Kenya under close watch over money laundering

Wednesday, May 27th, 2020 00:00 |
Money laundering. Photo/Courtesy

Steve Umidha @UmidhaSteve

Kenya is primed to be on the watch list of notorious countries helping individuals hide money from the rule of law as the EU Commission commences legal actions against Luxembourg over laws to prevent money laundering and tax avoidance.

Undercover reports found East Africa’s largest economy was assisting well-placed personalities to siphon public funds and moving them to offshore countries like Mauritius and Luxembourg with the help of western consulting firms.

In its new rules, EU said Thursday that it had stepped up scrutiny of financial assets controlled by politicians and company owners in an effort to clamp down on money laundering.

Legal action

“The criminal investment of proceeds and trade in illicit commodities is interlinked with tax avoidance and money laundering. Luxembourg has not yet fully applied to these new rules,” reads a statement from the EU Commission, which was first reported by Reuters.

EU legal actions were approved in May 2018 and could now lead to fines if member states do not apply common legislation. Kenya is a member country.

In March last year, the Tax Justice Network (TJN), said that Kenya’s financial sector was highly secretive– a damning report that mirrored that conducted by the World Bank (WB).

“Kenya’s financial sector is highly secretive,” said the Financial Secrecy Index by the organisation, in which Kenya scored 76 out of 100 in terms of financial secrecy.

The WB survey showed that aid payments meant for the neediest countries appeared to trigger money flows to offshore bank accounts, suggesting funds were being tapped off from the nations they are meant to help and instead directed to tax havens such as Switzerland, Luxembourg, Cayman Islands and Singapore.

Terror financing 

Ironically, the global financial power last week approved a Sh107 billion loan for Kenya to support its budget, even as it expects the country’s growth to fall to 1.5 per cent this year from 5.4 per cent last year due to Coronavirus.

The new EU rules are now expected to closely study financial flows in and out of the country particularly into Luxembourg, which hosts as much foreign direct investment (FDI) as the US and much more than China.

Another safe haven for Kenya’s elite is Mauritius – a target for EU, as it prepares to sanction the tiny tax haven over money laundering and terror financing.

Indeed, in 2016, the Panama Papers implicated several Kenyans hiding their wealth in offshore jurisdictions notably in Mauritius, with a number of well-connected politicians identified.

In 2019, the Mauritius leaks revealed that DAC Aviation International, a UN Contractor, had been engaging in tax avoidance, leading to the revenue authority raising an audit.

Despite efforts by activists to have the Kenya-Mauritius double taxation agreement suspended, the executive arm of government opted to sign another agreement.

The Kenyan government in March 2019 lost its attempt to keep a tax agreement it signed with Mauritius nearly eight years ago after a High Court ruling by Justice Weldon Korir declared void and unconstitutional the Double Tax Avoidance Agreement (DTAA) the two countries signed in May 2012, which brought to an end a five-year old suit whose petitioner maintained its consequences were dire on the ordinary mwananchi.

“The government failed or neglected to subject the Kenya-Mauritius DTAA to the due ratification process in line with the Treaty Making and Ratification Act 2012 as a contravention of Articles 10 (a), (c) and (d) and 201 of the Constitution of Kenya,” read the ruling in part.

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