Legal persons and arrangements play a critical role as drivers of economies all over the world. However, these legal structures may be abused for corruption and money laundering among other crimes.
Against this backdrop, the Financial Action Task Force (FATF), a global money laundering and terrorism financing watchdog, requires countries to set up mechanisms to guarantee adequate, accurate and up-to-date information on beneficial ownership.
It further requires firms to obtain accurate data and to cooperate fully with authorities by making such information available when needed.
Most jurisdictions are facing significant challenges in fulfilling FATF requirements on beneficial ownership transparency of legal structures.
For example, within the Eastern and Southern Africa Anti-Money Laundering Group region, countries that underwent mutual evaluations between 2016 and 2024 achieved low levels of effectiveness, indicating that fundamental improvements are still required.
Failure to effectively implement beneficial ownership transparency requirements renders legal structures vulnerable to misuse for corruption, money laundering, and other illicit activities.
Globally, it is estimated that between 10 percent and 25 percent of government procurement spending is lost annually to corruption, often facilitated through opaque legal structures that conceal beneficial ownership.
The situation is no different in Kenya. In 2024/2025, the Ethics and Anti-Corruption Commission (EACC) said seven percent of corruption reports related to public procurement irregularities. Further, the 2024 money laundering and terrorism financing trends and typologies report observed that manifestations of corruption between 2021 and 2024 majorly bordered on conflict of interest, procurement fraud, embezzlement, and kickbacks.
These trends were prevalent at both county and national levels, with an ongoing pattern of public officials trading either directly or through proxies.
Proceeds of these activities were eventually withdrawn in cash, transferred to accounts of related companies and finally invested across various sectors of the economy.
To address these systemic weaknesses, the Government of Kenya has undertaken several legislative and policy measures aimed at enhancing transparency in the ownership and control of legal persons and legal arrangements.
First, Kenya enacted the Companies (Beneficial Ownership Information) Regulations, 2020, to enhance transparency in the ownership and control of legal persons. The regulations define a beneficial owner as the natural person who ultimately controls a legal person or legal arrangement, or the natural person on whose behalf a transaction is conducted.
Second, a National Risk Assessment (NRA) on Money Laundering and Terrorism Financing of Legal Persons and Legal Arrangements conducted in 2023 rated the overall money laundering threat associated with legal structures in Kenya as medium, highlighting the continued need to strengthen transparency.
Third, reporting institutions are required to obtain and verifying beneficial ownership information from reliable and independent sources.
Fourth, in March 2025, Treasury issued directives on mandatory adoption of the End-to-End Electronic Government Procurement System. The system is intended to enhance transparency and accountability in public procurement.
Fifth, enactment of the Conflict of Interest Act, 2025, which prohibits public officers from being a party to, or beneficiary of, contracts for supply of goods, works, or services to their reporting entities. It also prohibits public officers from exercising official authority to award contract in which they have a private interest.
Sixth, the designation of the BRS as the Registrar of Trusts and initiation of the development of a Trust Bill. Among other provisions, the proposed legislation seeks to establish mechanisms for collecting beneficial ownership information on trusts and to facilitate access to such data by law enforcement agencies.
Transparent corporate structures do not undermine legitimate enterprise; instead, they strengthen investor confidence, protect public finances, and enhance Kenya’s international reputation, particularly in the context of the AML/CFT framework.
Macharia Paul is an AML/CFT compliance specialist.
