A proposal by Treasury Cabinet Secretary Henry Rotich could have serious repercussions on the country’s financial system besides opening the country to ill-gotten wealth.
Should the proposal contained in the 2016/17 Budget Statement to allow wealthy Kenyans wire cash back home without being questioned on the source sail through the National Assembly, Kenya could locked out of the international financial system.
In the statement presented to Parliament last Wednesday, the suggestion meant to make it easy for repatriation of assets held abroad was, among others, aimed to spur economic growth.
“Taxpayers who take up this amnesty shall have all principal taxes, interests and penalties for the year of income, 2016 and the prior years automatically remitted in total. In addition, the Government shall not follow up on the sources of such income and assets declared,” Rotich told Parliament.
In essence, Rotich was proposing to welcome indiscriminately any Kenyan who has assets abroad.
Besides Kenyans doing genuine business out of the country, the amnesty may cover people whose businesses are funded by proceeds from international crime, such as terrorism financing, drug trafficking and money-laundering.
If the proposal not to follow up on the sources of the wealth sails through, Kenya could find itself on a collision course with the Financial Action Task Force (FAFT), which monitors proceeds from money-laundering and terrorism activities globally.
It would also put Kenya at loggerheads with the US government, which is extremely sensitive on how its trading partners conduct themselves. Already, Kenya is on the US State Department list of primary concern countries in regard to money laundering. The listing was driven by a report by International Narcotic Strategy report for 2016.
“Kenya remains vulnerable to money laundering and financial fraud. It is the financial hub of East Africa, and its banking and financial sectors are growing in sophistication,” the report says.
Besides the US, FATF imposes strict conditions to address suspicious transactions which include identifying the sources of the income, reporting the suspicious actions and confiscation of either liquid or physical assets suspected to be linked with terrorism or money laundering.
As it is, Kenya is not doing well in meeting FATF recommendations. In fact, it is yet to implement six of the core recommendations at the heart of the fight against money laundering and counter-terrorism.
Failure to adhere to the organisation’s conditions could lead to being named as a high risk or non-cooperative country which opens flood gates in the financial sector and trade sanctions to the country by other states. In the case of the amnesty proposed on Budget Day, the government is looking to attract hundreds of billions of shillings owned by the rich abroad held as properties, shares or cash.
Details remain scanty about how much Kenya’s rich have invested abroad and whether the wealth was acquired through genuine means.
However, in 2003, the government of retired President Mwai Kibaki contracted forensic investigators Kroll Associates to track wealth held abroad by public officers during the regime of former president Moi.
The forensic audit firm found that politically connected Kenyans held more than $20 billion (Sh2 trillion at the current exchange rate) across the world. The wealth was in form of shares, cash in banks and luxury apartments. Most of this wealth was suspected to have been accrued through corruption.
Another report compiled by the US government on drug trafficking in 2010 cited Kenya as a conduit for laundering of money from Kenyan drug trafficking through casinos, supermarkets, and property markets. The monies, according to the report, were then wired to offshore accounts. According to the International Narcotics Strategy report, Kenyan drug traffickers and their international networks cleaned Sh80 billion (the equivalent value of US$100 million in 2009).
Last month, the International Consortium of Investigative journalists (ICIJ) in a project titled the Panama Papers revealed that 191 Kenyans have hidden their wealth in tax heavens. Again, most of the wealth is in terms of properties, shares and cash in banks.
Kenya was placed in a watch list in 2009 after the High Court declared an earlier law unconstitutional. In 2012, the country came close to been named a high risk and non cooperative country because of Parliament’s delay in passing a new law to deal with money laundering and terrorism financing and also failure to set up an agency to monitor suspicious finance transactions.
Being declared a high risk and non-cooperative country has serious ramifications.
Kenya Bankers Association Chief Executive Habil Olaka, however, says there is nothing to worry about in the amnesty.
“The sense I got from the CS is that he was making the proposal from a tax perspective, in which case it makes perfect sense. We cannot speculate on whether it leaves out action on money gained through crime. We we have to wait for the Finance Bill to see what the CS had in mind,” said Olaka.