Kenya's global standing as an investment destination of choice has been dealt a fresh blow after being flagged by the European Commission for having “strategic deficiencies” in tackling money laundering and terrorism financing.

This move could deal a major blow to the country’s already fragile reputation as an investment destination at a time of increasing competition for global capital.

In its latest revision of jurisdictions under scrutiny, the European Commission added Kenya to a blacklist that now includes Algeria, Angola, Côte d’Ivoire, Laos, Lebanon, Monaco, Namibia, Nepal, and Venezuela. 

This update aligns with findings from the Financial Action Task Force (FATF), the global standard-setter for anti-money laundering (AML) and counter-financing of terrorism (CFT).

"The updated list takes into account the work of the Financial Action Task Force (FATF) and in particular its list of 'Jurisdictions under Increased Monitoring'," the Commission noted.

It added, "Alignment with FATF is important for upholding the EU´s commitment to promoting and implementing global standards."

The inclusion of Kenya in this list means that EU-based financial institutions and entities are now required to apply “enhanced vigilance” when handling financial transactions involving the country. The Commission said the step is critical to safeguard the integrity of the EU financial system.

This designation is expected to significantly raises the cost and complexity of doing business with Kenya, which is East Africa's largest economy.

Kenya’s listing comes at a time when the government is under increasing scrutiny over its management of public finances, corruption scandals, and weak institutional controls. 

While other nations such as the United Arab Emirates, Panama, and Jamaica have been delisted after making sufficient improvements, Kenya’s addition underscores growing international concern over the country’s lax enforcement of financial regulations.

According to the Commission, the assessment leading to the blacklist involved technical reviews, site visits, and bilateral dialogue. Despite prior warnings, Kenya appears to have fallen short of implementing its FATF action plan in a timely or effective manner.

Following the listing, International banks may reassess their risk exposure to Kenya, leading to delays or additional compliance checks for cross-border transactions. Moreover, Kenya could face barriers in securing development aid or external financing from institutions wary of reputational risks.

The updated list is set to become legally binding within one to two months, pending review by the European Parliament and Council. 

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