The Treasury will compel virtual currency exchanges and wallet providers to disclose cryptocurrency owners, if MPs approve fresh changes to the law that seeks to rein in tax cheats, criminals and hackers.
The Virtual Assets Service Providers Bill of 2025 demands that the exchanges and wallet providers like Ledger and Trezor must end anonymity on the faces behind crypto under their watch.
The Treasury is also seeking to have virtual asset service providers stop the practice of using “mixers” or software tools that mix up illicit funds with clean crypto from thousands of addresses before redistributing them.
The ability to hold cryptocurrencies without divulging the identity of the owners has made them increasingly attractive to criminals, and particularly to hackers who demand ransoms after breaking into companies.
Cryptocurrency is a digital payment system that doesn’t rely on banks to verify transactions and enables participants worldwide to send and receive payments.
Trading can be done through traditional online brokers or cryptocurrency exchanges that charge asset-based fees.
Kenya joins a small list of countries that are making laws to curb anonymity in crypto assets in the quest to stop illegal activities that pose national security risks.
“A virtual asset service provider shall conduct its business with integrity at all times and in particular shall not undertake mixer or tumbler services or anonymity-enhancing services,” Section 22(1, a) of the 2025 Bill states.
Mixer and tumbler services refer to the jumbling up of the data on virtual asset transactions with the aim of undermining transparency and traceability to the ultimate beneficiaries.
The Bill wants all firms and individuals dealing in the exchange of virtual assets to be licensed and have physical offices in the country.
“The businesses and affairs of a licensee shall be managed by at least three directors of whom at least three shall be natural persons,” says the Bill that places the crypto dealers under the watch of the Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA).
This will help Kenya police a sector, including exchanges, wallet providers, custodial services like BitGo and Gemini custody in the world of online crime, where anonymous cryptocurrencies are the payment method of choice.
Individuals risk being slapped with a fine not exceeding Sh3 million while corporate entities face penalties of up to Sh10 million if they fail to meet the disclosure requirements in the Bill.
The Kenya Revenue Authority (KRA) has also disclosed that it is seeking to integrate a new revenue system with cryptocurrency exchanges and marketplaces to track and record all transactions in real-time.
This is part of a strategy to catch tax dodgers in the largely secretive market segment, which criminals can also exploit to support illicit activity such as theft, fraud, and money laundering.
The taxman estimated that between 2021 and 2022, Kenya’s cryptocurrency market transacted about Sh2.4 trillion, representing close to 20 percent of the country’s GDP.
“With this potential, it has become increasingly important for the KRA to develop a system to track and collect taxes on cryptocurrency transactions,” the KRA said, noting that it is procuring a new digital tax system to cover crypto trading.
Kenyan investors buy cryptocurrencies to preserve their savings, carry out international transactions either for individual remittances for those working in places like Europe and North America or for commercial use, such as purchasing goods to import and sell, says Chainalysis.
The payment of imports through cryptocurrency is seen as convenient and quick because the traders no longer have to buy dollars using Kenya shillings or fork out fees to money transfer firms like Western Union.
Besides speed, it has the advantage of the irreversibility of digital asset transactions. In the early days of cryptocurrencies, criminals would simply cash out using the major cryptocurrency exchanges.
A British blockchain analytics firm, Elliptic, estimates that between 2011 and 2019, major exchanges helped cash out between 60 and 80 percent of bitcoin transactions from known bad actors.
From 2021, as exchanges began to worry more about regulation, many of them bolstered their anti-money laundering (AML) and know-your-customer (KYC) processes and the share shrank to 45 percent.
Stricter rules have pushed some criminals towards unlicensed exchanges, which typically require no KYC information.
Many operate out of jurisdictions with less stringent regulatory requirements or lie outside of extradition treaties.
In Kenya, this is the latest proposal by the government to tighten the leash on money laundering and illicit financial flows in the country and get Kenya out of the Financial Action Taskforce’s (FATF) grey list.
FATF grey-listed Kenya in February 2024, citing challenges in the country’s anti-money laundering framework, including gaps in the regulation of virtual asset service providers.
The tabling of the 2025 Bill in the National Assembly comes just three months after the government published a draft policy on virtual assets and virtual asset providers that identified the absence of a regulatory framework as the missing link in Kenya’s anti-money laundering fight.
“A comprehensive legal and regulatory framework governing virtual asset activity and virtual asset service providers is not in place, which poses risks to the country,” said the draft.
“The government will undertake to develop a comprehensive and progressive law drawing from international standards and global best practice.”
The Finance Act, 2023 introduced digital assets tax at a rate of 3.0 percent of the transaction value. It became effective on September 1, 2023.
