Use of Regulatory Policies in the Fight against Money Laundering in Kenya

Abstract

Purpose: It was found necessary to undertake this study so as to bridge the knowledge gap as concerns the use of regulatory policies in the fight against Money Laundering in Kenya. The general objective of the study was to examine the regulatory mechanisms that Kenya has adopted in dealing with money laundering and to suggest ways of enhancing the effectiveness of these mechanisms to serve as veritable models for other African states. The specific objectives of the study were: - to investigate the factors that have influenced the adoption of money laundering practices in Kenya; to analyze the extent to which money laundering regulatory policies have been adopted by financial institutions in Kenya; and to evaluate the challenges faced in implementation of money laundering regulatory policies among financial institutions in Kenya. The Nairobi Stock Exchange report of January 2009 indicates that the total number of Banks listed on the Nairobi Stock Exchange is nine, with their headquarters strategically located in Nairobi (Appendix I). Consequently, the study focused on the Banks listed on the Nairobi Stock Exchange. The study respondents were the Compliance Heads of the listed banks. In addition, the Researcher considered two telecommunication service providers that are licensed to undertake money transfer services. These are: - Safaricom and Zain. Methods: The study utilized a combination of quantitative and qualitative techniques in the collection of secondary and primary data. A semi-structured questionnaire (having both open and closed questions) will be the main data collection instrument. The researcher also use interview schedules with open questions, aimed at meeting the objectives of the study. Primary data was analyzed by employing descriptive statistics such as percentages, mean scores and standard deviations. Statistical Package for Social Sciences was used as an aid in the analysis. The researcher preferred SPSS because of its ability to cover a wide range of the most common statistical and graphical data analysis. Computation of frequencies in tables, charts and bar graphs was used in data presentation. The information was presented and discussed as per the objectives and research questions of the study.Results and analysis: Findings of the study show that the factors influencing adoption of money laundering practices in Kenya include the legal framework, corporate governance policies in institutions, quality of human capital, Information and Communication Technology (ICT), and innovations in the economy. The findings further show that the challenges faced in implementation of money laundering regulatory policies among financial institutions in Kenya include the following:- structural challenges, which include that liberalized and cash based economy, different legal systems among countries, different banks applying different money laundering policies, unstable neighboring regime and  parallel banking and alternative remittance avenues (corruption); Legal and institutional framework challenges; difficulty in obtaining due diligence documents from customers; and perceived cost of implementing an AML regime.

Keywords: Regulatory policies, Money laundering, Blacklisting, Correspondent Banking, Financial Action Task Force, Financial Exclusion, Know Your Customer Concept, Money Laundering, Politically Exposed Persons, Shell Banks