Report: Counties new avenues for 'wash wash'

County governments are emerging as the new avenues for money laundering and illicit financial flows, with taxpayers losing billions of shillings each year to the growing menace. 

This is according to a new report by the National Taxpayers Association (NTA) and Global Financial Integrity (GFI) that reveals the gaps and inefficiencies exploited to syphon public funds from the devolved units. 

According to the report, revenue leakages in the counties have hampered efforts to boost own-source revenue collections, making counties heavily reliant on cash transfers from the national government. 

“There is little insight into how much money is lost through uncollected revenues such as land rate waivers and tax incentives that counties give to prospective investors,” explained Denis Moroga, a certified anti-money laundering specialist. 

“In Nairobi, for example, collections from land and property rates alone could surpass the funds that the City County receives from the national government,” he explains. 

At the moment, the Ethics and Anti-Corruption Commission (EACC) is probing 25 counties for ="https://www.standardmedia.co.ke/national/article/2001514963/ghost-drivers-missing-fuel-how-corruption-runs-county-vehicles">various corruption cases< involving Sh13.3 billion in public funds. 

The cases largely entail procurement irregularities and conflicts of interest in the awarding of tenders by county officials, with some dating back to 2013. 

Some of the counties in the spotlight include Kajiado (Sh2.2 billion), Laikipia (Sh1.3 billion), West Pokot (Sh1.6 billion), Bomet (Sh1 billion), Kwale (Sh849 million) and Marsabit (Sh1.1 billion). 

According to the Office of the Controller of Budget, county governments had a target to collect Sh81 billion from internal revenue sources for the 2023/2024 financial year, but only managed to collect Sh59 billion, 73 per cent of the target. 

While this was an improvement from the Sh38 billion collected in the 2022-2023 financial year, most counties are still struggling to meet their targets, with some like Machakos and Nyandarua barely hitting the 50 per cent mark. 

This keeps the devolved units reliant on the National Government's disbursements, adding more strain to the public debt stock. 

The NTA says the lack of clear legal frameworks on county levies such as single business permits and opacity in the negotiating and awarding of tax incentives provides a fertile ground for fraud. 

“There is a need to conduct a cost-benefit analysis on most tax incentives given to investors at both the national and county levels to determine their value to the Kenyan taxpayer,” said NTA National Coordinator Irene Otieno. 

“Several counties are setting up export processing zones (EPZs), while others are organising themselves into ="https://www.standardmedia.co.ke/rift-valley/article/2001511196/barchok-arrested-as-audit-reveals-sh14-billion-graft-scandal-in-bomet">regional blocks to attract investors<, but without proper oversight, these investment hubs could become avenues for money laundering,” she explained. 

The report further recommends that counties should be included in inter-agency task forces created by the national government and should make use of resources such as the beneficial ownership registry to enhance their capacity to deal with illicit financial flows. 

“Kenya has adequate institutions and the legislative framework to fight illicit financial flows,” explains Ms Otieno. “However, there is inadequate prosecution of grand corruption cases, and ineffective witness and whistleblower protection dampens the initiative of those who would like to come forward to assist in investigations.