Money laundering in Kenya is a serious problem that has garnered significant attention in recent years. Money laundering refers to the process of disguising the proceeds of illegal activities as legitimate funds. In Kenya, money laundering often involves the proceeds of corruption, drug trafficking, and other illicit activities. In this article, we’ll discuss the depth of money laundering in Kenya and how digital payment can help provide a lasting solution.
One of the most prominent cases of money laundering in Kenya occurred in the mid-2010s when it was discovered that several officials within the government, including the Deputy Chief of Staff, had embezzled millions of dollars through a scheme known as the "Anglo Leasing Scandal." The scheme involved the award of inflated contracts for the supply of goods and services to the government, with the excess funds being siphoned off for personal gain.
The scale of the money laundering, in this case, was significant, with estimates suggesting that as much as $600 million may have been embezzled. This case, along with other high-profile corruption scandals, has contributed to a culture of impunity in Kenya, with many people feeling that they can engage in illicit activities without fear of being caught or punished.
Other forms of money laundering in Kenya include the use of shell companies and offshore accounts to hide the proceeds of illicit activities, as well as the use of real estate and other assets to launder funds. There have also been instances of money laundering through the banking sector, with some banks being accused of facilitating the movement of illicit funds.
The Kenyan government has taken steps to address the problem of money laundering in the country. In 2003, it passed the Proceeds of Crime and Anti-Money Laundering Act, which established a Financial Reporting Centre (FRC) to monitor suspicious financial transactions and report them to the relevant authorities. The FRC has been successful in detecting and investigating money laundering cases and has helped to bring several high-profile offenders to justice.
Despite these efforts, however, money laundering remains a significant problem in Kenya. According to a report by the United Nations Office on Drugs and Crime (UNODC), the country is at high risk for money laundering and has a "pervasive culture of corruption" that makes it vulnerable to illicit financial activities. The report estimates that the proceeds of money laundering in Kenya may be as much as 3% of the country's GDP.
One of the main challenges in combating money laundering in Kenya is the lack of resources and capacity within law enforcement and regulatory agencies. The FRC, for example, has limited staffing and funding, which can make it difficult for it to effectively carry out its mandate. In addition, there is a lack of awareness among many people in Kenya about the dangers of money laundering, and how they can help to prevent it.
Despite these challenges, there is hope that the situation in Kenya can improve. The Kenyan government has shown a commitment to tackling money laundering and corruption and has taken steps to strengthen its regulatory and enforcement frameworks. In addition, there are a number of civil society organizations and NGOs in Kenya that are working to raise awareness about money laundering and other illicit financial activities, and to promote good governance and transparency.
The emergence of digital payments has the potential to significantly curb money laundering in Kenya. In Kenya, money laundering has been a significant issue for many years, with the country ranking among the top 10 countries in Africa for illicit financial flows.
One way to address this issue is through the adoption of digital payment systems. Digital payments refer to the use of electronic means, such as mobile phones, computers, and the internet, to facilitate financial transactions. Digital payments offer numerous benefits, including convenience, speed, security, and reduced transaction costs.
Below are some of the features of digital payments that can help curb money laundering:
One key feature of digital payments that can help curb money laundering is their traceability. Digital payments leave a trail of data that can be easily tracked and monitored. This makes it easier to detect and investigate suspicious transactions and to identify and prosecute individuals and organizations involved in money laundering. For example, if a transaction is flagged as suspicious, authorities can track the movement of funds through the digital payment system, and gather evidence to support an investigation.
Another feature of digital payments that can help curb money laundering is their use of strong authentication and encryption. Digital payment systems use various methods to secure transactions, such as passwords, biometric authentication, and encryption. These measures make it difficult for criminals to access and misuse financial information, and to carry out fraudulent activities such as identity theft and phishing scams. For example, if a criminal tries to access a user's account without their permission, the strong authentication and encryption measures in place can prevent them from doing so.
Another way that digital payments can help curb money laundering is by increasing financial inclusion. Digital payment systems can reach a wider range of individuals and businesses, including those who may not have access to traditional financial services. This can help to reduce the use of informal financial networks, which are often used for money laundering, and to promote the use of formal financial channels. For example, if a person living in a rural area is able to access digital payment services, they may be less likely to rely on informal financial networks to send and receive money.
There are several examples of digital payment systems in Kenya that have successfully curbed money laundering. One such example is the M-Pesa mobile money platform, which was launched in 2007. M-Pesa enables users to send and receive money, pay bills, and make purchases using their mobile phones. M-Pesa has contributed to the formalization of the economy and has helped to reduce the use of informal financial networks. M-Pesa has also implemented measures to prevent money laundering, such as requiring users to register with their national identification numbers and to complete Know Your Customer (KYC) processes.
Another example is the Lipa Na M-Pesa mobile payments service, which was launched in 2013. Lipa Na M-Pesa allows users to make payments at participating merchants using their mobile phones. The service has helped to reduce the use of cash, which is often used for money laundering and to increase the use of digital payments. Lipa Na M-Pesa has also implemented measures to prevent money laundering, such as requiring merchants to register with their national identification numbers and to complete KYC processes.
There are some challenges to the adoption of digital payments in Kenya. One challenge is the lack of infrastructure and connectivity in some areas. Many rural areas in Kenya do not have access to the internet or reliable electricity, which can hinder the adoption of digital payment systems. Another challenge is the lack of financial literacy and digital skills among some users. Some people may not be familiar with the concept of digital payment systems, and may therefore have problems using them.
Another challenge to the adoption of digital payments in Kenya is the risk of cyber attacks. As digital payment systems rely on technology, they are vulnerable to cyber attacks, which can compromise the security of financial transactions. To address this risk, digital payment systems in Kenya have implemented various measures, such as investing in cybersecurity technologies, educating users about online safety, and partnering with cybersecurity firms.
Despite these challenges, the benefits of digital payments in curbing money laundering in Kenya far outweigh the risks. Digital payment systems offer a more efficient and secure way to facilitate financial transactions, and they can help to reduce the scope for money laundering.
One way that authorities in Kenya can encourage the adoption of digital payments is by providing incentives and support to businesses and individuals who use them. For example, the government could offer tax breaks or subsidies to businesses that accept digital payments, or it could provide funding to support the development of infrastructure and connectivity in rural areas.
Another way to promote the adoption of digital payments is by raising awareness about their benefits. Authorities in Kenya can educate the public about the convenience, speed, security, and reduced transaction costs of digital payments, and encourage them to adopt them as their preferred method of payment.
Just like MPesa and Lipa, IntaSend has also contributed to the success of digital payment in Kenya by offering its users a secure and reliable way to send and receive money in and out of Kenya from the comfort of their homes. While IntaSend offers a very feasible KYC solution and a payment option for unregistered businesses, you’ll be mistaken to think its verification process is not as thorough as the strongest bank-based system you can picture. If you add that to the already-existing bank-level security and safety features, you have a digital payment provider that has all the necessary elements to combat money laundering.
IntaSend also has a highly encrypted system that ensures users’ data is kept safe and secure, as well as a dedicated customer support team to help users with any queries or issues that may arise. It has also partnered with several banks in Kenya to provide users with more options on where to make deposits and withdrawals whenever they need to. This partnership with banks has also enabled IntaSend to offer its users lower transaction fees compared to other digital payment providers.