Strengthening AML Controls: Kenya and Namibia’s Response to Grey List Status

Kenya and Namibia were added to the list of jurisdictions under increased monitoring by the Financial Action Task Force (“FATF”), also referred to as the grey list, on February 23, 2024. The FATF leads global action to tackle money laundering, terrorist, and proliferation financing. Countries are placed on this list when FATF identifies strategic deficiencies in their regime to counter money laundering, terrorist financing, and proliferation financing.

FATF, a 39-member body, sets international standards to ensure national authorities can effectively go after illicit funds linked to drugs trafficking, arms trade, cyber fraud, and other serious crimes. FATF’s decision-making body, the FATF Plenary, meets three times per year and holds countries accountable if they do not comply with FATF standards. If a country repeatedly fails to implement standards, then it can be named “a Jurisdiction under Increased Monitoring” or “a High-Risk Jurisdiction.” These are often externally referred to as “the grey and blacklists.”

What is the impact of countries being added to FATF Grey List?

• Economic Impact: Once countries are added to the FATF grey list, it usually has larger implications on international market, leading to decreased investor confidence. Also, it requires foreign investors to carry out additional due diligence before investing in the country or even gain access to international markets.
• Financial Sector Impact: The country’s financial sector also gets impacted, as FIs operating out of Kenya or Namibia will face increased scrutiny and compliance requirements.
• Trade Impact: Countries could impose additional restrictions or require increased due diligence on trade transactions involving businesses or individuals from grey listed countries.
• Reputational Impact: Being added to the grey list indicates weakness in governance, regulatory frameworks and enforcement mechanisms, causing reputational damage in both domestic and international markets. This sometimes deters potential investors or partners, hindering the country’s growth prospects.

What is the Action plan by Kenya and Namibia to improve their AML controls?

Kenya: In February 2024, Kenya made a high-level political commitment to work with FATF and ESAAMLG¹ to work toward improving their AML framework and adhere to FATF recommendations as per mutual evaluation report’s (MER) proposed actions.

Kenya is working toward its FATF action plan by:

• Completing a Terrorist Financing (TF) risk assessment and presenting the results of the National Risk Assessment (NRA) and other risk assessments in a consistent manner to competent authorities and the private sector and updating the national AML/CFT strategies.
• Improving risk-based AML/CFT supervision of FIs and DNFBPs² and adopting a legal framework for the licensing and supervision of VASPs³.
• Enhancing the understanding of preventive measures by FIs and DNFBPs, including increasing Suspicious Transaction Report (STR) filing and implementing Targeted Financial Sanctions (TFS) without delay.
• Designating an authority for the regulation of trusts and collection of accurate and up-to-date beneficial ownership information and implementing remedial actions for breaches of compliance, with transparency requirements for legal persons and arrangements.
• Improving the use and quality of financial intelligence products.
• Increasing ML and TF investigations and prosecutions in line with risks.
• Bringing the TFS framework in compliance with R.6 and R.7 and ensuring its effective implementation.
• Revising the framework for Non-Profit Organizations (NPO) regulation and oversight to ensure that mitigating measures are risk-based and do not disrupt or discourage legitimate NPO activity.

Namibia: In February 2024, Namibia also made a high-level commitment to work with FATF and ESAAMLG to strengthen the effectiveness of its AML/CFT regime.

Namibia is also working towards its FATF action plan by:

• Strengthening its AML/CFT risk-based supervision through enhancing the human and resource capacities, conducting offsite and onsite inspections informed by supervisory risk assessment tools and applying effective, proportionate, and dissuasive sanctions for breaches of AML/CFT obligations.
• Enhancing preventive measures through inspections and outreach to ensure that FIs and DNFBPs apply enhanced due diligence measures as well as TFS obligations related to TF and Proliferation Financing (PF) without delay.
• Increasing the filing of ultimate beneficial ownership (UBO) information of legal persons and arrangements, and applying remedial actions or effective, proportionate, and dissuasive sanctions against breaches of compliance with BO obligations.
• Providing the Financial Intelligence Unit (FIU) with adequate human and financial resources, as well as training, to improve operational and strategic analysis.
• Improving the cooperation between the FIU and Law Enforcement Agencies (LEAs) to enhance the use and integration of financial intelligence in investigations.
• Enhancing the operational capabilities of authorities involved in ML and TF investigations and prosecutions by providing them with adequate resources and targeted training.
• Demonstrating the LEAs’ capabilities to effectively investigate and prosecute ML/TF cases.
• Approving the amended National Counter Terrorism Strategy.

What are key focus areas which needs to be addressed by Kenya and Namibia?

• Conducting ML/TF National Risk Assessment (NRA). The NRA will help Kenya & Namibia identify vulnerabilities to ML/TF within their financial system, and accordingly, this will allow authorities to implemented targeted measures to mitigate risk effectively. 
• AML controls adoption by DNFBPs/VASPs and monitoring them to ensure AML/CFT risk-based approach is implemented. This adoption will help DNFBPs/VASPs with legal requirements and reduce reputational damage risks. If AML controls are not adopted, DNFBPs/VASPs could even face difficulty in accessing banking and financial services from financial institutions. 
• Identification of Beneficial Ownership structure of legal persons and having up to date UBO information. This allows financial institutions and regulatory authorities to conduct more accurate risk assessments. It also helps in detecting and preventing attempts to conceal the true nature of transactions or relationships. 
• Effective sanctions measures against AML failures. Implementation effective sanctions measures will allow Kenya and Namibia to protect national interests and improve international trade security. Imposing targeted sanctions allows countries to demonstrate leadership and signal a commitment to promoting accountability and justice on the global stage. 
• Improving SAR/STR filing quality by FIs/DNFBPs. Quality SARs/STRs provide better understanding of risks associated with money laundering and other financial crimes. Detailed and well documented SARs enhance the ability to identify criminal patterns, gather evidence, and prosecute perpetrators, leading to more successful outcomes in combating financial crime. 
• Training to upskill FIU resources. Upskilling FIU resources will help Kenya and Namibia achieve enhanced detection and analysis capabilities. This allows resources to gain insights on industry best practices, regulatory requirements and international standards for combating money laundering and terrorist financing. It will also improve the efficiency and productivity of the organization and bring consistency as well. 
• Adoption of technology to improve efficiency of the AML processes. Next Gen technology adoption will allow Kenya & Namibia to streamline compliance management processes by centralizing data, documentation, and reporting functions in much scalable and automated platform. This will also improve transparency and auditability of AML activities. Technology can help reduce operational costs by automating manual processes and implement regulatory changes faster. 
• Improved AML supervision of FIs operating in the country and taking appropriate actions in case of sanctions breaches or non-compliance. AML supervision ensures that FIs adhere to regulatory requirements and implement effective AML/CFT measures. By assessing risk exposure of FIs and monitoring their activities, the FIU can provide guidance on risk mitigation tailored to risk profiles of financial institutions. 
• Better coordination between LEAs/FIUs and FIs/DNFBPs/VASPs during investigations. Enhanced coordination enables quicker sharing of intelligence between LEAs and other entities involved in money laundering investigations. LEAs can focus their investigative resources on high-priority cases identified through collaborations, maximizing the impact of enforcement actions. Effective coordination between LEAs, FIUs, FIs, VASPs, and DNFBPs also boosts public confidence and demonstrates a united front in the fight against financial crime. 

How NICE Actimize assists FIs operating in Kenya and Namibia

NICE Actimize has a strong presence in the Africa region and works closely with many of the larger financial institutions across the globe. Our advisory team can assist financial institutions in Kenya and Namibia to address FATF recommendations from variety of advisory services:

• Customer Risk Assessment (CRA) framework review is a service offered to our clients to understand current coverage of risk factors as per organization’s risk-based approach and provide recommendations to improve CRA framework as per industry best practices and regulatory guidance.
• Rule Coverage Assessment (RCA) is a service offered to our clients to review transaction monitoring rule coverage based on the products/services offered by the clients and money laundering risk/red flags applicable as per industry best practices and regulatory guidance.
• Operational Assessment service is designed to review organizations’ current operational processes, alert/case management workflows and usage of Actimize products. Actimize consultants will then provide recommendations to improve operational efficiency and reduce the cost of compliance as well.
• AML domain training is a service offered by Actimize to train organization’s senior management, employees, and operational analysts on importance of AML controls and what are the roles & responsibilities to improve compliance culture within the organization.

Find out more about these and other services by scheduling a call with Actimize subject matter experts who can recommend offerings based on specific business needs. To learn more about training and other advisory services, please go through our service catalog here.

¹ESAAMLG – The Eastern and Southern Africa Anti-Money Laundering Group

²DNFBPs – Designated Non-Financial Businesses & Persons

³ VASPs – Virtual Assets & Service Providers