Kenya faces new dirty cash scrutiny as peers exit list

The global standards for money laundering and credit ratings have been criticised for not reflecting the realities of low and middle-income countries.

This is even as African States continue to suffer adversely from being included in the Financial Action Task Force (FATF) grey list, which indicates increased monitoring for money crime. Kenya was grey-listed in February 2024 for what FATF said were weak anti-money laundering and terrorism financing measures.

Nigeria, South Africa, Mozambique and Burkina Faso were delisted in October this year, but Kenya remains on the money crime watch list—one of the eight African countries still on the grey list.

Uganda and Tanzania had earlier been removed from the grey list.

Director of Global Partnerships at the Institute of Public Finance Ruth Kendagor said Kenya’s grey list is not good for business and investment.

According to Kendagor, the grey list puts Kenya under a lot of scrutiny. She noted that FATF standards have been inclined to Western practices and systems, not reflecting the realities of countries moving from low-income to middle and upper-income.

“In my view, our progress has been in terms of establishing the systems and building the capacities. But the FATF framework does not assess issues like capacity but outcome,” she said

“I think there would be some gain in the middle milestones to be assessed.”

The institute observed that the country needs to move beyond having systems in place to demonstrating that the systems work. “We have amazing frameworks and policies, but actual implementation is normally hampered,” Ms Kendagor said, noting that the systems need to be impactful and proactive.

The grey list is a list of entities or jurisdictions that are under increased monitoring for concerns like money laundering or terrorist financing, but are considered less risky than those on a blacklist.  

As of October 2024, Iran, Myanmar and the Democratic People’s Republic of Korea were the only countries listed as high-risk jurisdictions under the blacklist. Grey listing poses a challenge for sub-Saharan Africa.

Since February 2024, the region has accounted for 12 of the 21 grey-listed countries. Public finance experts argue that the economic impact of simultaneous grey-listing is a cause for concern for the development of the region.

While downplaying Kenya’s placement on the grey list, KRA Board Chairman Ndiritu Muriithi recently said FATF assesses Kenya using a Eurocentric view of what financial systems should be.

The continued existence of this categorisation makes Kenya a country which is still considered to have strategic weaknesses in its anti-money laundering (AML) and counter-terrorism financing (CTF) systems. The grey list undermines investor confidence and heightens the risk of the operation of Kenya’s financial institutions. The KRA chairman urged the taskforce to view Kenya in the uniqueness of the fact that so much of what Kenya does is on mobile money.

“It is not justified. It’s like a credit rating. Kenya deserves an investment-grade rating.  But the analysts coming from London and New York are still struggling on this,” Muriithi said.

Today, Kenya is at the cutting edge of moving money from mobile payment platforms to credit cards and from credit card payment systems to mobile money  - a technological advancement that is unique to Kenya. The global credit rating system is dominated by three major US-based agencies - Fitch Ratings, Moody’s Investors Service and Standard & Poor’s (S&P 500) - whose decisions Kenya and other African governments have often cited as the main reason for them to be loaned at a higher rate of interest than other comparable countries.

Their creditworthiness, Kenya and other African countries claim, also hinges on the decisions of these opaque credit ratings agencies.

Kenya’s credit rating has been rated Caa1, meaning it is constrained by weak debt affordability and high financing needs, among others. African Union’s policy brief has revealed that Kenya lost at least Sh15 billion as a direct result of adverse commentaries and rating actions by Moody’s Ratings.

A credit rating downgrade is significant because it can sharply increase a country’s cost of borrowing in the international financial markets, as Kenya’s experience demonstrates.

The London Stock Exchange Group and the Institute of Public Finance recently convened a multi-stakeholder forum in Nairobi to discuss Kenya’s road map to exit the grey list. The forum deliberated on how a multi-stakeholder collaboration across strategic sectors, such as banking, insurance, legal and civil society, can firm up compliance and ensure Kenya gets out of the grey list in the shortest time possible.