Frequently Asked Questions (FAQs)

Frequently Asked Questions (FAQs)

Frequently Asked Questions (FAQs)

What is Money Laundering?

Money Laundering is the processing of criminal proceeds to disguise their illegal origin. This process is of critical importance, as it enables the criminal to enjoy financial profits without jeopardising their source. These sources might be illegal arms sales, smuggling, and the activities of organised crime such as drug trafficking and prostitution rings (which are all capable of generating huge amounts of money). The desire to benefit from these huge amounts of money is the real incentive to “legitimise” the ill-gotten gains through Money Laundering.

When a criminal activity generates profits, the individual or group involved must find a way to control the funds without drawing attention to how the activities that generate the money or the persons involved occur. Criminals do this by disguising the sources, changing the form, or moving the funds to a place where they are less likely to attract attention – in short, Money Laundering!

How is money laundered?

Money Laundering can be broken up into three stages. The first stage of the Money Laundering process is ‘placement’, which refers to the criminal depositing or investing the financial proceeds of crime into a bank, business or other asset. The second stage of the Money Laundering process is ‘layering’. This usually involves the criminal engaging in a number of financial transactions to complicate the audit trail. The third and final stage of the process is ‘integration’ and this involves the criminal removing money from the financial system and using the now ‘clean’ money for everyday consumption.
 
What are Money Laundering regulations?

Incorporating FATF recommendations, the Money Laundering regulations are secondary legislation which detail the systems and controls that regulated businesses must have in place to comply with the Kenyan AML and counter Terrorist Financing legislation and regulations.

What businesses are subject to Money Laundering regulations?

Businesses that are regulated by the Money Laundering regulations are sometimes called ‘regulated businesses’. These include: estate agents, casinos, insolvency practitioners, tax advisers, accountants and auditors, certain legal professionals (dealing with finances or property), and high value dealers. It also includes banks, credit institutions, money lenders, foreign exchange bureaus and corporate finance advisers.

How much money is laundered each year?

Because Money Laundering is so difficult to detect, knowing how much money is involved on an annual basis is next to impossible. Some estimates have been made however:

For example, FATF, citing the International Monetary Fund (IMF), states that in 1996 the total value of Money Laundering in the world could have been somewhere between two and five percent of the world’s gross domestic product (gdp).

Using 1996 statistics, these percentages would indicate that Money Laundering ranged between US$590 billion and US$1.5 trillion. To put this into perspective, the smaller figure is roughly equivalent to the value of the total output of an economy the size of Turkey.

How does Money Laundering affect me?

Money Laundering is a vital part of the operations of many of society's most anti-social and harmful individuals and organisations. Drug dealers, people traffickers, burglars, fraudsters, robbers, illegal arms dealers and smugglers are among those who use the financial system to launder money. If we make Money Laundering more difficult then we are making it harder for criminals to succeed and prosper, which can only be a benefit to society.
 
What does KYC mean?
KYC, otherwise known as Know Your Customer or ‘Customer Due Diligence’, refers to a set of practices that companies regulated by the Kenyan Money Laundering regulations must apply. The key obligations are to verify the identities of Customers and certain beneficial owners, obtain additional information about Customers’ sources of wealth, their occupations etc., and to monitor Customer financial activity.
 
What does risk-based KYC mean?

This refers to the obligatory approach that must be taken by regulated businesses to target AML resources in a proportionate manner, and especially to areas of business where the risks of Money Laundering or Terrorist Financing are high. The regulations also make it necessary for regulated businesses to apply either simplified KYC (for low-risk customers) or enhanced KYC (for high risk customers) in specific situations. 

What types of identification should I obtain and check?

The types of identification that you should obtain and verify varies dependent on the type of Customer, the transaction involved and the nature of the business relationship. The golden rule however, is that the information should be verifiable using independent and reliable sources.
 
Occasionally I conduct business with Customers that I never meet in person - how should I check their identities?
 
This will depend on the type of customer you are dealing with, but in order to compensate for the higher risk that this type of business relationship involves, you should obtain and verify evidence in a more rigorous manner than you would do for face-to-face business interactions.
 
How will I know when a suspicious transaction is taking place?
 
Your suspicions might be aroused for any number of reasons. Often it is experience gained in your role at work and knowledge of how money launderers operate that will provide you with the wherewithal to spot and know what to do. You might, for example, be prompted to suspect something if a Customer seems to have forged identification, or, more usually, appears to want to make a transaction that is either out of character or is beyond their known financial means.
 
Who do I report a suspicious transaction to?
 
Your first port of call for any suspicious activity reporting should be your MLRO.
 
How do I report my suspicions?
You can report your suspicions about Customer transactions to your MLRO either verbally or in written form.
 
When must I report my suspicions?

This will either be before or after a transaction takes place. To a large extent the type of transaction requested by the Customer will determine if you report before or after the transaction has taken place. If you report before a transaction takes place then you must be able to convincingly inform the Customer that the type of service requested involves a short wait. If this can be done successfully, you should report to our MLRO who will then consider the information and decide if it warrants making a report to gain consent to proceed.

If you are unable to delay the transaction without Tipping-Off the Customer to your suspicions, then you should complete the transaction and then make a suspicion report to our MLRO as soon as possible afterwards. Our MLRO will then consider the information and decide whether an external report is required.

What happens after I have submitted a suspicion report?

If you make a report before the transaction is completed, our MLRO will consider the information and decide if an application  for consent to proceed is required. It states that seven days are required for a response; during which time it will consider the report together with their own intelligence data. The response will be communicated to our MLRO and will either give consent to proceed or instruct us to refuse the transaction. If the MLRO does not receive a response within seven days then She/he is allowed to inform you to proceed with the transaction.

If you are unable to delay the Customer and are forced to complete the transaction straight away, then you should submit a report immediately after completing the transaction. Once you have submitted the report, the MLRO will consider it and decide if it warrants an external disclosure. If it is deemed necessary to report to our MLRO will use the information you provide (more detail in the report is better) to complete the external SAR. It is standard that you will not get any feedback on the report, though this should not deter you from making further reports whenever necessary. 

Are suspicion reports confidential?

The information exchanged in all suspicion reports (both internally and externally) are confidential with only our MLRO and higher authorities knowing the details.

Do I have any personal responsibilities to prevent Money Laundering?

Yes. In fact, every staff has a legal obligation to report any suspicions they have in relation to Money Laundering and terrorist financing. In addition, your role in our organisation might also have obligations that are specific to your position. These can be separated out into three categories of obligations based on whether you are senior management, general staff, or an MLRO. 

What are the offences and penalties I risk?

It is important for you to understand that you are personally liable for any Money Laundering or Terrorist Financing related crimes that you might become involved in – however trivial or accidental. These range from directly assisting in the transfer of funds for the purposes of laundering (for which you could receive a 14 year prison sentence and an unlimited fine), to failing to report any suspicions of Money Laundering you might have gained through your working duties (for which you could receive five years in prison and an unlimited fine).
 
What is the Tipping-Off offence and how should I avoid it?

Tipping-Off refers to the criminal offence of leaking information to the person under suspicion or to a third party who could disrupt an investigation. This should be avoided by only telling your MLRO about your suspicions.

Where can I get further information?

In addition to navigating your way through the AML Knowledge Zone and looking for specific topics through the Knowledge Zone’s search function, you can also obtain information through our comprehensive list of links to external online resources.