Illicit financial flows crime manifests through different forms, including money laundering, corruption or terrorist financing. This has made countries like Kenya embrace a multi-layered system to detect and flag suspicious transactions.
Kenya established Financial Reporting Centre (FRC) in 2012 as the country’s financial intelligence unit to assist in the identification of the illicit flows and also undertake risk-based supervision of reporting entities.
Which institutions does FRC consider as reporting entities and what are their obligations?
Reporting entities under FRC are institutions which are legally required to detect and report suspicious financial activities as outlined in the Proceeds of Crime and Anti-Money Laundering Act.
The reporting entities include financial institutions such as banks, micro-finance banks, insurance companies, Saccos, forex bureaus and mobile money operators.
The list also includes designated non-financial businesses and professions like lawyers, accountants, real estate agents and dealers in precious metals and stones. Casinos and betting companies as well as non-governmental organisations are also reporting entities.
What are the key reports that reporting entities submit to FRC?
Reporting entities file cash transaction reports (CTRs) for all cash transactions of $15,000 (Sh1.94 million or more. They also file cross border monetary instrument declarations reports, which capture declarations made by persons crossing Kenyan border points while in possession of currency or monetary instruments exceeding $10,000 (Sh1.29 million).
The entities also file suspicious transaction reports (STRs) when there is suspicion that the funds being transacted, regardless of the amount, are proceeds of crime or are related to money laundering or financing of terrorism. In addition, they also file suspicious activity reports that capture potentially suspicious behaviour or activities that may be laying the ground for illicit financial flows.
What triggers a financial transaction to be flagged as suspicious in Kenya?
Suspicious financial transactions usually take many forms, and it is therefore the duty of reporting entities to flag such deals and report to FRC using the established framework.
Financial players like banks, insurers, saccos and forex bureaus are required by law to monitor financial activities and report any that appear abnormal. Such red flags include large and unexplained cash deposits or withdrawals which are not consistent with a person’s known income or business.
Activities such as breaking up large transactions into smaller ones to evade the reporting thresholds of $15,000 and $10,000 are also picked up by financial institutions. Unusual international transfers, particularly to or from tax havens or countries flagged by global watchdogs like the Financial Action Task Force (FATF) are also of interest.
The reporting entities are flag rapid movement of funds across multiple accounts with no clear economic purpose and report to FRC.
What role does the FRC play in fighting flow of dirty cash?
FRC is tasked with detecting and stopping the flow of dirty money. It receives and analyes STRs from reporting institutions to pick out patterns or trends that may indicate financial crime.
The entity then shares the intelligence with investigative and prosecuting agencies like DCI, Ethics and Anti-Corruption Commission (EACC) and Asset Recovery Agency (ARA).
While FRC does not arrest or prosecute suspects, it uses the intelligence reports from reporting entities and international financial intelligence units to connect the dots and feed leads to DCI, EACC and ARA so that these agencies can build water-tight cases.
How do banks and mobile money providers like M-Pesa detect dirty financial deals?
Commercial banks and mobile money platforms play a frontline role in detecting financial crimes. For instance, of the Sh6.976 trillion flagged as suspicious financial transactions over a three-year period to 2023, banks handling Sh6.38 trillion or 91.04 percent of the money.
Banks’ large share in the suspicious deals is largely due to their proximity to customers and control over financial data.
All financial institutions are required to collect identity documents of their customers, verify addresses and understand the customer’s source of income as part of the know-your-customer (KYC) checks. They monitor transactions in real time using automated surveillance systems and flag and report suspicious deals.
Which government agencies are involved in investigating and prosecuting financial crimes in the country?
Suspicious transactions that have been flagged and assessed by the FRC usually requires further investigation. Therefore, the FRC works closely with other institutions to convert the intelligence into evidence for prosecution.
For instance, DCI handles complex economic crimes, cyber fraud, and criminal networks while EACC focusses on corruption-related offenses especially among public officials.
Kenya Revenue Authority also works closely with FRC, picking up cases of tax evasion, unexplained wealth, and customs fraud. On the other hand, Assets Recovery Agency (ARA) seizes and recovers assets believed to be proceeds of crime while the Office of the Director of Public Prosecutions (ODPP) takes evidence gathered by investigative bodies and takes cases to court.
What happens after a suspicious transaction is flagged?
Once a transaction or activity is flagged and a report is generated and forwarded to FRC, the unit assess the seriousness and pattern of the activity.
FRC then forwards credible cases to agencies such as DCI. This may be followed by freezing of assets or accounts to prevent flow of the money. This is followed by a full investigation which may include surveillance, interviewing the suspects and carrying out forensic audits.
In cases of sufficient evidence, the ODPP files charges in court. This may result in acquittal or conviction of the suspects, leading to consequences such as imprisonment, fines or asset forfeiture.
