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Q+A: Kenya needs strong system to stop terrorist financing, money laundering

Source: Thomson Reuters Foundation - Tue, 10 Dec 2013 12:00 PM
Daniel Glaser, Treasury Department deputy assistant secretary for terrorist financing and financial crimes (L) listens to U.S. special adviser for nonproliferation and arms control Robert Einhorn at a news conference at the Information Resource Center of the U.S. Embassy in Seoul August 2, 2010. Photo REUTERS/Truth Leem
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WASHINGTON (Thomson Reuters Foundation) - The amount of illicit money entering Kenya from faulty trade invoicing, crime, corruption and shady business activities has increased more than five-fold in a decade, new data shows.

The data, calculated for Thomson Reuters Foundation by Global Financial Integrity, suggests these illicit inflows now equal roughly 8 percent of Kenya’s economy.

Daniel Glaser, U.S. Assistant Treasury Secretary for Terrorist Financing and Financial Crimes, speaks about the outlook for Kenya as the Kenyan government seeks to turn Nairobi into a global financial hub.

Q Is Kenya an increasing concern as a centre for money laundering and financial crime?

A Kenya is certainly very much on our radar screen as well as the radar screen of the international community at large. It makes perfect sense that Kenya is so important. 

They are an aspiring regional and international financial centre. There is nothing wrong with that, but you have to understand that there is a high price of entry if you want to be an international financial centre. One of the prices of entry is having a well-functioning AML (anti-money laundering) and counter terrorist financing regulatory and legal regime. They have not had this in the past, and they are in a dangerous neighborhood. 

They have Somalia on their border and all the terrorism concerns that come with that. There are piracy issues in the region and the money laundering concerns that go along with that. There is a variety of criminal activity [in the region], whether it is wildlife trafficking or corruption as well as all the illicit financing risks that come along with those issues. 

To add to all of this, we have the fact that it is an aspiring financial centre with a lot of legitimate money moving through it. It creates a very risky situation, one that the Kenyan government needs to focus on.

Q Are the problems of illicit flows, corruption and money laundering getting worse in Kenya?

A What is hopefully getting better is the Kenyan government’s focus on it.  At the end of the day, Kenyan financial authorities are going to have limited control over the terrorist situation in Somalia along with the piracy situation. They will have limited control over these external factors. In a risky situation, what they do have control over is how they regulate their financial system.

The Kenyans need to approach these risks with a seriousness of purpose and understand that given all the risk factors that they face, they really need a state-of-the-art system, especially if their goal is to be attractive to money coming in from around the world.

Q Kenya has been cited by the Financial Action Task Force, by the U.S. State Department as failing to meet standards. Is the Kenyan government dragging its feet in implementing its anti-money laundering laws?

A We cannot be satisfied with passive laws, we have to see that those laws are being effectively implemented. And Kenya is just getting started on that.

Q Are you seeing growth in illicit financial flows through Kenya, via both the formal and informal systems, that require extra attention given that Kenya is becoming increasingly important as a regional financial and commercial centre for sub-Saharan Africa, and that the UN Office of Drugs and Crime identifies it as an important transit point for drugs and criminal trafficking networks? 

A They are an important regional and international financial centre. They want to become even more important. So far, they haven’t had adequate anti-money laundering controls. Drug trafficking is not a new phenomenon in the world. Corruption is not a new phenomenon in the world. Terrorists and other extremists in East Africa is not a new phenomenon in the world. 

Glaser declined to comment on the Global Financial Integrity data for Kenya showing a 20-fold increase in illicit financial flows through trade misinvoicing between 2001 and 2010, but reiterated that the increased flow of money into the Kenyan financial system carried a parallel increase in risk for illicit financial activity and that further diligence on the part of the Kenyan government was certainly warranted.

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