Introduction
The Proceeds of Crime and Anti-Money Laundering Act in Kenya (POCAMLA) is the primary legislative source governing Kenya’s anti-money laundering regime. The Act provides for the offence of money laundering as well as measures for combating the offence. It also provides for the identification, tracing, freezing, seizure and confiscation of the proceeds of crime.
Under the POCAMLA and associated regulations, financial entities in Kenya must comply with a variety of regulatory requirements. Failure to comply with these requirements may result in administrative monetary penalties, and/or criminal penalties including imprisonment.
On August 30 2021, the Proceeds of Crime and Anti-Money Laundering (Amendment) Bill (hereinafter referred to as ‘the Bill’) was introduced in parliament. It proposes amendments that create and change the obligations of a number of persons. We have put together a comprehensive analysis of the key amendments that have been introduced by the Act as well as their potential impact on businesses in Kenya as provided below.
1.1. Designation of advocates, notaries and other independent legal professionals as reporting persons
Part IV of the POCAMLA provides for the Anti-Money Laundering act in Kenya obligations of a reporting institution. These obligations range from verification of customer identity, establishing and maintaining customer records, establishing and maintain internal reporting procedures and an obligation to register with the Financial Reporting Centre.
The Act currently defines “reporting institution” as a financial institution and designated nonfinancial business and profession. There are currently six (6) designated non-financial business and professions. Some of these include casinos, real estate agencies and accountants and non-governmental organizations.
The Bill seeks to include advocates, notaries and other independent legal professionals who are sole practitioners, partners or employees within professional firms as part of the above list.
If the Bill is passed, the obligations of Part IV of POCAMLA shall apply to lawyers in the following situations;
a. buying and selling of real estate;
b. managing of client money, securities or other assets;
c. management of bank, savings or securities accounts;
d. organisation of contributions for the creation, operation or management of companies and;
e. creation, operation or management of buying and selling of business entities.
It is worth noting that this proposal is in line with the international recommendations. The Financial
Action Task Force, an intergovernmental organisation founded in 1989 on the initiative of the G7 to develop policies to combat money laundering, has identified that the legal profession is vulnerable to money laundering and terrorism financing.
In a publication by the same body, ‘International Standards on Combating Money Laundering and The Financing of Terrorism: The FATF Recommendation’ it recommended that legal professionals, accountants and notaries be specified as reporting institutions and their umbrella professional body specified as a supervisory authority. In line with this, the bill proposes to amend the First Schedule to the Act to include the Law Society of Kenya and the Sacco Societies Regulatory Authority as supervisory bodies for purposes of the Act.
1.2. Conclusion
This is hardly the first time that a legislation has tried to categorize lawyers as designated non-financial businesses and professionals in Kenya’s anti-money laundering regime. There have been failed attempts in 2007, 2018 and 2019. Perhaps fourth time will be the charm for this amendment.
If this attempt is successful, it will have brought Kenya in line with what is considered by many as international best practice. The European Union, the United Kingdom all have lawyers as reporting institutions. In Sub Saharan Africa, only Kenya and Mozambique do not impose the reporting obligation on lawyers. It is worth noting that the United States and Canada also do not impose this obligation.
In terms of impact, there are those who believe that failure to pass this amendment will lead to Kenya being designated as a high risk money laundering jurisdiction and thus limit the country’s potential as an investment destination. Others believe that the amendment will be an intrusion on a professional community that places quite a high premium on confidentiality, unlike the other designated non financial businesses and professionals. It might therefore significantly interfere with lawyer’s obligations to their clients.