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Financial Reporting Centre warns of terror financing risk in Kenyan banks

Directline is said to control more than 60 per cent of the public service vehicles (PSVs) insurance market. (Photo: File)

By Abdirahman Khalif | Monday, May 20, 2024

Kenya is currently on the Financial Action Task Force's grey list of countries with insufficient controls for preventing money laundering and terrorism financing.

Kenya's Financial Reporting Centre (FRC) has issued a warning regarding the potential risks of terrorism financing in the country's banking sector, identifying foreign ownership in some Kenyan banks as a significant area of vulnerability.

This latest evaluation highlights the expansion of Kenyan multinational banks into countries associated with terrorist activities as a contributing factor to the increased risk.

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It does not specify the exact countries or markets of concern but emphasises the danger of financial institutions being used to channel funds for terrorism.

Kenya is currently on the Financial Action Task Force's grey list of countries with insufficient controls for preventing money laundering and terrorism financing. The Financial Action Task Force is an intergovernmental body that develops policies to combat these crimes.

The National Terrorism Financing Risk Assessment Report, which was launched on Monday, indicates that the issue is worsened by the presence of Kenyan bank subsidiaries in nations where terrorists have substantial stakes in financial entities.

It points out vulnerabilities in Kenyan bank branches in the Democratic Republic of Congo, Uganda, South Sudan, Somalia, and Tanzania.

While the report does not disclose the amounts transferred through these banks, it notes that the Somalia-based terrorist group Al-Shabaab generates annual revenues of about $100 million.

This makes it possible for groups like Al-Shabaab and the Allied Democratic Forces from the DR Congo to infiltrate Kenya's financial system.

Kenya's financial sector is more advanced than its neighbours and includes international banks from Africa, Asia, Arabia, Europe, and America.

Terrorism financing involves collecting and transferring funds to support terrorist activities, such as purchasing arms or conducting attacks.

In response, Kenya has taken actions including implementing stringent regulations with severe penalties for banks and officials involved in the unauthorised release of frozen assets. These penalties include fines of up to Sh20 million and prison sentences of up to 20 years for responsible officials.

Kenya has faced several terror attacks over the years, primarily attributed to Al-Shabaab, leading to the deployment of the Kenya Defence Forces (KDF) to Somalia under an African Union mission. It has begun withdrawing its troops as Somali forces prepare to take over full security responsibilities.