The Financial Action Task Force (FATF) has added Kenya to its grey list, placing the East African country under increased scrutiny for its anti-money laundering (AML) and countering the financing of terrorism (CFT) measures.
FATF, a Paris-based global organization that sets the tone in AML policies, announced
changes to its grey list last Friday. It added Kenya and Namibia and removed the United Arab Emirates and Barbados. Kenya’s neighbor, Uganda, also exited the list after four years.
Kenya joins its neighbors Tanzania and Sudan on the list, which also contains African economic giants South Africa and Nigeria. Other notable inclusions are the Philippines, Türkiye, and Croatia.
Kenya’s National Treasury Cabinet Secretary Njuguna Ndung’u acknowledged the inclusion earlier on Friday. The inclusion “underscores the imperative for swift and comprehensive action to bolster our compliance efforts,” he stated.
Kenya’s inclusion on the grey list was not unexpected. Starting in 2021, the East and Southern Africa Anti-Money Laundering Group (ESAAMLG)—the regional AML body and an associate member of the FATF—evaluated the East African country’s AML standings. Its report in 2022 identified some strategic deficiencies in Kenya’s AML and CFT frameworks, some of which haven’t been fully addressed.
The FATF lacks the mandate to impose fines or penalties. However, placing a country under its grey or black lists—the latter is for serious offenders like Iran and North Korea—limits its ability to secure multilateral funding and reduces its appeal as an investment destination.
An International Monetary Fund (IMF) report that studied 89 grey-listed countries between 2000 and 2017 found that capital inflows dipped by 7.6% of gross domestic product (GDP). Foreign direct investment dropped by 3%, while other investments in these countries dropped by 3.6%.
Kenya forms ‘crypto’ working group
While landing on the grey list is a big blow, the Kenyan government pledged to implement policy changes to meet the FATF’s standards.
“While there are still strategic deficiencies that require urgent attention, Kenya remains fully committed to implementing the FATF Action Plan comprehensively and expeditiously,” Ndung’u told the press.
Digital asset oversight has emerged as one of the FATF’s key considerations. Some countries like Türkiye have remained on the grey list for their ‘crypto’ oversight deficiencies despite addressing all the other 39 concerns the Paris organization raised.
Kenya recognizes that it must regulate digital assets if it’s to be on the FATF’s good books. To achieve this, the National Treasury has formed a new working group to advise the government on digital assets and formulate draft regulations for the sector. According to one local daily, the group is working alongside the Financial Reporting Centre (FRC), Kenya’s financial intelligence division.
“Right now, there is a sectoral working group that is working on developing a policy document to guide on developing a legal framework which will prescribe what needs to be done and who will be the regulator for digital assets providers,” FRC director-general Saitoti Maika told the Business Daily.
Maika acknowledged that it’s critical for Nairobi to regulate digital assets, stating, “Probably, we may end up with a stand-alone regulator for virtual assets. We can’t bury our heads in the sand. The more we fail to regulate, the more we risk being punished.”
Kenya currently lacks comprehensive digital asset policies, much like every other African nation. The East African country relies on existing regulations and regulators, including the Capital Markets Authority (CMA), to oversee the sector, which has been growing rapidly for years. Kenya has ranked in the top three for peer-to-peer trading for four years now. It ranked 21st in terms of adoption in 2023.
“The concern has been that Kenyans are trading, and yet we don’t know, as a country, to what extent the proceeds that flow in this space are likely to get into the financial system. We are being reminded that as we become more sophisticated as a country, we have to deal with the risks,” the FRC head stated.
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