EAC states move to tighten anti-money laundering laws

Nairobi – The East African Community member states are drafting tougher regulation on money laundering targeting firms registered in tax havens and jurisdictions with bank secrecy.
Dealers during a trading session at the local bourse. EAC countries are planning to introduce disclosre laws. (File)
Dealers during a trading session at the local bourse. EAC countries are planning to introduce disclosre laws. (File)

Nairobi – The East African Community member states are drafting tougher regulation on money laundering targeting firms registered in tax havens and jurisdictions with bank secrecy. 

Companies with shareholders represented by nominee accounts will have to disclose the beneficial owners when they open accounts in banks or stock market intermediaries such as brokers and investment banks, under the draft policy.

In Kenya several companies listed on the Nairobi Securities Exchange (NSE) have links with tax havens such as Mauritius and Ireland.

The firms are likely to come under greater scrutiny as the law now says transactions they make must be regarded as high-risk.

The Kenya Association of Stockbrokers and Investment Banks (KASIB) chief executive, Willie Njoroge, said stock market intermediaries saw the proposals as important, but added there was risk of delayed securities transactions.

“Looking at the greater good of the country, stockbrokers can live with the proposed law. The only thing we see is that there could be delays in the market as some transactions may need the approval of the regulator. There are many companies where shareholding is held by nominee accounts and whose real owners are currently unknown,” said Njoroge.

Other companies have some top shareholders registered in the Isle of Man, Virgin Islands and Mauritius – which are considered to be tax havens, including TransCentury and Equity Bank. TransCentury has several subsidiaries incorporated in Mauritius.

Top Equity Bank shareholder Helios is incorporated in Mauritius. The largest shareholder in Britam is British-American (Kenya) Holdings Limited, which is controlled by British-American Insurance Company (Mtius) Ltd, incorporated in Mauritius. The Indian Ocean Island has a 15 per cent income tax rate against Kenya’s 30 per cent.

The new proposals have been made and agreed upon by the East African Community (EAC) capital markets regulators.

Information from the NSE indicates that the proposals are set to be discussed by the finance ministers of the EAC region in November and the law is expected to be implemented by the same month next year.

They were initially formulated by a technical working group comprising various stakeholders in the region before the regulators approved them last month.

Under Kenya’s current money laundering law enacted in 2009, the minimum transaction that should attract the attention of regulators is $10,000, but in the new EAC proposal, there is no minimum as long as an entity or person is termed as high risk.

Besides nominee accounts and companies with owners registered in tax havens, high-risk persons are classified as public officials such as politicians and top civil servants.

Market players said with the current spate of terrorism financing and related money laundering, the laws will be a welcome development though there may be delays in the settlements in the stock market as intermediaries try to comply by seeking the approval of regulators.

Different countries in the region are at different stages of applying anti-money laundering law and regulations and some are even yet to set up a financial reporting centre (FRC), that monitor money laundering and terrorism financing issues.

“The ideal thing to do is to have all the countries in the East African region come under the same anti-money laundering regime at the same time. But we are at different stages of the development in this,” said John Wanyela, the former chairman of the board of the Financial Reporting Centre, charged with fighting money laundering and terrorism financing. Kenya and Tanzania have financial reporting centres, while Uganda is in the process of setting up one.

Rwanda and Burundi are yet to establish such centres.

However, Wanyela said Kenya was under brighter spotlight from the international community because its financial sector is bigger and there have been more terrorist attacks.

“With our history of experiencing terrorism, the regulations are welcome,” said Wanyela.

The recent terrorists attack at Garissa University left 148 people dead, 143 of who were students.

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