The Anti-Money Laundering and Combating of Terrorism Financing Laws (Amendment) Bill, 2023

Background

The Anti-Money Laundering and Combating of Terrorism Financing Laws (Amendment) Bill, 2023 is an omnibus bill designed to reform Kenya's financial sector and security framework. By amending 17 separate Acts of Parliament, the Bill aims to eliminate regulatory gaps identified during the Mutual Evaluation of Kenya by international bodies. The targeted amendments focus on strengthening operational independence for investigative bodies, enhancing compliance supervision across all financial institutions, and standardising legal definitions related to money laundering, economic crimes, and proliferation financing.

Key Amendments

The Bill introduces amendments to the following 17 pieces of legislation:

1. Extradition (Contiguous and Foreign Countries) Act (Cap. 76): Provides a mechanism (Section 10A) allowing fugitive criminals to consent to simplified extradition without formal proceedings.
2. Extradition (Commonwealth Countries) Act (Cap. 77): Adds a mirror simplified extradition provision (Section 13A) for fugitives extradited to Commonwealth jurisdictions.
3. State Corporations Act (Cap. 446): Amends Section 2 to exclude the Financial Reporting Centre (FRC) from the definition of a "state corporation," securing its administrative and operational independence.
4. Capital Markets Act (Cap. 485A): Inserts Section 12A, granting the Capital Markets Authority (CMA) explicit power to regulate, supervise, and inspect its licensees for AML/CFT/CPF compliance.
5. Insurance Act (Cap. 487): Substitutes "registration" with "licensing" across all operations and grants the Insurance Regulatory Authority (IRA) compliance oversight under Section 196B.
6. Banking Act (Cap. 488): Introduces a refined definition of "significant shareholder" and "beneficial owner" (Section 2) and grants CBK new AML/CFT supervision powers under Section 33D.
7. Central Bank of Kenya Act (Cap. 491): Amends Section 4A(1) to charge the CBK with licensing and supervising digital credit providers, payment service providers, mortgage refinance companies, and money remittance providers specifically for AML/CFT compliance.
8. Microfinance Act, 2006: Inserts Sections 36B and 36C to empower CBK to inspect microfinance banks and impose compliance sanctions.
9. Anti-Corruption and Economic Crimes Act, 2003: Expands the definition of "economic crime" (Section 2) to include offences involving the laundering of the proceeds of corruption.
10. The Proceeds of Crime and Anti-Money Laundering Act, 2009 (POCAMLA): Aligns definitions of designated non-financial businesses and professions (DNFBPs), updates FRC powers, establishes risk-based supervision guidelines, and sets the cash transaction reporting threshold at USD 15,000.
11. National Police Service Act, 2011: Inserts Section 56A to formalise "controlled delivery" as an investigative technique, allowing law enforcement officers to track illicit consignments through Kenya.
12. Ethics and Anti-Corruption Commission Act, 2011: Permits state agencies to grant the EACC access to relevant information during economic crime investigations (Section 11).
13. Mutual Legal Assistance Act, 2011: Prohibits the refusal of legal assistance on the sole ground of financial institution secrecy rules (Section 43).
14. National Payment System Act, 2011: Adds Section 17A to empower CBK to supervise and enforce anti-money laundering rules within national payment systems.
15. Limited Liability Partnership Act, 2011: Introduces requirements for registering beneficial owners (Section 31B), keeping Registers of Nominee Partners (Section 31C), and formalises "strike-off" procedures (Part VIA).
16. Prevention of Terrorism Act, 2012: Criminalises proliferation acts (Section 4A) and the financing of proliferation acts (Section 4B). It also establishes the Counter Financing of Terrorism Inter-Ministerial Committee (Section 40D).
17. Companies Act, 2015: Introduces registers for beneficial owners (Section 93A) and nominee directors (Section 138A), requiring updates to be logged with the Registrar within designated timelines.

New Obligations

For Financial and Reporting Institutions

• Risk-Based Compliance: Reporting entities must employ a risk-based approach to monitor transactions, identifying, assessing, and mitigating money laundering and terrorism financing risks.
• Enhanced Customer Due Diligence: Section 45 of POCAMLA requires reporting entities to verify customer identity using official documents (national ID, passport, birth certificate, or corporate resolution) and conduct enhanced scrutiny for transactions involving high-risk countries.
• Suspicious Transaction Reporting: Institutions must report suspicious transactions to the FRC within two days of the suspicion arising (Section 44).

For Companies and Partnerships

• Register Maintenance: Every company and partnership must identify and maintain records of its ultimate beneficial owners and nominee relationships.
• Contact Persons: Private companies with a paid-up capital under KSh 5 million and no company secretary must register a contact person resident in Kenya to maintain required directorship and shareholding records.

Penalties

• Regulatory Violations (Banks, Microfinances, Payment Systems): Legal entities violating compliance directives are liable to an administrative penalty of up to KSh 20 million, and individuals face up to KSh 1 million, alongside a daily default fine of KSh 100,000.
• Conveyance of Monetary Instruments: Transporting cash or monetary instruments exceeding USD 15,000 into or out of Kenya without reporting is punishable by a fine up to 50% of the cash value involved or imprisonment for up to five years.
• Companies Act and Partnership Registry Violations: Failure to submit registers of beneficial owners or nominee directors to the Registrar of Companies attracts an administrative penalty of KSh 2,000, with a daily penalty of KSh 100 for ongoing default. Managers or officers lodging false declarations face personal fines of up to KSh 200,000, imprisonment for up to two years, or both.
• Proliferation Offenced (Prevention of Terrorism Act): Engaging in or financing a proliferation act carries a prison sentence of up to 20 years, a fine of up to KSh 20 million, or both.

Transitional Provisions

• LLP Registration Transition: Partnerships registered under the Limited Liability Partnership Act prior to the enactment of this Bill must compile and lodge their registers of beneficial owners with the Registrar within 60 days of the law taking effect.
• Nominee Directors in Companies: Companies already registered must comply with nominee director disclosure requirements and lodge the relevant documents with the Registrar within 60 days of the provision coming into force.