Audit on illicit financial flows set to put Kenya on the spotlight, again

By Steve UMIDHA

Kenya is among African countries awaiting an audit report of anti-illicit financial flows policy tracker, following Thursday’s conclusion of a three-day sitting in Johannesburg.

Launched in 2020 by the Tax Justice Network Africa (TJNA) – the Illicit Financial Flows Vulnerability Tracker, measures and visualizes each country’s vulnerability to various forms of illicit financial flows over different periods of time.

The tool’s review outcome slated for June this year, is expected to identify money flows in and out of the country, most of which is believed to be illegal.

“It draws upon the recommendations of various reports that have extensively documented procedures required to combat IFFs, including the High-Level Panel on Illicit Financial Flows from Africa (commonly known as the Mbeki Panel report) and recent reports like the High-Level Panel on International Financial Accountability and Transparency (FACTI Panel),” reads a statement from TJNA.

Its creators also believe such a tool can help countries like Kenya—that continue to bear the brunt of a noxious status in its financial secrecy rankings—in future fiscal planning.

Kenya’s financial sector is among the most secretive globally and is also the second most rigid in Africa after Algeria and among the top 30 in the world, according to the Financial Secrecy Index of 2020.

It is estimated that Kenya has been losing an average of Sh40 billion every year through illicit financial flows since 2011 as government, local firms and multinationals engage in fraudulent schemes to avoid tax payment.

Countries like Dubai and Mauritius among others have acted as magnet destinations for tainted money for most moneyed Kenyans – with their property markets built to attract foreign buyers, with the Dubai emirate for instance, dominated by towers of upscale flats and man-made islands studded with luxury villas.

“After refining the tracker and methodology, TJNA will organize a consultation meeting in June 2023 to share the refined tool and give feedback.

By closely monitoring the implementation of national-level policies, the Anti-IFFs policy tracker will play a pivotal role in curbing the flow of illicit funds, ensuring that African nations can harness their resources for sustainable development and inclusive growth,” noted TJNA.

Illicit financial flows refer to money that is illegally earned, transferred or used, typically to evade taxes or other regulations – a common practice by rogue business individuals, some politicians and senior public officers with higher connections in the government.

The vice has the potential to hurt economies, societies, public finances and governance of countries if left unchecked over a long period of time.

The tax network said a key challenge to tackling illicit financial flows is the difficulty countries face in identifying which financial flows carry the largest risk to their economies.

Such monies would typically include activities such as tax evasion, corruption, trade mispricing, and money laundering. Money laundering is a process through which “dirty” money is concealed to make it appear as though it was obtained legitimately, or it is “clean” money, locally known as ‘wash wash.’ It disguises illegal profits without compromising the criminals involved who wish to benefit from the proceeds.

The UNCTAD’s Economic Development in Africa Report for 2021 estimates that such losses to be nearly half of the country’s domestic revenue.

Indeed in 2016 for instance, former Ethics and Anti-Corruption Commission Chairman Philip Kinisu noted that about Sh600 billion was lost to corruption every year. This was equivalent to Sh1. 6 billion a day and 7.8 percent of the country’s GDP to corruption annually.

The country lost about US$1 Billion to payment of subsidies to Goldenberg – a company associated with businessman Kamlesh Pattni, which remains one of the biggest scandals to ever rock the country. The Goldenberg scandal involved the export of gold and diamonds in the 1990s all through to 2003.