Taming trade-based money laundering

As Kenya expands its regional and global trade footprint, the risk of TBML correspondingly intensifies, placing greater responsibility on institutions such as the Financial Reporting Centre (FRC) to strengthen financial intelligence-gathering frameworks.

TBML flourishes on disintegration among customs authorities, financial institutions and regulatory bodies.

Criminal systems exploit these institutional silos by engaging in over- or under-invoicing, multiple invoicing, phantom shipments, falsified descriptions of goods and false documentation.

These schemes allow the transfer of value across borders without triggering conventional anti-money laundering (AML) controls.

Kenya has positioned itself as a regional trade and logistics hub, and failure to address TBML risks undermines both fiscal stability and international credibility.

Data integration

A citical starting point for the FRC lies in strengthening data integration and analytics, effectively enabling reconciliation of trade data with financial flows to facilitate real-time detection.

This requires linking customs declarations from KRA with banking transaction data and cross-border payment systems.

Through the deployment of advanced analytics and anomaly detection tools, the FRC could identify variances in pricing, volumes and trade patterns that signal potential illicit activity.

Adoption of real-time intelligence systems will reposition Kenya from a reactive to a proactive enforcement posture while enhancing inter-agency collaboration.

The scope of TBML goes beyond the financial sector and covers trade, taxation and criminal enforcement.

A synchronised framework involving the FRC, Central Bank of Kenya, Directorate of Criminal Investigations and customs authorities is essential.

Further, multi-agency frameworks, shared intelligence platforms and harmonised investigations could significantly reduce information gaps exploited by criminals.

Risk focus

A risk-based supervisory approach and appropriate coordination are necessary since all sectors present varying exposure to TBML.

In addition, high-risk areas such as precious metals and stones, import-export businesses and freight forwarding require enhanced scrutiny.

This allows for optimal deployment of resources by the FRC while maximising impact.

Banks and other reporting entities often struggle to identify TBML due to its technical nature, and practical guidance — such as identifying unusual price deviations or inconsistent trade documentation — could significantly improve suspicious transaction reporting.

Capacity building remains a critical pillar of any effective response, since small and medium-sized enterprises engaged in cross-border trade lack awareness of TBML risks and compliance obligations.

The FRC should therefore invest in targeted training programmes, working alongside development partners and industry associations to build a culture of compliance designed not only as a regulatory obligation but as a competitive advantage that enhances trust and access to international markets.

Tech tools

Deployment of modern technology such as machine learning, artificial intelligence, enhanced due diligence, transaction monitoring, blockchain technologies and automated name screening could enhance pattern recognition in large datasets, improve transparency and traceability in supply chains, as well as strengthen beneficial ownership transparency.

Although implementation costs may be significant, the long-term benefits in terms of risk reduction and efficiency are substantial.

Through the adoption of an integrated strategy incorporating intelligence, technology and collaboration, the FRC could significantly close gaps facilitating illicit financial flows.

The writer is an expert and researcher on illicit financial flows & AML.