suspicious transactions that it collects to the investigating authorities and supervisory bodies to facilitate the administration and enforcement of the laws of Kenya.

The AML Board, which was launched in 2011, comprises of the Principal Secretary (National Treasury), Attorney General, the Governor, Central Bank of Kenya, the Inspector General of Police and the chairman, Kenya Bankers’ Association. Others are the chief executive officer of the Institute of Certified Public Accountants of Kenya, the director of the FRC, who is also the Secretary to the Board, and two other persons who have knowledge and expertise in matters relating to money laundering to represent the private sector.

Restructuring

According to Mr Rotich, the amendments to the Proceeds of Crime and Anti-Money Laundering Act are expected to provide for the restructuring of the FRC and set out modalities of filling the existing vacant positions at the financial intelligence unit.

“These amendments are under discussion, we want to look at it first and then seek parliamentary approval,” said Mr Rotich.

The centre is also reported to be facing financial constraints, to which Mr Rotich responded: “Not everybody gets what they want, but we have provided to them what we think is adequate to run the unit.”

Meanwhile, the volume of suspicious transactions that are being reported to the FRC is said to be growing.

“The number of suspicious transactions has been growing in the past two years. We have received these transactions, analysed them and disseminated the information to the law enforcement officers,” a source said.

“The problem is that we are receiving this data manually, analysing it manually and disseminating it manually. This institution would have been a hive of activity if these processes were to be done electronically.”

Kenya was placed on the Financial Action Task Force (FATF) list of high risk countries in 2010 for delays in enacting legislations to fight criminal financial activities as well as its failure to track money laundering, drug trafficking, corruption and terrorism.

However, following the global anti-money laundering agency’s visit to Kenya in May this year and a review at the FATF meeting in Paris in June, Kenya was in July removed from the list, meaning the country was no longer required to give public updates on progress made in implementing its anti-money laundering system.

Based on the on-site visit report, the FATF decided that Kenya had established the legal and regulatory framework to address the strategic deficiencies that the FATF had identified.

“This is an achievement we all should embrace. I, therefore, wish to take this opportunity to thank all those who have been involved in this process for their relentless efforts to achieve this milestone,” said Mr Rotich after the country was taken off the FATF grey list.

READ: Kenya, Tanzania struck off global money laundering list

FATF was created in 1989 to set international standards on anti-money laundering and halting terrorist financing.

The watchdog body was satisfied that Kenya had ensured an effective financial intelligence unit, effectively introduced laws to identify and freeze terrorist assets, put in place procedures for confiscating funds related to money laundering and established sanctions against people who did not comply with anti-money laundering requirements.

However, while Kenya and Tanzania had made significant strides in setting up local legal and regulatory frameworks, Uganda had made little progress in closing down these loopholes, owing to the country’s failure to establish a legal and regulatory framework to control the practice.