Kenya is among countries whose real estate sector is highly used for laundering proceeds from graft and international financial flows, a report has shown.
Nairobi is named among top locations in the report by ‘The Sentry’, an investigative and policy team that follows the dirty money connected to African war criminals and transnational war profiteers.
It says African kleptocrats, especially those in war-torn countries, have increasingly favored real estate in African cities, among them Nairobi, as a means for laundering the proceeds of corruption.
Banks, governments, and regional and international organizations have not prioritized the fight on these activities in cities like Nairobi, Kampala, Windhoek, Cape Town, and Johannesburg, the survey notes, creating an opportunity for corrupt actors to exploit the sector.
Loopholes in the real estate sector amount to an “unregulated backdoor” to the global financial system, intergovernmental organizations have warned.
A recent evaluation by the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), on Kenya, noted the lack of enforcement of 2011 anti-money laundering legislation requiring real estate agents to report suspicious transactions, as a challenge.
“Kleptocrats may choose these destinations because of their comparative political, economic, or monetary stability,” the survey reads in part.
Authorities in Kenya, among other countries, are said to have done little to address risks in sectors vulnerable to money laundering and investments of stolen wealth.
“Persistent loopholes and gaps in anti-money laundering standards involving real estate provide illicit actors with various options for laundering money through real estate,” the report, dubbed ‘Looted Funds Used to Buy African Real Estate’, states the report
Kenya’s beneficial ownership information is not shareable with other countries, making it difficult to pin down perpetrators of illicit financial.
The report released last week, however, comes at a time when the government is conducting a ‘National Risk Assessment on Money Laundering and Terrorism Financing’.
National Treasury CS, on March 22, 2019, appointed a taskforce to spearhead the exercise expected to be complete by December this year.
In an interview, Financial Reporting Centre (FRC) Director-General Saitoti Maika said the findings will inform on high-risk areas with government taking appropriate measures, even as he agreed real estate remains vulnerable.
“Not only in Kenya but globally, real estate is an area that is targeted but we cannot be certain that this is what is happening in Kenya. Let us wait for the risk assessment which will tell us more,” Maika told the Star.
The Sentry report notes that governments, law enforcement, regulators, financial institutions, and civil society should address the systemic issues that contribute to illicit financial flows through real estate.
“Regional governments should identify properties purchased with corrupt funds, investigate the sources of funds in those transactions, and coordinate investigations with signatories to the United Nations Convention Against Corruption (UNCAC),” The Sentry organization says.
Financial institutions operating in the region should also monitor accounts for red flags related to real estate transactions.
According to the report, ESAAMLG should develop and recommend jurisdiction- or geography-specific enhanced due diligence standards.
Reporting requirements in order to improve the quality and consistency of information available to banks, regulators, and law enforcement, is also required.
International financial flows take a variety of forms, one of the most important categories being that of foreign direct investment.