Money Laundering in Kenya by Politicians and Business Elites

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Written By El Gwaro

Every day millions of shillings, illegally acquired, are stashed in bags and moved around secretly from place to place exchanging hands and deposited in bank accounts while Wanjiku struggles to put a meal on the table.

This money that would have been used to incentivize the daily struggle of Wanjiku, is swiftly and easily tricking down to the pockets of a few individuals who then begin the process of making it untraceable and ‘clean’.

Wanjiku’s fate is sealed, she was born to suffer, and the system is here to ensure that. Meanwhile, Mheshimiwa drives big cars and lives life in the first lane. He believes in the system. The system will protect him.

This might disturb your conscience but the greatest undoing that begot Kenya might have been the early independence we attained. Of course, the colonial rule had its problems but at least there was order; economic and judicial order.

Social order was amiss courtesy of the authoritarian and discriminative rule evident with the British Colonial government but at least things were in order based on the superior policies of governance.

When we got independence, at a time we were arguably unprepared, it ushered in the next era of colonialism. A far more devastating era which has been unshakable ever since. An era of few individuals, more ruthless than British masters, eager to satisfy insatiable personal desires rather than serve.

Under the Kenyatta and Moi regimes, a group of civil servants and politicians accumulated power and wealth while building a system that would protect them and their illegal earnings. This system is still in place today and the current politicians and business elites are benefiting from it in the same manner as their forefathers.

Corruption is so systemic and affects every sector of Kenya’s economy that no solution has been formulated up to date to effectively deal with it. Even the current president himself has admitted before that there’s nothing he can do so salvage the nation.

The backbone of this infamous Kenyan corruption complex is money laundering. In simple terms, it is the process through which money acquired illegally especially from government coffers is moved around to conceal its origin.

Money laundering is plan B for corrupt elites. Plan A involves the old “Toa Kitu Kidogo” (bribing). Politicians and business persons know that authorities who are changing occasionally will always be nosy with quickly accumulated wealth.

Hence they have perfected the process of hiding stolen money under seemingly legitimate entities and taking advantage of protective laws such as banks-customer confidentiality to do the same. Using power and more money, they bend laws and restrictions in creative ways to ensure ‘their’ money never gets back to its legitimate owner; Wanjiku.

1. Banks and Finance Institutions

The banking sector was probably one of the most attractive for money laundering especially during the Moi regime and earlier in Kibaki’s era. This was courtesy of it being under-regulated and the lack of a clear hold of the numerous range of highly differentiated banks and finance companies which made it hard for authorities to monitor transactions.

Money markets also offered a perfect loophole for politicians with huge amounts of money to conceal the real source of their riches. They would first invest in government loans and treasury bills issued by the Central Bank of Kenya or deposit their money in fixed bank accounts.

Then, they borrow loans and advances using these investments and deposits as securities and use the money to build legitimate businesses that would be used to disguise the source of their wealth. Fixed Bank Deposits especially enjoy the Bank-Customer confidentiality term which prevented banks from disclosing owners and amounts in these accounts.

Meanwhile, others would acquire foreign identities or use third parties from outside countries and purchase treasury bonds and bills using stolen money as ‘foreign investors’. They also stash money in offshore bank accounts and earn kick-backs from countries for influencing government contracts.

Although some regulations have been put in place ever since there still exist some loopholes which powerful politicians and businesspersons exploit to clean illegally acquired proceeds. For instance, banks are currently required to report deposits or withdrawals exceeding Ksh 1,000,000. These laws are, however, worth nothing in the face of powerful criminal networks that have built systems to protect them for decades.

2. Forex Bureau

Compared to banks, foreign exchange companies have a less cumbersome procedure for foreign exchange. They also don’t charge high commissions of currency exchanges and are characteristic of operating in low margins.

Therefore, it is not a surprise that criminals would turn to them to launder money. These conditions provide a perfect platform especially for clients who need to handle large transactions at a time without having authorities on their backs.

Cash-based transactions are not illegal in Kenya. Thus, this presents a great avenue especially for clients dealing with actual cash. They do business in wholesale, retail and import/export sectors using large amounts of money without involving proper documentation.

When Authorities suspect anything and launch an investigation, they encounter a major hurdle; inability to differentiate revenue from legitimate business transactions, funds borrowed from banks and that which is related to money laundering.

One favourite channel for these criminals is through 2nd hand motor vehicle importation from Japan, Dubai and Singapore which have attractive trading conditions. Politicians are especially fond of purchasing the latest vehicles in the market which they pay in cash.

Meanwhile, Kenyan firms with families and business links abroad use wholesale and retail transactions to launder money. Commonly, they employ agents who facilitate the shipping of goods into the country and are thus paid commissions for their sales.

Since these transactions are rarely documented, illegally acquired cash can be moved out with ease. Authorities also find it hard to determine revenues and tax liabilities courtesy of this convoluted system. This method is especially popular among business persons from India, Pakistan, UK and Canada.

3. Nairobi Stock Exchange

The stock exchange is a free market where anybody can participate without raising much suspicion. Recently more regulatory laws have been put in place to make it hard for money clients to operate money of unexplained origin but this remains a favourite among several elites.

The high returns rate characterized in stock exchange system is a perfect incentive for criminals to consider investing in the market. But only a stupid person would jump in without a well thought out plan and the syndicate that controls our economy and stability provides politicians with the right information.

Although highly lucrative, stock exchange has high risks too. Hence investors base their confidence by political stability, economic recovery and improved profitability of listed companies before investing. They either have great prediction skills or exclusive information from the intricate syndicate on such events.

They could also trade securities and bonds while accruing profits from rising stock values and attribute their wealth from financial adeptness in case authorities come later knocking on their mahogany doors.

4. Horticulture and Floriculture

Somewhere in primary school, we studied that one of Kenya’s top exports are agricultural products and flowers. In fact, the industry contributes so much to the economy and the country’s reputation in multilateral trade.

However, what they failed to teach us was the fact that this status was contributed largely by the efforts of civil servants and politicians in the Moi regime to launder money stolen from government reserves or awarded to loyal servants.

The minimum investment for a small to medium-sized farm is Ksh 100,000,000. Hence this is not a playground for any aspiring entrepreneur. You need loads of cash just to get started.

However, politicians and business elites can afford this. So they pour money into these farms which by the way provides lucrative opportunities for developing regular income stream.

Using creative channels present in the agricultural and flower business, money from illegal ventures can be mixed with revenues from the farms and set Mheshimiwa free of worry.

Courtesy of the huge investments made into these sectors during the Moi era, Kenya at one point become the biggest exporter of Flowers to the European Region. Horticulture and Floriculture are thus very lucrative businesses which besides generating good income, provide a great channel to make stolen money disappear.

5. Land and Real Estates

This is perhaps, the most widely implemented method of money laundering among politicians and business elites both in history and today. It’s especially popular among upcoming elites who are moving millions regularly and those in the crème de la crème of corruption in Kenya.

During Moi’s era, election financiers and political aspirants were allocated government land which they then sold back to the government at inflated prices to recoup elections funds. This has been going on since independence and is the most perfect example of the government stealing from its people.

Meanwhile, corrupt government officials and illegal business persons such as drug barons have become fond of investing funds in middle-income and up-market residential areas through the purchase of land and construction of high quality residential and commercial buildings using proxies who are close relatives and friends.

Considering the growing middle and upper class, the insatiable market of residential housing and the high rates of return on investment, this sector presents a perfect opportunity for criminals to not only launder money but to ensure the future remains full proof.

Evidently, an alarming number of malls have been built around the country and especially in cities and towns, and most of them seem to serve no actual purpose rather than act as a means to disposing of money. For instance, some of them are barely 50% occupied five years since opening.

Nairobi has been named a top hub for real estate money laundering which is done not only by Kenyan politicians and business persons but also by kleptocrats and international criminals.

What can be done?

Kenya is not part of the Financial Action Task Force, an intergovernmental organization with the mission of combatting money laundering. This is largely contributed by the inaction of involved parties; government, banks and other financial institutions, to come up with policies based on FATF recommendations to fight money laundering.

In fact, in certain instances, these entities have contradicted one another for instance when MPs threatened to overturn the CBK Governor’s regulation. The rule was meant to tighten money laundering loopholes and the people in the government clearly don’t want that because they benefit from the current weak system in cleaning their corruption gains.

So if the people responsible to enact laws and systems that would curb money laundering in Kenya are doing the exact opposite, fighting anti-money laundering policies, what then is left of Wanjiku? We can only pray for God’s mercy.

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