Anti money laundring ace june 2019 bulletin

6 th June 2019| Ace Group | : Withdrawal of Kshs 1,000 notes
Our Professional Services Entities:
Ace Associates- Certified Public Accountants - A member firm of McMillan Woods
Ace Consultants Limited—Accountancy , Internal Audit, Strategy and Risk Consulting
Ace Taxation Services Limited—Tax Compliance, Planning and Advisory Services
Ace Financial Advisory Limited—Corporate Finance and Personal Financial Planning
ACE Secretaries and Registrars - Company Secretarial Services
Ace Nominees Limited (Confidential nominee services to hold shares and other assets)
ACE House, Narok Road TRV Centre, 7th
Floor, Office No. 7F
P.O. Box 16916 – 80100 3rd
Parklands Avenue
+254 727399199 or 041 2491515 Tel: +254 721524680 or +254 707688699
Mombasa Nairobi
Websites: www.acegroup.co.ke : www.acefinancialadvisory.com :
Caveat
The content of this bulletin is for informational purposes only. The content is not intended in any
way to be a substitute for legal advice, in making decisions, and the authors and the entities affili-
ated with them are not responsible for any loss, resulting from acting on this information. This in-
formation is driven by announcement by the Central Bank of Kenya on the new currency notes and
the ceasing of the current Kshs 1,000 note as legal tender by 1st October 2019 and the PRO-
CEEDS OF CRIME AND ANTI-MONEYLAUNDERING ACT (CHAPTER 59B)
PROCEEDS OF CRIME AND ANTI-MONEYLAUNDERING ACT (CHAPTER 59B)
Potential pitfalls which could impact business

On Saturday 1st June 2019, the Central Bank of Kenya announced that it shall be issuing new generation
notes, and specifically for the Kshs 1,000 note currently in circulation would cease to be legal tender from
1st October 2019. See links below
https://www.centralbank.go.ke/2019/06/03/launch-of-new-generation-banknotes/
https://www.centralbank.go.ke/wp-content/uploads/2019/06/New-Generation-Banknotes-Pamphlet.pdf
https://www.centralbank.go.ke/uploads/speeches/1727542341_Governor's%20Remarks%20-%
20Launch%20of%20the%20New%20Generation%20Banknotes.pdf (Governors full speech)
The Governor of the Central Bank of Kenya in this remarks on the launch said “ Your Excellency, the new
banknotes will circulate alongside those previously issued but not withdrawn. However, we have as-
sessed the grave concern that our large banknotes—particularly the older one thousand shillings series—
are being used for illicit financial flows in Kenya and also other countries in the region. More recently we
have seen the emergence of some counterfeits. These are grave concerns that would jeopardize proper
transactions and the conduct of commerce in our currency. To deal conclusively with these concerns, all
the older one thousand shillings series shall be withdrawn. By a Gazette Notice dated May 31, 2019, all
persons have until October 1, 2019, to exchange those notes, after which the older one thousand shil-
lings banknotes will cease to be legal tender. “
This has created a panic situation as Kshs 1,000/= notes held by individuals and organized crime syndi-
cates are likely to offload these in the economy either by banking into bank accounts, purchasing high
value vehicles from motor dealers, purchasing gold, other precious metals and gemstones from jeweler’s
and gemstone traders, purchasing property from property developers and estate agents or even general
goods paying in cash which has been hoarded and may be proceeds of physical crime, proceeds of eco-
nomic crime and corruption, money accumulated but not declared for tax purposes (tax evasion), all this
would be covered under the term “money laundering”. Thus businesses should be vigilant to not becom-
ing unknowingly conduits for and accessories to money laundering. Kenya has a PROCEEDS OF CRIME
AND ANTI-MONEYLAUNDERING ACT (CHAPTER 59B), which covers these offenses.
Money laundering is defined as: ‘The funnelling of cash or other funds generated from illegal activities through
legitimate financial institutions and businesses to conceal the source of the funds.’ Anti-Money Laundering, 2nd
ed., IFAC, 2004

Key Definition's 1/2
“Agency Director” means the Director of the Agency appointed under section 53(2);
“authorised officer” means—
(a) a police officer;
(b) an officer of the department of the Kenya Revenue Authority;
(c) Agency Director; or
(d) any person or class of persons designated by the Minister as an
authorised officer to perform any function under this Act;
“Board” means the Anti-Money Laundering Advisory Board established under section 49;
“Centre” means the Financial Reporting Centre established under section 21;
“confiscation order” means an order referred to in section 61
“designated non-financial businesses or professions” means—
(a) casinos (including internet casinos);
(b) real estate agencies;
(c) dealing in precious metals;
(d) dealing in precious stones;
(e) accountants, who are sole practitioners or are partners in their professional firms;
(f) non-governmental organisations;
(g) such other business or profession in which the risk of money laundering exists as the Minister may, on the advice of the Cen-
tre Director,
“estate agency” in connection with the selling, mortgaging, charging, letting or management of immovable property or of any
house, shop or other building forming part thereof, means doing any of the following acts—
(a) bringing together, or taking steps to bring together, a prospective vendor, lessor or lender and a prospective purchaser, lessee
or borrower; or
(b) negotiating the terms of sale, mortgage, charge or letting as an intermediary between or on behalf of either of the principals;

Key Definition's 2/2
“financial institution” means any person or entity, which conducts as a
business, one or more of the following activities or operations—
(a) accepting deposits and other repayable funds from the public;
(b) lending, including consumer credit, mortgage credit, factoring, with or without recourse, and financing of commercial transac-
tions;
(c) financial leasing;
(d) transferring of funds or value, by any means, including both formal and informal channels;
(e) issuing and managing means of payment (such as credit and debit cards, cheques, travellers’ cheques, money orders and bank-
ers’drafts, and electronic money);
(f) financial guarantees and commitments;
(g) trading in - (i) money market instruments, including cheques, bills, certificates of deposit and derivatives; (ii) foreign exchange;
(iii) exchange, interest rate and index funds; (iv) transferable securities; and (v) commodity futures trading;
(h) participation in securities issues and the provision of financial services related to such issues;
(i) individual and collective portfolio management;
(j) safekeeping and administration of cash or liquid securities on behalf of other persons;
(k) otherwise investing, administering or managing funds or money on behalf of other persons;
(l) underwriting and placement of life insurance and other investment related insurance; and
(m) money and currency changing;
“money laundering” means an offence under any of the provisions of sections 3, 4 and 7;
“offence” in this Act, means an offence against a provision of any law in Kenya, or an offence against a provision of any law in a
foreign state for conduct which, if it occurred in Kenya, would constitute an offence against a provision of any law in Kenya;
“person” means any natural or legal person;
“proceeds of crime” means any property or economic advantage derived or realized, directly or indirectly, as a result of or in con-
nection with an offence irrespective of the identity of the offender and includes, on a proportional basis, property into which any
property derived or realized directly from the offence was later successively converted, transformed or intermingled, as well as
income, capital or other economic gains or benefits derived or realized from such property from the time the offence was com-
mitted;
“property” means all monetary instruments and all other real or personal property of every description, including things in action
or other incorporeal or heritable property, whether situated in Kenya or elsewhere, whether tangible or intangible, and includes
an interest in any such property and any such legal documents or instruments evidencing title to or interest in such property;
property of every description, including things in action or other incorporeal or heritable property, whether situated in Kenya or
elsewhere, whether tangible or intangible, and includes an interest in any such property and any such legal documents or instru-

Relevant Sections of the Act
Offenses penalized under Section 16 (1)
3. Money laundering
A person who knows or who ought reasonably to have known that property is or forms part of the proceeds of crime and—
(a) enters into any agreement or engages in any arrangement or transaction with anyone in connection with that proper-
ty, whether that agreement, arrangement or transaction is legally enforceable or not; or
(b) performs any other act in connection with such property, whether it is performed independently or with any other per-
son, whose effect is to—
(i) conceal or disguise the nature, source, location, disposition or movement of the said property or the ownership thereof or any
interest which anyone may have in respect thereof; or
(ii) enable or assist any person who has committed or commits an offence, whether in Kenya or elsewhere to avoid prosecution; or
(iii) remove or diminish any property acquired directly, or indirectly, as a result of the commission of an offence, commits an
offence.
4. Acquisition, possession or use of proceeds of crime
A person who—
(a) acquires; (b) uses; or (c) has possession of, property and who, at the time of acquisition, use or possession of such proper-
ty, knows or ought reasonably to have known that it is or forms part of the proceeds of a crime committed by him or by another
person, commits an offence.
7. Financial promotion of an offence
A person who, knowingly transports, transmits, transfers or receives or attempts to transport, transmit, transfer or receive a mon-
etary instrument or anything of value to another person, with intent to commit an offence, that person commits an offence.
5. Failure to report suspicion regarding proceeds of crime
A person who wilfully fails to comply with an obligation contemplated in section 44(2) commits an offence.
8. Tipping off
(1) A person who—
(i) knows or ought reasonably to have known that a report under section 44 is being prepared or has been or is about to be sent to
the Centre; and (ii) discloses to another person information or other matters relating to a report made under paragraph (i).
(2) In proceedings for an offence under this section, it is a defence to prove that the person did not know or have reasonable
grounds to suspect that the disclosure was likely to prejudice a report made under subsection (1).

11. Failure to comply with the provisions of this Act
(1) A reporting institution that fails to comply with any of the requirements of sections 44, 45 and 46, or of any regulations, com-
mits an offence.
13. Misuse of information
(1) A person who knows or ought reasonably to have known—
(a) that information has been disclosed under the provisions of Part II; or
(b) that an investigation is being, or may be, conducted as a result of such a disclosure, and directly or indirectly alerts, or
brings information to the attention of another person who will or is likely to prejudice such an investigation, commits an offence.
12. Conveyance of monetary instruments to or from Kenya
(3) A person who wilfully fails to report the conveyance of monetary instruments into or out of Kenya, or materially misrepre-
sents the amount of monetary instruments reported in accordance with the requirements of subsection (1) commits an
offence.
9. Misrepresentation
A person who knowingly makes a false, fictitious or fraudulent statement or representation, or makes, or provides, any false docu-
ment, knowing the same to contain any false, fictitious or fraudulent statement or entry, to a reporting institution, or to a supervi-
sory body or to the Centre, commits an offence.
10. Malicious reporting
Any person who wilfully gives any information to the Centre or an authorized officer knowing such information to be false commits
an offence.
14. Failure to comply with order of court
A person who intentionally refuses or fails to comply with an order of a court made under this Act, commits an offence.

16. Penalties
(1) A person who contravenes any of the provisions of sections 3, 4 or 7 is on
conviction liable—
(a) in the case of a natural person, to imprisonment for a term not exceeding fourteen years, or a fine not exceeding five
million shillings or the amount of the value of the property involved in the offence, whichever is the higher, or to both the
fine and imprisonment; and
(b) in the case of a body corporate, to a fine not exceeding twenty-five million shillings, or the amount of the value of the
property involved in the offence, whichever is the higher.
(2) A person who contravenes any of the provisions of sections 5, 8, 11(1) or 13 is on conviction liable—
(a) in the case of a natural person, to imprisonment for a term not exceeding seven years, or a fine not exceeding two
million, five hundred thousand shillings, or to both and
(b) in the case of a body corporate, to a fine not exceeding ten million shillings or the amount of the value of the property
involved in the offence, whichever is the higher.
(3) A person who contravenes any of the provisions of section 12(3) is on conviction, liable to a fine not exceeding ten per cent of
the amount of the monetary instruments involved in the offence.
(4) A person who contravenes the provisions of section 9, 10 or 14 is on conviction liable—
(a) in the case of a natural person, to imprisonment for a term not exceeding two years, or a fine not exceeding one mil-
lion shillings, or to both and
(b) in the case of a body corporate, to a fine not exceeding five million shillings or the amount of the value of the proper-
ty involved in the offence, whichever is the higher.
(5) Deleted by Act No. 51 of 2012, s. 6.
(6) Where any offence under this Part is committed by a body corporate with the consent or connivance of any director, manager,
secretary or any other officer of the body corporate, or any person purporting to act in such capacity, that person, as wellas
the body corporate, shall be prosecuted in accordance with the provisions of this Act.
17. Secrecy obligations overridden
(1) The provisions of this Act shall override any obligation as to secrecy or other restriction on disclosure of information imposed
by any other law or otherwise.
(2) No liability based on a breach of an obligation as to secrecy or any restriction on the disclosure of information, whether im-
posed by any law, the common law or any agreement, shall arise from a disclosure of any information in compliance with any obli-
gation imposed by this Act.

Why tax evasion is also considered part of money laundering?
Businesses cannot hide under the pretext I know the person, he is a business person and
not a criminal, by accepting payments in Kshs 1,000 notes for major capital assets purchas-
es like vehicles, real estate properties, jewellery and gemstones, because the person may
be a genuine business person but has evaded tax.
Tax evasion
Tax evasion must be addressed effectively for a number of reasons. At first it deprives states from raising
sufficient revenues therefore preventing them from implementing social, economic, environmental, cultural
and other policies. Tax evasion undermines the efforts of the government to promote welfare and social co-
hesion; it prevents it from performing its social function. Moreover, it erodes the credibility of democratic
institutions, while injuring the trust of citizens in the means and ends of a legitimate, democratic govern-
ment. In a nutshell it can brew feelings that might evolve into anti-social, anti-democratic mentalities.
Secondly, those who are in a better position to avoid taxation are the people who can siphon their income
into foreign banks or jurisdictions, which usually means that they are better-off. In avoiding their duties and
responsibility vis-á-vis society and the state, the tax evaders are in effect placing a greater burden on those
who eventually pay off the effective costs of taxation, who are in their majority, members of the lower and
middle parts of the income distribution. As such tax evasion fosters or widens social inequality while it pro-
duces a de facto division of citizens between privileged and non-privileged.
Thirdly, tax evasion provides incentives to established financial institutions as well as authorities or politi-
cians to engage in corrupt activities, in quest of their own enrichment or other benefit. Financial institutions/
banks are interested in increasing their profits by making use of this stream of funds, even if that implies cir-
cumventing the existing rules5. Authorities may be enticed to turn a blind eye in this process, so that their
own position in power may be consolidated.

What Processes should you have to
Customer due diligence
Suitable customer due diligence measures are the bedrock of anti-money laundering requirements and the first line of
defence for any business. This means :-
1) identifying and verifying the customer’s identity using documents, data or information obtained from a reliable and
independent source where applicable, identifying the beneficial owner and taking risk based and adequate measures
to verify their identity using government issued identity document and tax record (PIN)
2) obtaining information on the purpose and intended nature of the business relationship conducting ongoing moni-
toring of the business relationship.
This ongoing monitoring should include:
Scrutiny of transactions undertaken throughout the business relationship. This is to ensure that transactions are con-
sistent with the accountant’s knowledge of the client, the business and risk profile.
Ensuring that documentation, data or information held is kept up to date, and carefully filed in hard copy.
Stages of CDD
Information gathering -Verification, Risk assessment and Identification
Verification
• Who is the client? • Who owns them? • What do they do? • What is their source of funds?
 Can you describe their activities? • What will you be doing for them? • What is its legal structure?
Risk Assesment
 Client risk
 Service risk
 Geographic risk
 Sector risk
 Delivery channel risk
Identification
 What documents or other information do you need to demonstrate what you have been told is true?
 What steps do you need to take or what information do you need to obtain to mitigate any specific risks that you
have identified?
Conclusion : Money laundering is a serious offence, hence vigilance is important, however the current phasing
out of the Old Kshs 1,000 note, increase the risk of unknowingly committing an offense. NB: All real estate property
transactions and motor vehicle logbook transfer require KRA PIN’s, and you will have to bank the cash you received,

Our Locations
ACE House, Narok Road TRV Centre, 7th Floor, Office No. 7F
P.O. Box 16916 – 80100 3rd Parklands Avenue
+254 727399199, 041 2491515 Tel: +254 721 524680, 707 688699
Mombasa Nairobi
Contacts
CPA Ahmed Salyani –Managing Partner asalyani@acegroup.co.ke
CPA Mohamed Ebrahim—Partner mebrahim@acegroup.co.ke
Muhamed Salyani (ACCA) —Consulting director, msalyani@acegroup.co.ke
Bilal Musani, (ACCA) - Tax Director bmusani@acegroup.co.ke
CPA Mohamed Afzal Mamdani—Nairobi Office mamamdani@acegroup.co.ke
Find us on the Web:
https://acefinancialadvisory.com/
http://acegroup.co.ke/
Beyond Excellence

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