GPR 611-BANKING AND FINANCIAL SERVICES

LAW

Group 6

Anti-Money Laundering and Countering Terrorism Financing

 OUTLINE OF PRESENTATION

1. General Introduction - Overview of Money Laundering and Terrorism in Kenya.

2. History of money laundering
3. Anti money Laundering Framework
4. History of Terrorism
5. Prevention of Terrorism Framework
6. Case Studies
7. Final Remarks/ End
 OVERVIEW OF MONEY LAUNDERING AND TERRORISM IN KENYA.
Money laundering is defined as the process by which illegally obtained funds are ‘legitimised’ by disguising
their origins and integrating those funds into legitimate financial systems. The Financial Action Task Force
adopts this definition.
A newer form of money laundering entails the reverse – taking funds out of legitimate financial systems to fund
illegal activities e.g. financing terrorism.
Terrorism is defined as acts of violence that target civilians in the pursuit of political or ideological gains. It
includes criminal acts intended or calculated to provoke a state or terror in the general public.

Participants to money laundering:-

A commercial enterprise, Financial institutions / service providers (banks, insurers, electronic/mobile money
payment services providers, capital markets players – investment banks, traders, dealers etc ) Churches, NGOs,
individuals, professional enablers (Lawyers & Accountants).
 MONEY LAUNDERING
Definitions under:-
i. United Nations Office on Drugs and Crime (UNODC) -the process of turning illegally gained
money into legal and lawful money with the purposes to disguise original source of criminal or
illegal money and to eliminate the trail of flowing illicit money
ii. The Organization for Economic Co-operation and Development (OECD) -The attempt to conceal
or disguise the ownership or source of the proceeds of criminal activity and to integrate them into
the legitimate financial systems in such a way that they cannot be distinguished from assets
acquired by legitimate means
iii. The Financial Action Task Force (FATF)-the processing of … criminal proceeds to disguise their
illegal origin.”
iv. The Proceeds of Crime and Anti-Money Laundering Act, 2009 attempts to define money
laundering though not expressly in section 2 of the Act where it states, “an offence under any of the
provisions of sections 3, 4 and 7.
Definitions continued………………

POCAMLA defines it under section 3,4 & 7 define the offence of money laundering as
follows:
S.3 a person who knows or who ought reasonably to have known that property is or forms part
of the proceeds of crime and:
(a) enters into any agreement or engages in any arrangement or transaction with anyone in connection
with that property, whether that agreement, arrangement or transaction is legally enforceable or not; or
(b) performs any other act in connection with such property, whether it is performed independently or
with any other person, whose effect is to—
(i) conceal or disguise the nature, source, location, disposition or movement of the said property or the
ownership thereof or any interest which anyone may have in respect thereof; or
(ii) enable or assist any person who has committed or commits an offence, whether in Kenya or elsewhere
to avoid prosecution; or
(iii) remove or diminish any property acquired directly, or indirectly, as a result of the commission of an
offence, commits and offence.
Definitions continued………………
Section 4: A person who:
(a) acquires;
(b) uses; or
(c) has possession of,
property and who, at the time of acquisition, use or possession of such property, knows or ought reasonably to
have known that it is or forms part of the proceeds of a crime committed by him or by another person, commits an
offence.
Section 7:
A person who, knowingly transports, transmits, transfers or receives or attempts to transport, transmit, transfer or
receive a monetary instrument or anything of value to another person, with intent to commit an offence, that
person commits an offence.
 HISTORY OF MONEY LAUNDERING
Attempts to specifically legislate to combat money laundering may have started in the prohibition era in the USA.
Internationally, this gained traction with the war on drugs and the adoption of the UN Convention on against Illicit
Traffic in Narcotic Drugs and Psychotropic Substances, 1988.
Kenya’s enactments are more recent with the Narcotic Drugs and Psychotropic Substances Act, enacted in 1994
providing for forfeiture and confiscation of property and prohibiting the laundering of proceeds from drug
trafficking. The EACC Act also provided for confiscation of proceeds of crime in the EACC Act.
 STAGES OF MONEY LAUNDERING
Stage1- Initial/placement stage:
The launderer introduces his illegal profits into the financial system. This might be done by:
-breaking up large amounts of cash into less conspicuous smaller sums that are then deposited directly into a bank
account, or
-by purchasing a series of monetary instruments (cheques, money orders, etc.) that are then collected and
deposited into accounts at another location;
-Bulk cash smuggling: This involves physically smuggling cash to another jurisdiction and depositing it in a
financial institution, such as an offshore bank, with greater bank secrecy or less rigorous money laundering
enforcement. In step 2 return money to jurisdiction as foreign direct investment or as earnings from foreign
sources;
-Using cash-intensive businesses: In this method, a business typically expected to receive a large proportion of its
revenue as cash uses its accounts to deposit criminally derived cash. Preferred businesses are those in service
industry – car washes, hotels, bars
stages of money laundering conti………...
Stage 2- Layering stage:
Launderer engages in a series of conversions or movements of the funds to distance them from their source.
Funds may be channelled via
- purchase and sales of investment instruments,
- wire the funds through a series of accounts at various banks across the globe. This use of widely scattered
accounts for laundering is especially prevalent in those jurisdictions that do not co-operate in anti-money
laundering investigations.
- Disguise the transfers as payments for goods or services, thus giving them a legitimate appearance.
Stage 3-Integration
-Funds re-enter the legitimate economy. The launderer might choose to invest the funds into real estate, luxury
assets, or business ventures.
 ANTI MONEY LAUNDERING FRAMEWORK
There have been several attempts to control money laundering, the focus having shifted over time, often in
response to events, from general criminality to drug enforcement and, lately, terrorist activity.
Focus would be on the following frameworks:
1. The Financial Action Task Force (FATF) Recommendation;
2. Proceeds of Crime and Anti-Money Laundering Act (POCAMLA) (2009)
3. Proceeds of Crime and Anti-Money Laundering Regulations 2013;
4. Financial Reporting Centre Guidelines;
5. CBK Prudential Guidelines on AML and CFT
6. IRA Guidelines
Anti Money Laundering Framework contd…
CONVENTIONS
1. The United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (the
Vienna Convention)
2. The International Convention against Transnational Organized Crime (the Palermo Convention)requires member
countries to criminalize money laundering and all the predicate offences of money laundering and establish
regulatory and supervisory regimes to detect all forms of money laundering.
3. The International Convention for the Suppression of the Financing of Terrorism- UN member countries required
to criminalize terrorism, terrorist organizations and terrorist acts.
4. United Nations Security Council Resolution 1373 and 1267-obligates all UN member countries to criminalize
actions relating to the financing of terrorism and requires member states to freeze the assets of the Taliban
Anti Money Laundering Framework contd…
CONVENTIONS
1. The Harare & London Scheme for Mutual Assistance in Criminal Matters Within the Commonwealth;
2. Multilateral Convention on Mutual Administrative Assistance in Tax Matters, February 2016
3. East Africa Community Customs Management Act, S. 20 (Tax Evasion) and East African Police Chief
Cooperation Organisation to combat Crime.
4. Bilateral Treaties between FIUs and Tax Authorities on Mutual Cooperation.
Anti Money Laundering Framework contd…
FATF Recommendations
FATF promotes policies to protect the global financial system against money laundering, terrorist financing and the
financing of proliferation (spread) of weapons of mass destruction.
FATF Recommendations set an international standard to be implemented through the following measures:
• identify the risks (through a risk based approach), and develop policies and domestic coordination;
• pursue money laundering, terrorist financing and the financing of proliferation;
• apply preventive measures for the financial sector and other designated sectors;
• establish powers and responsibilities for the competent authorities (e.g., investigative, law enforcement and
supervisory authorities) and other institutional measures;
• enhance the transparency and availability of beneficial ownership information of legal persons and
arrangements; and
• facilitate international cooperation.
Anti Money Laundering Framework contd…
FATF Recommendations
The Recommendations are divided into the following seven………..:
• AML/CFT Policies and Coordination;
• Money Laundering and Confiscation;
• Terrorist financing and Financing Proliferation;
• Preventive measures (Customer Due Diligence and record keeping, identifying BOs, Identification of politically
exposed person in relations to foreign customers (PEPs), Reliance Controls and financial groups, Reporting suspicious
transaction, Designated non-financial businesses and professions (DNFBPS);
• Transparency and BO of Legal Persons and Arrangements;
• Powers and Responsibilities of Competent Authorities and other Institutional Measures; and
• International Cooperation.
Anti Money Laundering Framework contd…
IN KENYA
• History
Prior to the enactment of POCAMLA, Kenya enacted fragmented legislation covering various
economic crimes and other crimes which generate money to be laundered (here, ML becomes the
predicated offence) corruption, drug trafficking and violent crimes were identified as the causes of
money laundering.
Anti Money Laundering Framework contd…
1. The Proceeds of Crimes and Anti-Money Laundering Act, 2009 (POCAMLA)
Objective of the POCAMLA
• Criminalise Money Laundering and provide measures for combating it.
• Provide for the identification, tracing, freezing, seizure and confiscation of proceeds of crime.
• Provide for international cooperation and assistance in Money laundering investigations and proceedings.
• Empowers LEAs to investigate terrorism offences, detain and prosecute terrorists.
• Provide for seizure and restraint of property used in commission of terrorist acts and forfeiture on conviction (Asset
Recovery Agency)
• Establishment of a Financial Reporting Centre.
• Empowers FRC to receive information relating to property of terrorist groups from any person and/or financial
institutions.
Anti Money Laundering Framework contd…
Establishment of FRC
Established under Section 21 of Proceeds of Crime and Anti-Money Laundering Act of 2009 (POCAMLA)
(autonomous institution under the National Treasury).
FRC’s Principal Objectives (Section 23 POCAMLA).
• Assist in the identification of proceeds of crime and combating Money Laundering and Financing of Terrorism.

• Receiving, analyzing STRs and disseminating reports to LEA supervisory bodies and any
other relevant bodies to facilitate administration and enforcement of the Kenyan Laws.
• Exchange information with similar institutions in other countries on Anti-Money Laundering
(AML), Combating the Financing of Terrorism (CFT) and other related offences.
• Ensure compliance with international standards and best practices in AML/CFT measures.
Anti Money Laundering Framework contd…
FRC Functions under section 24
• Receive, analyse and interpret reports (STRs, information disclosed under section 42 of POTA).
• Send information to appropriate law enforcement authorities or any other appropriate supervisory body for
further handling if, having considered the reports, there is reasonable grounds to suspect that a transaction or
activity involves proceeds of crime, ML or FT.
• Cause inspection to be made by an inspector and the inspector may enter the premises of any reporting institution
during ordinary business hours to inspect any documents kept pursuant to the requirements of this Act, ask any
question relating to such documents, make notes and take copies of the whole or any part of such documents.
Anti Money Laundering Framework contd…
Offences under POCAMLA
• Misrepresentation
• Malicious Reporting
• Failure to comply with the provisions of POCAMLA (DTB Bank Manager)
• Failure to report Conveyance of Monetary Instruments to or from Kenya in excess of prescribed amount (USD
10,000)
• Misuse of information (bringing information to the attention of another person who will/is likely to prejudice the
information)
• Hindrance of a person n performance of functions under POCAMLA;
Penalties
Range between a maximum of 1M to 10M (exception conveyance of monetary instruments which attracts 10% of
the amount in the instrument)
Anti Money Laundering Framework contd…
Provisions of POCAMLA
• AML obligations of a Reporting Institution
• The AML Advisory Board (advise the CS on policies, best practice on AML and exercise powers of CS, advise FRC on
its functions and exercise of its powers, act as a forum to facilitate consultations between FRC, Reporting institutions,
state organs etc., FRC to provide the Board administrative support and resources for it to perform its functions)
• The Asset Recovery Agency
• Criminal Forfeiture
• Civil Forfeiture
• General provisions on preservation and forfeiture of property;
• Production orders and other information gathering powers;
• Criminal Asset Recovery Fund;
• International assistance in investigations and Proceedings
Anti Money Laundering Framework contd…
Proceeds of Crime and Anti-Money Laundering Regulations, 2013
Contains:
• FRC-Functions and Registration of the Centre
• Obligations of a Reporting Institution-Risk Assessment, new technologies, internal control obligations, ML
Reporting Officer, Anonymous or fictitious accounts.
• Due Diligence Requirements-CDD, Information on natural, legal persons, partnerships, information on trusts,
enhanced DD measures, PePs, foreign branches or subsidiaries, wire transfers, money or value transfer services.
• Reporting requirements- independent audit, record keeping , tipping off
 TERRORISM FINANCING

DEFINITION OF TERRORISM
Definition by POTA
The act has defined terrorism acts as an act or threat of action which;
1. Involves the use of violence against a person;
2. Endangers the life of a person other than the person committing the action;
3. Creates a serious risk to the health and safety of the public;
4. Results in serious damage to property;
5. Involves use of firearms or explosives;
6. Involves release of any dangerous, hazardous, toxic or radioactive substance or microbiological agent into the
environment;
HISTORY OF TERRORISM IN KENYA
US embassy bombing in Nairobi, Kikambala bombings, Garissa University Bombing, Dusit 2, westgate Bombing ect
 FRAMEWORK FOR TERRORISM IN KENYA

1.Prevention of Terrorism Act (POTA) and the Regulations

2. Security Laws (Amendment ), Act No. 19 of 2014.
Terrorism and related offences in Kenya are governed under the Prevention of Terrorism Act, No. 30 of 2012 and Security
Laws (Amendment ), Act No. 19 of 2014.
Prevention of Terrorism Act (POTA)
• The Prevention of Terrorism Act, 2012 came into force on 24th October, 2012.

• The Act provides for measures for the detection and prevention of terrorist activities, amends the Extradition (Common
Wealth), Act and the Extradition (Contiguous and Foreign Countries), Act and for connected purposes.

• The Act defines “ terrorist act” to mean an act or threat of action which involves the use of violence against a person,
endangers the life of a person, other than the person committing the action, results in serious damage to property and
involves the use of firearms or explosives.

• Section 2 of POTA on definition at ‘Financial Institutions’ covers the players in the financial services sector including deposit
takers, money transfer service providers (both formal and informal), money markets, foreign exchange service provider etc
 INSTITUTIONS CREATED UNDER THE ACT

• There is established a National Counter Terrorism Centre. The Centre is responsible for the co-ordination of national
counter terrorism efforts in order to detect, deter and disrupt terrorism acts.

• The Centre may request any person or government body for any information relating to terrorism.

General Obligation:- Members of the public have a responsibility to furnish the Centre with any information relating to
terrorism which is within their knowledge.

OFFENCES UNDER THE ACT

• A person who carries out a terrorist act commits an offence and is liable, on conviction to imprisonment for a term not
exceeding thirty years.

• A person who possesses any property intending or knowing that it shall be used , whether directly or indirectly or in
the commission of, or facilitating the commission of a terrorist act, commits an offence and is liable on conviction to
imprisonment for a term not exceeding twenty years.

• A person who knowingly supports or solicits support for the commission of a terrorist act by any person or terrorist
group commits an offence and is liable on conviction to imprisonment for a term not exceeding twenty years.
Offences under the Act conti……………..

• A person who harbours or conceals, or prevents, hinders or interferes with the arrest of a person knowing or
having reason to believe that such person has or intends to commit a terrorist act commits an offence and is
liable, on conviction to imprisonment for a term not exceeding thirty years.

• Any person who provides or facilitates the provision of training and directing terrorist groups and persons
commits an offence and is liable, on conviction to imprisonment for a term not exceeding thirty years.

• Any person being the owner, occupier or in charge of any building premises or place authorizes a meeting of
persons to be held in that building for the purpose of committing an offence, commits an offence and is liable
on conviction to imprisonment for a term not exceeding twenty years.

• A person who knowingly possesses an article or any information held on behalf of a person for the use in
instigating the commission of, a terrorist act commits an offence, and is liable, on conviction, to imprisonment
for a term not exceeding twenty years.

• Any person who adopts or promotes an extreme belief system for the purpose of facilitating ideologically
based violence to advance religious or social change commits an offence and is liable on conviction to
imprisonment for a term not exceeding thirty years.
Offences under the Act conti……………..

• Publishing or causing to publish of insulting, threatening or inciting material images of dead or injured
person which are likely to cause fear and alarm to the general public is an offence and a person is liable on
conviction to imprisonment for a term not exceeding thirty years.

• A person who being in possession of a weapon, an improvised explosive device or components of an

improvised explosive device commits an offence and is liable on conviction to imprisonment for a term not
exceeding twenty-five years.

• Any person who aids or abets the commission of an offence under this act commits an offence and shall be
liable on conviction to imprisonment for a term not exceeding twenty years.
 OTHER PROVISIONS OF THE ACT
• The Cabinet Secretary on recommendation of the Inspector General declare an entity to be a Specified entity by
publishing an Order in the Kenya Gazette.
a) A specified entity can be made over a person who has committed, attempted to commit or participated in
or facilitated the commission of a terrorist Act; or
b)An entity is acting
• On behalf of
• At the direction of
• In Association with
• An entity specified in (a).
A terrorist group is defined to include a specified entity.
 Other provisions of the Act- Cont

• The High Court may issue a warrant authorizing a police officer to search a building that is
reasonably believed to have property used for or in connection with the commission of an offence under
his Act.

• The High Court may make an order of forfeiture in respect of property that is owned or controlled
by or on behalf of a terrorist group.

• The Cabinet secretary may, having reasonable grounds to believe that registered company or
association or an applicant for registration as a company or association has made or is likely to
make available, directly or indirectly, any resources in support of a terrorist group, issue an order
to that effect in the prescribed form.
 Case Studies of Anti Money Laundering and terrorism activities in Kenya;

• Sometime in 2015 the government through the powers donated to the inspector general at Section 3
listed various foreign exchange bureaus, money transfer agencies, other organizations and individuals
for their suspected links with terrorist groups following the Garissa University Attacks. These included
firms such as Dahabshiil Money Transfer Ltd, Hodan Global Money Transfer Ltd, Tawakal Money
Transfer, Juba Express Money Transfer Ltd, Sky Forex Ltd , Kendy Money Transfer Ltd, Bakaal
Express Money Transfer Limited among many others.
END

Q&A