Lawyers will now act as state agents after they yielded to mounting pressure to report suspicious transactions by their clients to the government agency, Financial Reporting Centre (FRC) to scale up efforts against money laundering in Kenya.
This requirement was a pre-condition outlined by the International Monetary Fund (IMF) requiring Kenya to fulfil to continue accessing a Sh334billion ($2.34 billion) from the foreigners controlled Bretton Woods institution.
Effectively, the pact between the Law Society of Kenya (LSK) and FRC ends a stalemate that had tested one of the stringent conditions.
Yesterday, while appearing before the National Assembly’s Finance and National Planning Committee, FRC Director General Saitoti Ole Maika told the National Assembly that FRC signed consent with LSK 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 lawyers moved to court, through Nairobi-based lawyer Omwanza Ombati, arguing the changes to the Act were harmful to practising advocates.
In 2019, 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.
“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. 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.” Saitoti said.
The Assembly’s Finance and National Planning Committee is currently 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.” Saitoti added.
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.
Currently, LSK lacks 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.” The amendment Bill reads in part.
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.” CBK Governor Kamau Thugge told the committee chaired by Ainabkoi MP Benjamin Lang’at.
The Governor noted that failure to amend the Act will create difficulties in establishing correspondent banking relations and delays in processing international transactions.
Thugge also noted that the proposed law seeks to amend the CBK Act, the Banking Act, the Microfinance Act and the National Payment System Act adding that CBK does 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. There are weaknesses in requirements for beneficial ownerships during licensing and vetting of significant shareholders in financial institutions.” Thugge added.
Further, he decried that CBK does not have powers to compel financial institutions to produce documents for purposes of AML/CFT supervision.
On his part, Capital Markets Authority (CMA) Chief Executive Officer (CEO) Wyckliffe Shamiah said the authority supports the proposed changes to give regulators the power to monitor anti-money laundering activities.
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.