The Law Society of Kenya (LSK) is now required by the law to report suspicious financial transactions related to lawyers as Kenya steps up the fight against money laundering.
According to the 2021 National Risk Assessment (NRA), the legal profession was identified as having a high vulnerability to money laundering. This was primarily due to the abuse of client-attorney privilege and the exclusion of law firms from the category of reporting institutions.
By law, lawyers are now obligated to report suspicious transactions when involved in the purchase and sale of real estate or the management of client assets and accounts.
They are also required to report any questionable transactions that come to their attention while organizing contributions for the establishment, operation, or management of companies, legal entities, or arrangements, as well as when engaged in the buying and selling of business entities.
These requirements are part of the new changes contained in the Anti-Money Laundering and Combating of Terrorism (AML/CFT) Financing Laws (Amendment) Act, 2023.
Signed into law in September, the new legislation represents a significant milestone in aligning Kenya’s AML/CFT laws with international standards set by the Financial Action Task Force (FATF).
An analysis conducted by PwC Kenya’s advisory services team reveals that the Act introduces updates to provisions within 16 different Acts. The primary objective is to address the lack of a consistent legal and institutional framework for AML/CFT across various sectors.
LSK to report suspicious deals by lawyers
Here are some of the key changes in each act: The scope of the Proceeds of Crime and Anti-Money Laundering Act (POCAMLA) has been broadened to encompass terrorism financing (TF) and proliferation financing (PF), in addition to money laundering.
Additionally, the LSK now functions as a self-regulatory body responsible for reporting suspicious transactions related to lawyers, notaries, and other independent legal professionals.
What’s more, penalties have been increased, reporting timelines for suspicious transactions have been shortened, and the reporting threshold has been raised. For instance, individuals can now face fines of up to Kes5 million, and bodies corporate may be fined up to Kes25 million for non-compliance by a reporting institution with the provisions of the Act. Previously, the fine was Kes1 million for individuals and Kes5 million for corporations.
Going forward, the Financial Reporting Centre (FRC) and supervisory bodies are required to adopt a risk-based approach, with a focus on higher-risk countries, and to consider materiality and risk when conducting due diligence.
Suspicious transactions must now be reported within two days of suspicion arising. The new regulations stipulate a fine of up to 50 percent of the amount of monetary instruments or imprisonment for up to 5 years, or both, for willful failure to report the conveyance of monetary instruments outside Kenya that exceed the reporting threshold of $15,000. Previously, the penalty was up to 10 percent of the amount of monetary instruments involved in the offence.
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Financial Reporting Centre
The Central Bank of Kenya Act, Microfinance Act, Banking Act, National Payment Systems Act, Insurance Act, and Capital Markets Authority Act now include expanded AML/CFT/CPF supervisory mandates for the CBK, Insurance Regulatory Authority, and Capital Markets Authority.
Notably, the Financial Reporting Centre (FRC) is no longer classified as a State Corporation, providing greater operational independence. Money laundering is now categorized as an economic crime under the Anti-Corruption and Economic Crimes Act.
Companies are now required to furnish beneficial ownership information upon registration and to maintain this information for at least ten years. Public listed companies must also keep their beneficial ownership information updated.
Under the fresh regulation, Limited Liability Partnerships (LLPs) must now provide beneficial ownership information upon registration and maintain a register of nominee partners.
New offenses, such as “proliferation act” and “financing of proliferation act,” have been added. There are also new penalties for legal entities that violate the provisions of the act, and a CFT Inter-Ministerial Committee has been established.