SOMALI DIRTY MONEY LEAKS FREELY IN AND OUT OF KENYA

The turmoil and anarchy of Somalia has affected countries all over the world, but of course its neighbours have been hit the hardest by Somali lawlessness, and Kenya, east Africa’s commercial hub, is particularly exposed in money laundering terms. Of special concern are the earnings of Somalia’s rapacious pirates.

Millions of dollars are earned from ransoms and the same of seized cargoes, and these criminal enterprises are not known for their concern for social and economic development – so where does this money go? The chief executive of the Law Society of Kenya (LSK) says laundered money from Somali pirates is seeping into his country’s financial system and he warned the Money Laundering Bulletin could be spent on political patronage and campaign financing. Apollo Mboya explained: “We are not seeing an economy that can absorb millions of dollars of pirate ransoms being paid in Somalia, where does the money go? The money is being laundered somewhere. People say it being invested in real estate. And some business centres, especially in Eastleigh, Nairobi,” (an area close to the capital’s central commercial district populated mainly by Somalis).

As a result, it is rather dispiriting that Kenya has made slow progress on setting up a fully-fledged financial intelligence unit. In its assessment of Kenya released in June, global anti-money laundering body the Financial Action Task Force (FATF) said: “Although Kenya’s government had a “high-level political commitment to work with the FATF and [regional AML body] ESAAMLG to address its strategic AML/CFT [anti-money laundering/combating the financing of terrorism] deficiencies”, strategic AML/CFT deficiencies remain. Kenya needed to work on addressing these, including by…ensuring a fully operational and effectively functioning Financial Intelligence Unit…” The report added that Kenya needed to do better in “adequately criminalising terrorist financing;…establishing and implementing an adequate legal framework for identifying and freezing terrorist assets; raising awareness of AML/CFT issues within the law enforcement community; and implementing effective, proportionate and dissuasive sanctions” for both citizens and companies. Legislation needed to be properly implemented and a new AML Advisory Board needed to be brought into full operation.

Meanwhile, the 2011 US state department International Narcotics Control Strategy Report (INCSR) report was far blunter: “The Central Bank of Kenya (CBK) is relying on the future Financial Intelligence Centre (FIC), the financial intelligence unit, for implementation, as the police lack institutional capacity to handle complex financial crimes analysis and investigation. Although authorised…the FIC has not yet been established.”
And it needs to be, said Washington DC. Its report branded Kenya as “a major money laundering country”, noting it is a “transit point for international drug traffickers”. And the Somali problem is writ large, said the state department: “The laundering of funds related to Somali piracy, corruption, smuggling, the misuse of casinos and other assorted crimes is a substantial problem. Reportedly, Kenya’s financial system may be laundering over USD100 million each year, including an undetermined amount of narcotics proceeds and Somali piracy-related funds.”

Mboya agreed that there was a need to set up proper financial control institutions, to enforce Kenyan AML laws – which were recently strengthened by the passage of the Proceeds of Crime and Anti-Money Laundering Act (PCAMLA), which came into force in June 2010. This law considers all crimes should be considered as money laundering predicate offences, but the US report noted the act “has never been used to prosecute any crimes. Kenya’s criminal justice system remains open to interference and corruption and combating money laundering has not been given priority.”
Greater training in fighting money laundering is also needed said Mboya, for bodies such as the Central Bank of Kenya, and country’s accounting and legal professions. This is important, given the state department said more than USD100 million annually is laundered in Kenya, “including an undetermined amount of narcotics proceeds and Somali piracy-related funds.” Mboya said the actual amount of dirty money in Kenya would be very hard to quantify.
And without an FIU, the new act’s requirement that legal practitioners and others report suspicious transactions to the authorities is effectively still born: “That aspect of the act is not being enforced in the sense we are not seeing any entities reporting transactions. I have not seen any professionals’ body or individuals reporting to a central reporting place,” he noted. Even the law itself needed a reexamination, he said: “Crime evolves,” Mboya added: “We should see a re- examination of that legislation, to audit it to see if comprehensive enough to tackle [financial] crime.”

A Nairobi-based economic analyst Robert Shaw said it was almost inevitable Somali piracy money was being laundered in Nairobi given Kenya’s position as east Africa’s economic hub, possessing a financial system which is more sophisticated than anywhere else in the region.

“Nairobi is very convenient hub,” he said, adding: “If you look at the attraction of Nairobi you can see why it is attractive, not only for piracy money but also other money as well.” Certainly there are projects for investment – of dirty and clean money alike. Kenya has been witnessing a major construction boom over the past two to three years, and many Somali business men have invested heavily in the buying and selling of housing estates and office blocks in Nairobi. Some of this investment, said Shaw, will have come from the laundering of Somali piracy proceeds, although “it’s not the main driver of the construction boom,” he said.

Mboya, however, is sure that the booming construction sector, has been a target of launderers, noting that the industry is easy to exploit for laundering, with good returns. He said Somali launderers had noted Kenya’s deficiency of houses and the desire of Kenyans to own a piece of land.

A Nairobi based lawyer Gideon Ongunde said that even if there is a law insisting on the reporting of suspicious transactions, it is very difficult for lawyers to report financial crimes since some lawyers were acting as real estate brokers. “Any lawyer who is having clients who want to buy and sell property, they are seen as lucky ones in town. That deal comes with huge payments when you are a middle man between a buyer and a seller,” he told the Money Laundering Bulletin. He stressed that Kenyan lawyers were taking advantage of lawyer-client privilege in Kenya, giving a primacy to protecting confidential information shared by a client. Moreover, one of the reasons it has been challenging to quantify the amount of money laundered in Kenya has been the fact developers sell their properties as quickly as possible to legitimise any transactions involved in securing finance and paying for the work, making it even more difficult for law enforcement to trace the original source of the money involved, should they be keen to investigate.

But how does this dirty money actually enter Kenya? Mohamed Aden, a businessman in Eastleigh, told the Money Laundering Bulletin, he was once approached by a Somali businessman who offered him a part in a counterfeit money ring, involving the import of fake Somali money into Kenya. “He showed me a [fake] 1,000 Somali shillings note as a sample. For each 100 US dollars they would print 10 million Somali shillings,” Aden recalls.
That said, from anarchic Somalia, even non-criminal money is hard to trace, especially internationally. Payments rely on Somalia’s hawala informal money transfer system.

This is ideal for laundering the proceeds of Somali piracy – a crime, said Farah Hussein, a Somali businessman in Nairobi – that actually generates comparatively little money for the pirates themselves. “There are big individuals behind this piracy issue. It’s not easy for a Somali boy with AK47 to hijack a big ship without the help of some people whom we don’t see who closely work with these pirates. Whatever these Somali pirates are getting is very minimal.” Hussein added. Indeed, Roger Middleton, an analyst in London for Chatham House, Britain’s premier foreign policy think tank, has noted: “In a variety of ways, some money is returned to investors who may then use the money for other activities, building their other businesses either in Somalia or abroad. Some is used to pay bribes to local officials, some is kept by the pirates involved in the attack directly they often spend the money improving their homes, getting married, buying cars and so on.”

Meanwhile the developers themselves take a dim view of all these accusations, saying they are just doing business – and at least they are building something. One Somali property developer – who wanted to remain anonymous – told the Money Laundering Bulletin they are well aware people accuse them of investing piracy money, but as long as there is no sufficient evidence to back that claim they will keep constructing houses and offices. “They say we Somalis are the big property developers in Nairobi developing it with pirate money, but when have you seen people talking about how they got their wealth – especially in Africa?” he asked. “We are doing business and you go for a business that gets you good income. We are doing construction because that’s where the money is and that’s why we are in it.”

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