Kevin Ng’ang’a: National risk survey a big boon to stemming money laundering

Monday, July 13th, 2020 19:11 |
Money laundering. Photo/Courtesy

Plans by the government to conduct Kenya’s first National Risk Assessment on Money Laundering and Terrorism Financing could not have come at a better time.

The announcement came when the Covid-19 pandemic has led to increased reliance on technology in order to facilitate transactions with minimal human interactions. 

Announced in the 2020/21 budget speech, the move is critical for Kenya’s positioning as a financial hub and premiere destination of capital in the region.

The survey is expected to identify loopholes and insights to inform interventions that are necessary to ensure the safety and integrity of the financial system, while coming up with appropriate mitigation measures to manage any identified risks. 

Kenya’s digital and mobile financial innovation has received global accolades and recognition, with Safaricom’s mobile money service M-Pesa touted as a game changer in mobile money transactions. 

The use of online money platforms such as M-Pesa and others is now at an all-time high for retail and corporate transactions as individuals are encouraged to stay at home to contain the risk of Covid-19 infection in public places.  

The flip side is that the reliance on digital technology has increased the risk exposure for the financial services sector globally especially due to the interconnectedness of financial markets.

Fraudsters are now using online platforms to con unsuspecting investors and, in the process, also launder dirty money.

Today, the financial services sector, propelled by advancements in technology, is gaining popularity among criminals who have begun to use electronic money, mobile money and underground online networks to shift dirty money with as little trace as possible.

Laundering money through online platforms is attractive to criminals for its simplicity, speed, and low cost as well as its global reach and criminals are using the platforms to process illegal transactions, making them appear as legal ones.

Of concern in Kenya is the proliferation of unlicensed foreign exchange brokers offering services in the market without licensing by the Capital Markets Authority.

Since most of the brokers are not licensed, they seem to be taking advantage of the online platforms to con unsuspecting investors millions of shillings. 

Recently, a local daily carried a story about a suspect in the forex trade who fled to the United States after defrauding Kenyan investors of millions of shillings by promising them unrealistic returns.

In a recent market survey, it is estimated that over 400,000 Kenyans are investing through unlicensed online foreign exchange brokers based outside Kenya.

In contrast, the licensed online foreign exchange brokers have around 60,000 clients.

This means that in the event that investors feel aggrieved, they have no recourse as the unlicensed entities do not even have a physical presence in Kenya.

There are only three licensed non-dealing online foreign exchange brokers in Kenya licensed by the Capital Markets Authority (CMA) and one online foreign exchange Money Manager.  

Kenyans should be wary and do due diligence like verifying if the companies are duly licensed by CMA before investing with them.

The advantage of dealing with a licensed market player is that should the company get involved in any unethical practices, investors are protected by the regulator.  

The unlicensed brokers know that one of the key strategies in curbing money laundering is through assessment of clients at the point of onboarding and continuous reviews, to ensure that any suspicious transactions are flagged and addressed promptly. 

For the brokers who are not licensed, criminals may use the platforms to not only defraud investors but also launder dirty money.

At Scope Markets, we have very robust client onboarding requirements, which ensures that both retail and corporate clients are thoroughly vetted before they are signed up and allowed on our trading platform. 

This way, we make sure that our platform is not used for cleaning dirty money while ensuring that the investor is protected as well.

It is our expectation that the proposed risk survey will seal all the loopholes and tricks used by unlicensed online forex brokers to con gullible investors like is happening in Kenya, where several people have been conned. 

We expect the survey will come up with recommendations that would make it compulsory for any forex dealer operating in the Kenyan market or advertising their products in Kenya to be licensed to operate. 

We expect stringent and punitive measures will be put in place to discourage criminals from taking advantage of the convenience of online money platforms to clean dirty money or defraud unsuspecting investors. 

Kevin Ng’ang’a is the CEO of Scope Markets Kenya, a non-dealing online foreign exchange broker licensed by the Capital Markets Authority in Kenya [email protected]

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