Inventing Anna and Ozark, two movies that have attracted global attention for their engaging crime-focused narratives, have lured Netflix subscribers into spending what amounts to be 208 centuries (20,800 years) during their runtime. A major similarity between both shows is the theme of money laundering. Phenomenon governments are grappling with globally. Kenya has featured some interesting news in recent weeks. Does it befit a movie? Well, why not read on.
On July 6, 2022, Kenyan publication, Star.co announced that a Kenyan high court had ordered the freezing of 56 accounts mainly belonging to Nigerian fintech juggernaut, Flutterwave. The decision to freeze these accounts, which had the sum of Ksh7 billion ($59 million) was made after the Asset Recovery Agency of Kenya, (ARA) told the court that the accounts were suspected money laundering conduits.
Huge reactions followed this news, and while things didn’t look good for Flutterwave given its recent run-ins with controversies, the skies were not clear for other Nigerian fintech companies.
On July 14th, 2021, a Kenyan high court again ordered that the accounts of two more Nigerian fintech startups, Korapay and Kandon technologies be frozen with the sum of ksh 45 million ($380,000).
The ARA alleged that both companies siphoned up to $6 billion with the suspicious movement of funds. It also stated that both companies were linked to Flutterwave and the related companies it accused of money laundering.
Both Flutterwave and Korapay have come out to deny these claims in their respective official statements. While Flutterwave stated that the allegations were false, it did not provide further information on the actual realities of the situation.
Korapay, on the other hand, explained that the frozen funds in question were part of the requirements to obtain a payments processing license in Kenya.
However, the issues run deep, and this is not the first time Nigerian companies have been flagged in Kenya. So far, the Kenyan government has frozen $*** billion in funds belonging to Nigerian firms.
First, let’s take a quick detour to understand the space.
Kenya’s battle with money laundering
Money laundering regulations are very strict globally, and the laws constantly need to be updated. According to the UN, about 2- 5% of the world’s GDP 800 billion to $2 trillion is generated from people trying to conceal the origin of illegally obtained funds using foreign banks or legitimate businesses as a front.
A company or its founder could be directly involved in money laundering activities, or customers of financial institutions could take advantage of a loophole to facilitate their criminal process.
As you can already guess, that’s why financial services companies are big on know-your-customer (KYC) requirements when opening an account. The potential for financial losses, organised crime, and terrorism, have made the financial sector one of the most heavily regulated in the world.
While financial services institutions have strict regulations, money laundering still drains an average of $1.6 trillion annually from the global economy.
Traditional finance companies have long struggled to keep up with the dynamism of fraudsters that keep finding creative ways to launder money, but research shows that fintechs have higher risks.
The rise of fintechs has reshaped the way we look at the financial services space globally. Per Sanction Scanner, the high growth and massive transaction volumes expose fintechs to several bad actors which might be difficult to control.
How? Criminals are constantly finding loopholes in an airtight system and when the company in question is a fintech, this can happen at high volumes. Against this backdrop, regulators either readjust or overhaul any existing frameworks.
Kenya’s Proceeds of Crime and Anti-Money Laundering Act (POCAMLA) 2009 contains comprehensive guidelines for guarding against money laundering processes and other significant financial crimes.
This led to the formation of the ARA which is tasked with identifying, tracing, freezing, seizing and confiscating crime proceeds in Kenya. An analogous body in Nigeria is the National Financial Intelligence Unit (NFIU).
Most times, issues in the regulatory space do not get to the ARA. The Central Bank of Kenya (CBK) does the heavy work of keeping financial services companies in line with these regulations. On occasions when companies work on the fringes of these regulations and escape the direct lenses of the CBK, it’s inevitable that the ARA would swoop in.
In most jurisdictions, when a bank flags a suspicious transaction, it flags the account and invites the customer to clarify what the transaction was meant for. In more serious cases In Nigeria, the bank could report to the NFIU, or if it’s high profile enough, the body could become actively involved in the process.
Interestingly, the POCAMLA allows the ARA to freeze the account of any company where a suspicious transaction is flagged. The agency can freeze it for 45 days, and if it’s not convinced, it can ask for an extra 90 days to finalise its investigation.
It’s noteworthy that if the ARA freezes accounts it will still have to determine if there was any wrongdoing from the affected parties.
So far, the agency has made some high-profile issued court orders to freeze accounts of suspected companies. However, recent reports suggest that Kenya is becoming a hotbed for money laundering, and Nigerian fintech companies are seemingly facing the heat of its renewed stringent measures.