Lawyers sign pact with State to report clients’ dirty cash

Lawyers have caved in to mounting pressure to report suspicious transactions by their clients to the Financial Reporting Centre (FRC) in a major boost to the fight against money laundering in Kenya.

The move ends a stalemate that had tested one of the conditions Kenya was required to fulfil to continue accessing a Sh334 billion ($2.34 billion) loan from the International Monetary Fund (IMF).

Read: Dirty cash: Court stops lawyers from disclosing deals

The FRC told Parliament that it had signed consent with the Law Society of Kenya to withdraw a case which has blocked the implementation of a new law that compels lawyers and their staff to disclose suspicious financial deals involving their clients.

The National Assembly in 2019 approved amendments to the Proceeds of Crime and Anti-Money Laundering (Amendment) Act to compel lawyers to start disclosing suspicious financial deals involving their clients.

The lawyers moved to court, through Nairobi-based lawyer Omwanza Ombati, arguing the changes to the Act were harmful to practising advocates.

“We have reached an agreement with the LSK that it shall be a self-regulatory organ and that lawyers will report on Proceeds of Crime and Anti-Money Laundering,” Mr Saitoti Ole Maika, the FRC director-general, said.

“The lawyers had raised an issue with the requirement that they report on their clients. They said this goes against client advocate confidentiality but we have agreed in principle that the LSK will be the regulator.”

Mr Ole Maika appeared before the National Assembly’s Finance and National Planning Committee that is conducting public participation on the Anti-Money Laundering and Combating of Terrorism Financing (Amendment) Bill, 2023.

Section 2(c) and section 14 (b) of the Proceeds of Crime and Anti-Money Laundering Act make the advocates and their employees, including accountants, clerks and cleaners, reporting agents of the FRC.

“We will be depositing the consent agreement in court tomorrow (Friday). The consent has been signed by the FRC, Eric Theuri, the President of the LSK and Attorney General Justin Muturi,” Mr Ole Maika said.

The Proceeds of Crime and Anti-Money Laundering (Amendment) Bill, 2023 seeks to amend section 36 of the principal Act to ensure that the LSK regulate, supervise and enforce compliance for Anti-Money Laundering (AML), Combating the Financing of Terrorism (CFT), and Countering Proliferation Financing (CPF) for lawyers, notaries and other legal professionals.

The Law Society currently lacks the powers to undertake supervision of its members as far as combating money laundering and terrorism financing is concerned.

“The proposed amendment seeks to clothe the LSK with supervisory powers as a Single Resolution Board (SRB) when having oversight over its members for Anti-Money Laundering and Combating Financing of Terrorism purposes,” says the amendment Bill.

The amendments give the LSK powers to conduct an onsite inspection, compel the production of any document or information it may require for the purpose of discharging its supervisory mandate and impose monetary, civil or administrative sanctions for violations related to AML/CFT/CPF purposes.

The LSK will also be required to cooperate and share information with other agencies.

The Central Bank of Kenya (CBK) has backed the proposed changes to the law arguing that Kenya stands the risk of being placed on the Financial Action Task Force (FATF) “grey list” if it does not substantially address deficiencies including legal reforms by October 2023.

“We risk a public statement being issued by FATF on Kenya’s strategic AML/CFT/CPF deficiencies. This will result in a negative impact on international trade, negative impact on international transactions and termination of banking relationships with international banks due to high AML/CFT/CPF compliance costs,” Kamau Thugge, the CBK governor, told MPs.

He told the committee chaired by Ainabkoi MP Benjamin Lang’at that failure to amend the Act will create difficulties in establishing correspondent banking relations and delays in processing international transactions.

Dr Thugge said the proposed law seeks to amend the CBK Act, the Banking Act, the Microfinance Act and the National Payment System Act.

He said the CBK did not have the legal mandate to supervise institutions and enforce compliance of financial institutions for AML/CFT purposes.

“Supervisors of financial institutions have no powers to issue guidelines on AML/CFT. CBK does not have the power to share AML/CFT supervisory information with other supervisors,” Dr Thugge said.

“There are weaknesses in requirements for beneficial ownerships during licensing and vetting of significant shareholders in financial institutions.”

Dr Thugge said the central bank does not have powers to compel financial institutions to produce documents for purposes of AML/CFT supervision.

The Capital Markets Authority (CMA) chief executive Wyckliffe Shamiah said the authority supports the proposed changes to give regulators the power to monitor anti-money laundering activities.

Read: FRC eyes dirty cash hidden by lawyers in amendment

In 2021/22, Kenya underwent its second Anti-Money Laundering and Counter-Terrorist Financing Mutual Evaluation, a peer review assessment by the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) which found a number of deficiencies and recommended ways to strengthen the country’s AML/CFT/CPF regime.

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