mbogo final research paper · 2020. 4. 20. · 3.4.5 leadership and integrity act, 2012 ... esaamlg...

FACULTYOFLAW

THEROLEOFANTI-CORRUPTIONLAWSANDINSTITUTIONSINCURBINGILLICIT

FINANCIALFLOWSFROMKENYA

ResearchpapersubmittedinpartialfulfilmentoftherequirementsfortheMaster

ofLaws(LLM)inTransnationalCriminalJusticeandCrimePrevention:AnInternationalandAfricanPerspective

ByGRACEWANJIKUMBOGO

StudentNumber:3869556

Supervisor:ProfessorKoen

2018

http://etd.uwc.ac.za/

ii

TABLEOFCONTENTS

Declaration....................................................................................................................................ivAcknowledgments..........................................................................................................................vDedication.....................................................................................................................................viAbbreviationandAcronyms.........................................................................................................viiKeyWords.....................................................................................................................................ix

CHAPTERONEINTRODUCINGTHESTUDY............................................................................................................1

1.1Introduction.............................................................................................................................1

1.2ContextualBackgroundofIFFsinKenya..................................................................................2

1.2.1AbusiveCommercialPracticesinKenya..........................................................................21.2.2TransnationalCriminalActivitiesinKenya......................................................................41.2.3CorruptioninKenya.........................................................................................................6

1.3ProblemStatement..................................................................................................................7

1.4ResearchQuestions..................................................................................................................8

1.5ObjectivesoftheStudy............................................................................................................8

1.6SignificanceoftheStudy..........................................................................................................8

1.7OutlineoftheRemainingChapters..........................................................................................9

CHAPTERTWOCORRUPTIONANDILLICITFINANCIALFLOWS............................................................................102.1Introduction...........................................................................................................................10

2.2UnderstandingIFFs.................................................................................................................10

2.2.1ApproachestoDefiningIFFs..........................................................................................112.2.2DistinguishingIFFsfromRelatedConcepts...................................................................15

2.3LinkbetweenCorruptionandIFFs..........................................................................................17

2.3.1CorruptionasaSourceofCriminalProceeds................................................................172.3.2CorruptionasanEnablerofAbusiveCommercialPractices.........................................182.3.3CorruptionasanEnablerofTransnationalCriminalActivities......................................192.3.4CorruptionasanImpedimenttoGoodGovernanceandAnti-IFFMeasures................22

2.4EffectsofCorruptionandIFFs................................................................................................23

2.5Conclusion..............................................................................................................................24

CHAPTERTHREEUSINGANTI-CORRUPTIONLAWSANDINSTITUTIONSAGAINSTILLICITFINANCIALFLOWS.....263.1Introduction...........................................................................................................................26

3.2Anti-CorruptionLawsandInstitutionsasKeyAnti-IFFTools.................................................26


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3.3InternationalandRegionalAnti-CorruptionLawsandInstitutions........................................29

3.3.1UnitedNationsConventionagainstCorruption............................................................293.3.2AfricanUnionConventiononPreventingandCombatingCorruption..........................333.3.3AfricanUnionAdvisoryBoardonCorruption................................................................34

3.4KenyanAnti-CorruptionLawsandInstitutions.......................................................................35

3.4.1ConstitutionofKenya,2010..........................................................................................353.4.2Anti-CorruptionandEconomicCrimesAct,2003..........................................................383.4.3BriberyAct,2016...........................................................................................................413.4.4PublicOfficerEthicsAct,2003.......................................................................................413.4.5LeadershipandIntegrityAct,2012...............................................................................433.4.6PublicProcurementandDisposalAct,2005.................................................................433.4.7ProceedsofCrimeandAnti-MoneyLaunderingAct,2009…..…………………………………….44

3.5KenyanAnti-CorruptionInstitutions......................................................................................44

3.5.1EthicsandAnti-CorruptionCommissionofKenya.........................................................443.5.2OfficeoftheDirectorofPublicProsecution..................................................................453.5.3TheJudiciary..................................................................................................................473.5.4ParliamentofKenya......................................................................................................473.5.5AssetRecoveryAgency..................................................................................................483.5.6Multi-AgencyTaskTeam...............................................................................................49

3.6Conclusion..............................................................................................................................49

CHAPTERFOURCONCLUSIONANDRECOMMENDATIONS...................................................................................514.1Conclusion..............................................................................................................................51

4.2Recommendations.................................................................................................................54

4.2.1StrengthenAnti-CorruptionLaws..................................................................................544.2.2EnhancetheCapacityofAnti-CorruptionInstitutions..................................................554.2.3BuildStructuresthatPromoteInternationalCo-operation...........................................564.2.4EnhancePublicParticipation.........................................................................................56

BIBLIOGRAPHY................................................................................................................................57


iv

DECLARATION

I,GraceWanjikuMbogo,declarethatTheRoleofAnti-CorruptionLawsandInstitutionsinCurbingIllicitFinancialFlowsfromKenyaStudyismyownwork,thatithasnotbeensubmittedforanydegreeorexaminationinanyotheruniversity,andthatallthesourcesIhaveusedorquotedhavebeenindicatedandacknowledgedbycompletereferences.

Student:GraceWanjikuMbogo

Signature: Date:

Supervisor:ProfessorRaymondKoen

Signature: Date:


v

ACKNOWLEDGMENTS

IamhighlygratefultoGodforHissteadfastloveandendlessblessingsthatcontinuetoflow

intomylife.

Mysinceregratitudegoestomysupervisor,ProfessorKoen,forhisguidanceandsupervision

whichhelpedmeimmenselythroughthewritingofthisresearchpaper.Hismeticulous

supervisioncontributedenormouslytotheproductionofthisresearchpaper.Iwouldliketo

thankalsotheGermanAcademicExchangeService(DAAD)forsupportingmystudyandstayin

CapeTownandBerlin;ProfessorGerhardWerle,ProfessorLovellFernandez,ProfessorMjuzi

andDr.Marshetforsharingtheirknowledgeintheirrespectivefieldsofexpertise.

TotheTransCrimclassof2018,Dankeschön!


vi

DEDICATION

Tomyparents,HenryMbogoandLucyNjoki,Iforeverremaingrateful.


vii

ABBREVIATIONSANDACRONYMS

ACECA Anti-CorruptionandEconomicsCrimeAct

APNAC AfricanParliamentarianNetworkagainstCorruption

APNIFFT AfricanParliamentaryNetworkonIllicitFinancialFlowsandTax

ARA AssetRecoveryAgency

AU AfricanUnion

AUBoard AfricanUnionAdvisoryBoardonCorruption

AUConvention AfricanUnionConventiononPreventingandCombatingCorruption

ESAAMLG EasternandSouthernAfricaAnti-MoneyLaunderingGroup

EACC EthicsandAnti-CorruptionCommission

FATF FinancialActionTaskForce

FRACCK FrameworkforReturnofAssetsfromCorruptionandCrime

GFI GlobalFinancialIntegrity

HLP HighLevelPanel

ICIJ InternationalConsortiumofInvestigativeJournalists

IFFs IllicitFinancialFlows

IMF InternationalMonetaryFund

INCSR InternationalNarcoticsControlStrategy

IOM InternationalOrganizationforMigration

KPLC KenyaPowerandLightingCompany

KWS KenyaWildlifeService

MAT Multi-AgencyTaskTeam


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MNCs Multinationalcorporations

ODPP OfficeoftheDirectorofPublicProsecution

OECD OrganisationforEconomicCo-operationandDevelopment

SDGs SustainableDevelopmentGoals

TPA TaxProcedureAct

UN UnitedNations

UNCAC UnitedNationsConventionagainstCorruption

UNCTOC UnitedNationsConventiononTransnationalOrganisedCrime

UNECA UnitedNationsEconomicCommissionforAfrica


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KEYWORDS

Anti-corruptionInstitutions

Anti-corruptionlaws

Assetrecovery

Corruption

Criminalisation

Global

IllicitFinancialFlows

Investigation

Kenya

Prosecution


1

CHAPTERONE

INTRODUCINGTHESTUDY

1.1 Introduction

Theconceptoftheillicitmovementofmoneyaimedatconcealingillegalactivitiesandevading

taxesisnotnew.However,theglobalcommunityfirstusedtheterm“illicitfinancialflows”

(IFFs)inthe1990sandoriginallyassociateditwithcapitalflight.1Theglobalisationoffinancial

marketsandtheincreasingeasewithwhichindividualsandcompaniestransactacrossborders

haveledtoasubstantialincreaseinIFFs.2Despitetheirgrowingeconomicandpolitical

significance,academicsandinternationalinstitutionsareyettoformulateanagreeddefinition

ofIFFs.OneofthecommondefinitionsisthatofGlobalFinancialIntegrity(GFI),which

describesIFFsastheillegalmovementofillegalorlegalmoneymeantforanillegalpurpose.3

TheReportoftheHighLevelPanel(HLP)onIFFsfromAfricaestimatesthatthe

continentlosesmorethanUS$50billionannuallythroughIFFs.4TheHLPReportnotesthat

abusivecommercialpractices,transnationalcriminalactivitiesandcorruptionarethemain

causesofIFFsinAfrica.5Itestimatesthatcommercialactivitiesaccountfor65percentofIFFs,

criminalactivitiesfor30percentandcorruptionforaround5percent.6Kenyahaslost

substantialamountsofmoneytoIFFs.Intheperiod2002-2006,thecountrylostanestimated

US$686millionannuallytoIFFs.7

Theseestimatesmaybetoolow,sincethestudyofIFFsinvolvescomplexlegaland

economicconceptsthatmakeitdifficulttodeterminetheprecisevolumesofIFFs.Nonetheless,

thecurrentestimatesshowthatIFFsaresubstantialandgrowingatanalarmingrate.IFFs

reducetheabilityofAfricancountriestoachievetheirdevelopmentgoals.HEKwesiQuartey,

1 WorldBank(2017),availableathttp://www.worldbank.org/en/topic/financialsector/brief/illicit-financial-

flows-iffs(visited9March2018).2 Kar&LeBlanc(2013)atiii.3 GFI(2018),availableathttp://www.gfintegrity.org/issue/illicit-financial-flows/(visited9March2018).4 HLP(2015)at13.5 HLP(2015)at24.6 HLP(2015)at24.7 Kar&Cartwright-Smith(2008)at67.


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DeputyChairpersonoftheAfricanUnionCommission,hasstatedthat:“IFFsareahugedrainon

Africa’sresources,includingtaxrevenues,andhinderthelevelofsavingsrequiredtoaddress

keydevelopmentissues”.8

Thisresearchpaperattemptsanevaluationoftheroleofanti-corruptionlawsand

institutionsincurbingIFFsfromKenya.ItgivesacontextualbackgroundofIFFsinKenyaand

theirimpactondevelopmentandgoodgovernance.Itanalysestherelationshipbetween

corruptionandIFFsanddiscussestheroleofnationalandinternationalanti-corruptionlaws

andinstitutionsincurbingIFFsfromKenya.Finally,itrecommendsmeasureswhichKenyamay

adopttoenhancetheefficiencyofitsanti-corruptiontoolsincurbingIFFs.

1.2 ContextualBackgroundofIFFsinKenya

ThissectiondiscussesthecontextualbackgroundofIFFsinKenya.Itconsidersthethreesources

ofIFFsasidentifiedbytheHLP,namely,commercialactivities,criminalactivitiesand

corruption.

1.2.1 AbusiveCommercialPracticesinKenya

AbusivebusinesspracticesareamajorsourceofIFFsinKenya.Businessesengaginginabusive

commercialpracticesaimatdodgingtaxauthoritiesandconcealingtheirwealth.These

practicesincludeactivitiessuchastaxevasion,aggressivetaxavoidance,transfermispricing

andtrademisinvoicing.Multinationalcorporations(MNCs)aremajorculpritsinthisregard.Civil

societyhasraisedconcernsaboutMNCsloweringtheirtaxliabilitiesinthecountriesinwhich

theyoperate.9

“Abusivetaxavoidanceandevasionareoneofthemajorfactorsinfluencingcreative

accountingpracticeamongprivatecompaniesinKenya.”10Taxevasionisanexplicitviolationof

acountry’staxlaws,whereataxpayerhidesincomeorinformationfromtaxauthoritiesto

reducehistaxliability.11Bycontrast,taxavoidanceisnotanexplicitviolationofthelaw.Itisa

8 Quartey(2018),availableathttps://au.int/en/speeches/20180508/statement-deputy-chairperson-high-

level-meeting-consortium-stem-illicit-financial(visited9June2018).9 UnitedNationsEconomicCommissionofAfrica(UNECA)(2018)at2.10 Kamauetal(2012)at83.11 OECD(2018),availableathttp://www.oecd.org/ctp/glossaryoftaxterms.htm(visited12March2018).


3

dishonesttaxpracticewherebytaxpayerstakeadvantageofloopholesintaxlawstoreduce

theirtaxliability.12Suchpracticescontradicttheintentionofacountry’staxlegislation.13

Kenya’sTaxProcedureActof2015(TPA)explicitlyprohibitsalltaxavoidanceandevasion

practices.14PriortotheenactmentoftheTPA,Kenyancourtsacknowledgedtherightsofa

taxpayertotakeadvantageofloopholesintaxlaws.JusticeKorir,intheBataShoeCompany

case,said:“Paymentoftaxisanobligationimposedbythelaw.Itisnotavoluntaryactivity.

Thatbeingthecase,ataxpayerisnotobligedtopayasinglecoinmorethanisduetothe

taxman”.15

Transfermispricingoccurswhenaninternationalcompanytakesadvantageofits

multiplestructurestoshiftprofitsacrossjurisdictions.16Themethodsoftransfermispricingare

intentionalfalsificationofinformation,non-declarationoffinancialassets,trademispricing,

accountingfraud,bribingoftaxofficialsandabuseoftaxincentivesbyfalselyclaiming

eligibility.17KenyalosesoverKsh43billionannuallyinunpaidtaxesduetotransfermispricing.18

In2014,theKenyaRevenueAuthoritydeterminedthatKaruturiLimited,anIndia-basedMNC,

usedtransfermispricingtoavoidpayingthegovernmentnearlyKsh946millionintax.19

Trademisinvoicingreferstothefalsificationoftheprice,qualityandquantityvaluesof

tradedgoodsforseveralreasons.20Itcouldincludethedesiretoevadecustomsdutiesand

domesticlevieswiththeintentionofexportingforeignexchangeabroad.21Kenyaisoneofthe

jurisdictionsintheworldinwhichitiseasiesttoincorporateananonymousshellcompany.22

Thismeansthattradersengaginginmisinvoicinghavereadyavenuesthroughwhichtodisguise

12 Chowla&Falcao(2016)at12.13 OECD(2018),availableathttp://www.oecd.org/ctp/glossaryoftaxterms.htm(visited12March2018).14 Sections85&97oftheTPA.15 RepublicvKenyaRevenueAuthorityExparteBataShoeCompany(Kenya)Limited(2014)at11.16 HLP(2015)at27.17 Waris(2017)at7.18 Michira(2014),availableathttps://www.standardmedia.co.ke/business/article/2000107763/revealed-

how-karuturi-got-away-with-denying-kenya-millions-of-shillings-in-taxes(visited20May2018).19 InternationalTradeCentre(2014),availableathttp://www.intracen.org/itc/blog/market-insider/Tax-

authorities-investigate-flower-farms-in-Kenya/(visited20May2018).20 HLP(2015)at27.21 HLP(2015)at27.22 Bakeretal(2014)at23.


4

andutilisetheirillicitfunds.23GFI’sstudyshowsthatintheperiod2002-2011,Kenyalost$9.64

billionduetotrademisinvoicing.24

Thefundsoriginatingfromtheseabusivecommercialpracticesqualifyasillegallyearned

funds.Thetransferofthesefundsabroadisanexampleoftheillicitflowoffundsaimedat

avoidingtaxobligations.ThesepracticesleadtosubstantialillicitoutflowsfromKenya,which

haveaffectednegativelythecountry’sdevelopmentgoals.

1.2.2 TransnationalCriminalActivitiesinKenya

IncidentsoftransnationalorganisedcrimearestillprevalentinKenya,despitethecountry

beingasignatoryoftheUNConventiononTransnationalOrganisedCrimeanditsadditional

Protocols(UNCTOC).Examplesofsuchtransnationalcrimesbeingcommittedinthecountryare

humantrafficking,drugtrafficking,traffickinginwildlifeproductsandmoneylaundering.

Ithasbeensaidthat:

TheEasternAfricaregionisattractivetointernationaldrugtraffickingsyndicatesastheyarequicktoexploitthenon-existentorineffectivebordercontrols,thelimitedcross-borderandregionalco-operationandseriousdeficienciesinthecriminaljusticesystems.25

InKenya,internationaldrugtraffickinggangsmanagemostofthecocaineandherointrafficked

intoandthroughthecountry.26ThesenetworksinvolveWestAfricansandKenyanswithstrong

linkstothepoliceandthejudiciary.

Kenyaisasource,transitanddestinationcountryforvictimsofhumantrafficking.27Itis

asourceofcheaplabourforcountriesinotherregions,particularlytheMiddleEast.

UnsuspectingKenyanvictimsarerecruitedbylegalorillegalemploymentagencieswiththe

promiseofwell-paidjobs,onlyforthemtobeexploitedphysicallyandsexually.28Kenyaisa

regionaltransithubforbothvoluntaryandtraffickedmigrantsinEastAfricaenroutetoSouth

23 Bakeretal(2014)at23.24 Bakeretal(2014)at19.25 UNODC(2018),availableathttps://www.unodc.org/easternafrica/en/illicit-drugs/drug-trafficking-

patterns.html(visited20May2018).26 Gastrow(2011)at3.27 IOM(2015)at16.28 USDepartmentofState(2017)at234.


5

Africa.29Itisadestinationcountryforsextouristswhoexploitthelocalpopulation,especially

children.30IntheKenyancoastaltownofMombasa,girlsbetweentheagesof10and15are

soldagainsttheirwillforaboutUS$600.31Kenyaisthelargestmarketforcounterfeitgoodsand

contrabandinEastAfrica.32TheKenyaAssociationofManufacturersestimatesthatthe

counterfeiteconomyofthecountryisworthUS$1.2billionannually.33

TourismisoneofKenya’sleadingforeignexchangeearners.Thecountryishometo

diverseanduniquewildlifespecies.Unfortunately,Kenya’swildlifeisunderincreasingthreat

fromtheactivitiesofinternationalcriminalnetworks.“Reportsofillegaltradeofendangered

wildlifetrophiesinterceptedwhileintransitarecommon,withtheMombasaportidentifiedas

akeyconduit.”34

Moneylaunderingisanimportantelementoftransnationalcriminalactivitiesaimedat

concealingandprotectingthesourceanduseofcriminalproceeds.“Itisalsoimportant

becauseoftheopportunitiesforsurvivalandexpansionitaffordsorganisedcriminalgroups.”35

Criminalsmayusetheillegalproceedstomaintainexpensivelifestyles,tore-investmentin

criminalactivityortofundterroristactivities.The2016reportbytheBureauforInternational

NarcoticsandLawEnforcementAffairsonInternationalNarcoticsControlStrategy(INCSR)

indicatesthatKenyaisvulnerabletomoneylaundering.36Thelaunderedproceedsarederived

frombothnationalandinternationalcriminaloperations,suchasorganisedcrime,cybercrime,

corruptionandtradeinvoicemanipulation.37CriminalnetworksinKenyahaveestablishedlinks

withAl-ShabaabandtakenadvantageoftheporousKenya-Somalibordertosmugglepeople,

counterfeitgoodsandweapons.“Kenya’sproximitytoSomaliamakesitalsoanattractive

locationforthelaunderingofcertainproceedsrelatedtopiracyandafinancialfacilitationhub

29 IOM(2015)at16.30 USDepartmentofState(2017)at234.31 Gastrow(2011)at7.32 Gastrow(2011)at4.33 Lindijer(2016),availableathttps://www.theguardian.com/world/2016/jan/13/kenya-is-run-by-mafia-

style-cartels-says-chief-justice(visited24August2018).34 Nduta(2018),availableathttps://africasustainableconservation.com/2018/04/11/kenya-illegal-wildlufe-

trade/(visited24August2018).35 Wright(2006)at68.36 USDepartmentofState(2016)at156.37 USDepartmentofState(2016)at156.


6

fortheSomalia-basedterroristgroupAl-Shabaab.”38

AlthoughthemainpurposeoftheseactivitiesmightnotbetogenerateIFFs,they

contributesubstantiallytosuchflowsbecausetheyareintendedtohidetheillegalproceeds

fromrevenueauthoritiesandlawenforcementagencies.39

1.2.3 CorruptioninKenya

ThoughcriminalandillicitcommercialactivitiescausesubstantialIFFsfromKenya,corruptionis

amajordriveroftheseoutflows.The2017TransparencyInternationalCorruptionPerceptions

IndexrankedKenyaat143outof180countries,withthe180thplacesignifyingthemostcorrupt

country.40Corruptionhaspermeatedthecountry’sprivateandpublicsectors.Themost

affectedpublicinstitutionsarethepolice,thepublicprocurementprocess,therevenue

authorities,thepublicadministrationandthejudiciary.41

KenyaisnotshortofgrandcorruptionscandalsthathavecausedorencouragedIFFs.

TheGoldenbergcorruptionscandalisagoodillustrationofthis.Itinvolvedaschemeaccording

towhichGoldenbergInternationalwould“export”fictitiousgoldanddiamondsandtheKenyan

governmentwould“compensate”itforearningforeignexchangefromthesefictitiousexports.

ItisestimatedthatthescandalcostKenya10percentofitsgrossdomesticproduct,despite

theexportofminimalornogoldanddiamonds.42Morerecently,thecounterfeitsugarscandal

showedhowcorruptioncanfuelillicittradeinKenya.Thisscandalinvolvedsmugglerscolluding

withcorruptofficialsoftheKenyaRevenueAuthorityandKenyaBureauofStandardstoflood

theKenyanmarketwithillegallyimportedsugarunfitforhumanconsumption.43The

governmentestimatesthecontrabandsugartobeworthUS$17.8million.44

38 USDepartmentofState(2016)at157.39 HLP(2015)at32.40 TransparencyInternational(2017),availableat

https://www.transparency.org/news/feature/corruption_perceptions_index_2017(visited8March2018).41 Martini(2012)at4.42 Letete&Sarr(2017)at6.43 Okoye(2018),availableathttps://www.diplomaticourier.com/kenyas-latest-scandal-reveals-the-bitter-

taste-of-corruption/(visited24August2018).44 Okoye(2018),availableathttps://www.diplomaticourier.com/kenyas-latest-scandal-reveals-the-bitter-

taste-of-corruption/(visited24August2018).


7

Theprevalenceofcorruptionnotwithstanding,Kenyahasalaudablelegaland

institutionalanti-corruptionframework.Kenyahasenactedseverallawstoassistinitsanti-

corruptionefforts.TheyincludetheConstitutionofKenya(2010),whichestablishedan

independentEthicsandAnti-CorruptionCommissionmandatedtopreventcorruptionand

economiccrimessuchasmoneylaundering.45Thecountryhasadoptedalsoaspecificanti-

corruptionlaw,dubbedtheAnti-CorruptionandEconomicCrimesAct(2003),whichprovides

foreconomiccrimes.IthasratifiedtheUnitedNationalConventionagainstCorruption(UNCAC)

andtheAfricanUnionConventiononPreventingandCombatingCorruption(AUConvention).

Kenyascored100(onazeroto100scale)inthe2011GlobalIntegrityevaluationofthestrength

ofthecountry’santi-corruptionlaws.46Thisisasignthatthecountryhasadequateanti-

corruptionlaws.ThisstudyseekstoexaminetheroleoftheselawsincurbingIFFs.

1.3 ProblemStatement

IFFshavecontributedtofinanciallosses,underminedgoodgovernance,threatenedpeaceand

worsenedincomedistributioninKenya.Themainhypothesisofthisstudyisthatcorruption

playsanoverarchingroleinfacilitatingIFFs.CorruptionisasourceandenablerofIFFs.It

weakenspolitical,legalandfinancialinstitutionalframeworks,creatinganenabling

environmentforcriminalandillicitbusinessactivities.Weakstateinstitutions,suchasbanks,

financialintelligenceunits,revenueauthorities,thepoliceforceandthejudicialsystem,hinder

properinvestigationsintoIFFsand,consequently,impedeimplementationofanti-IFF

measures.47EffortstocurbIFFs,therefore,shouldstartwithandfocusonaddressingcorruption

inKenya.FailuretolimitcorruptionfirstwillmakethecurtailingofIFFsanalmostimpossible

task.48Thisstudywillanalysetheextenttowhichdomestic,regionalandinternationallegal

frameworkscanstrengthenthecountry’santi-corruptioneffortsasthekeytocurbingIFFs.

45 TheConstitutionofKenya(Chapter6:79).46 GlobalIntegrity(2011),availableathttps://www.globalintegrity.org/research/reports/global-integrity-

report/global-integrity-report-2011/gir-scorecard-2011-kenya/(visited11April2018).47 Goga(2015),availableathttps://issafrica.org/iss-today/how-corruption-drives-illicit-financial-flows

(visited8March2018).48 Goga(2015),availableathttps://issafrica.org/iss-today/how-corruption-drives-illicit-financial-flows

(visited8March2018).


8

1.4 ResearchQuestions

Thispaperwillseektoanswerthefollowingquestions:

• WhatisthelinkbetweencorruptionandIFFsinKenya?

• Whatopportunities—andgaps—existinKenya'santi-corruptionlawforcurbingIFFs?

1.5 ObjectivesoftheStudy

Theoverallobjectiveofthisresearchistodeterminetheroleofanti-corruptionlawsincurbing

IFFsinKenya.Thespecificobjectivesofthepaperare:

• toexaminethecorrelationbetweencorruptionandIFFsinKenya;

• toexaminetheefficiencyofKenya’santi-corruptionlegalframeworkincurbingIFFs;

• torecommendmeasureswhichKenyamaytaketostrengthenitsanti-corruptionlawsand

tosuggesthowthesemeasuresmaybealignedtothecountry’santi-IFFmechanisms.

1.6 SignificanceoftheStudy

ThereisnoabundanceofliteratureonthelinksbetweencorruptionandIFFs,especiallyfroma

nationalperspective.IFFs,despitehavingbeenaprobleminAfricaforsomewhilealready,only

gainedprominenceafterthepublicationoftheHLPReport.Eventhen,mostscholarsand

policy-makershavestudiedtheissuefromaninternationalandregionalperspective.Thisstudy

shiftsthefocustoacountry-specificcontext.Researchersandpolicy-makersmayuseitto

informtheirstudiesofKenyaandasabasisforcomparisonwithothercountrystudies.

ThebenefitsofcurbingIFFsthroughvariousanti-corruptioneffortswillgobeyond

recoveringfinanciallosses.Kenyawillbeablenotonlytofinanceitsdevelopmentprioritiesbut

alsopromotetheruleoflawandgoodgovernanceprinciples.


9

1.7 OutlineoftheRemainingChapters

Thestudycontainsthreemorechapters.

ChapterTwoanalysesthelinkbetweencorruptionandIFFs.Thefirstpartwillexplain

theconceptofIFFsbyanalysingthedifferentapproachestodefininganddistinguishingIFFs

fromotherrelatedconcepts.ThesecondpartdiscussestherelationshipbetweenIFFsand

corruption.ItlooksspecificallyathowcorruptionisasourceandenablerofIFFs.Thelast

sectiondiscussestheimpactoftherelationshipbetweenIFFsandcorruption,focusingon

development,governanceandhumanrights.Discussionsinthischapterareundertaken

primarilyfromaKenyanperspective.

ThethirdchapterwillconsidertheroleofKenyananti-corruptionlawsandinstitutions

incurbingIFFs.ThischapterwillinvestigatewhattypeofIFFstheselawsareaimedatstopping,

thatis,whethertheselawsareconcernedonlywithIFFsrelatedtocorruptionorgobeyond

that.Itwillconsideralsohowtheanti-corruptionlawscancomplementotherKenyanlaws

aimedatcurbingIFFs.Mostimportantly,thechapterwillinterrogatewhetherKenyahasan

effectiveinstitutionalframeworktoimplementitsanti-corruptionlaws.

Thefinalchapterwillincludeasummaryofthekeyfindingsofthestudyanddetailed

recommendationsonapossiblewayforwardforKenya.Itwillconsiderwhatneedstobedone

toensurethattheanti-corruptionlawsareimplementedwithafocusoncurbingIFFs.Itwill

consideralsowhichinstitutionsoughttoberesponsiblefortheimplementationofthe

recommendations.


10

CHAPTERTWO

CORRUPTIONANDILLICITFINANCIALFLOWS

2.1 Introduction

Corruptionisasoldashumancivilisation.1However,corruptionisnolongeraquestionjustof

ethicsandintegrity.Itisanimpedimenttosocio-economicandpoliticaldevelopment.Itaffects

thecostofdoingbusiness,leadstotheinefficientuseofpublicresources,increasesinequality

and,ultimately,underminestheruleoflawandthelegitimacyofthegovernment.Former

Secretary-GeneraloftheUnitedNations(UN),thelateKofiAnnan,inhisstatementonthe

adoptionofUNCACbytheGeneralAssembly,declaredthat:

Corruptionisaninsidiousplaguethathasawiderangeofcorrosiveeffectsonsocieties.Itunderminesdemocracyandtheruleoflaw,leadstoviolationsofhumanrights,distortsmarkets,erodesthequalityoflife,andallowsorganisedcrime,terrorismandotherthreatstohumansecuritytoflourish.2

CorruptionhasfacilitatedtheincreaseofIFFs,whichdeprivedevelopingcountriesofresources

neededtofostertheirsocio-economicdevelopment.

ThischapterinterrogatesthelinkbetweencorruptionandIFFs.Thefirstsectionaimsat

demystifyingIFFs.ItanalysesthedifferentapproachesusedtodefineIFFsanddistinguishesIFFs

fromotherrelatedconcepts.ThenextsectiondiscussestherelationshipbetweenIFFsand

corruption.ItspecificallylooksathowcorruptionisasourceandenablerofIFFs.Theconcluding

sectiondiscussestheimpactofcorruptionandIFFs,focusingondevelopment,governanceand

humanrights.

2.2 UnderstandingIFFs

ConceptualclarityaboutIFFsinformsacademicdiscourseandenablesrefinedresearchonthe

topic.ItisanimportantprerequisitefordevelopinglawsandinstitutionsthatwillcurbIFFs.3

1 Rothstein&Varraich(2017)at31.2 Annan(2003),availableathttp://www.unodc.org/unodc/en/treaties/CAC/background/secretary-general-

speech.html(visited8May2018).3 Reed&Fontana(2011)at6.


11

However,thereisnounanimousdefinitionofIFFs.ThedivergencesinthedefinitionofIFFs

arisefromthediverseelementsthatcausetheseflows.

TheconceptofIFFsisanamalgamationofdifferentlegalconcepts.Alltheseconcepts

differintheirrelationshiptoIFFsandhavevariedexplanationsandunderstandingsofthe

source,transferanduseofillicitfundsandtheapproachesthatshouldbeusedtocurbIFFs.

ThesedisparitiesleadtodifficultiesinreachingagreementonadefinitionofIFFs.The

approachesusedtocurbIFFsinvolvealsoabroadrangeofstakeholderswhomayfavourone

definitionofIFFsoveranother.4Forinstance,ataxjusticeadvocatewillinsistonincludinglegal

taxmalpractices,suchastaxavoidance,inthedefinition,whilecorporateactorswouldprefer

toshieldtheirlegalactivitiesandhencetheywillseektolimitthedefinitionofIFFstoflowsthat

contravenethelaw.5

2.2.1 ApproachestoDefiningIFFs

ThereisnogenerallyacceptedlegaldefinitionofIFFs.However,internationalinstitutionsand

academicshavetheirownnon-legaldefinition.Miyandazi&Roncerayidentifyfourapproaches

usedtodefineIFFs,namely,thelegalistic,thenormative,thedevelopmentalandthe“no

definition”approaches.6

ThelegalisticapproachisanarrowinterpretationofIFFswhichfocusesonproceedsand

activitiesthathavecontravenedthelaw.Mostinternationaldevelopmentorganisations,such

astheWorldBank,theOrganisationforEconomicCo-operationandDevelopment(OECD)and

GlobalFinancialIntegrity(GFI),adoptthelegalisticapproach.TheWorldBankreferstoIFFsas

thecross-bordermovementofcapitalassociatedwithillegalactivityor,moreexplicitly,money

thatisearned,transferredorusedillegallyandthatcrossesborders.7TheOECDdefinesIFFsas

flowsthataregeneratedbymethods,practicesandcrimesaimedattransferringfinancial

4 Miyandazi&Ronceray(2018)at3.5 Miyandazi&Ronceray(2018)at3.6 Miyandazi&Ronceray(2018)at6.7 WorldBank(2017),availableathttp://www.worldbank.org/en/topic/financialsector/brief/illicit-financial-

flows-iffs(visited9March2018).


12

capitaloutofacountryincontraventionofnationalorinternationallaws.8GFIdefinesIFFsas

theillegalmovementofmoneythathasbeenearned,transferredand/orusedillegally.9

Thesedefinitionsexcludeactivities,suchasaggressivetaxavoidance,thatdonot

infringeanylaw.Instead,theyfocusonmoneyandactivitiesthathaveaclearlinktoillegality.

Theillegalitymayarisefromoneormoreofthefollowingscenarios:

• Thefundsareproceedsofillegalactivitiessuchashumantrafficking,taxevasionor

embezzlementofpublicmoney.10

• Thereisanillegaltransferoffundswhichcouldoccurifanindividualevadescustom

controlsandotherregulatorycontrols.11Itcouldoccuralsoifanindividualviolateslegal

obligationsrelatingtothefunds,forinstance,contraveningtaxlawsbydeliberately

falsifyingtaxreturnsandbooksofaccount.12Itdoesnotmatterwhetherthemoneybeing

transferredisderivedfromlegalactivities,aslongastheprocessoftransferringthemoney

hascontravenedthelaw.

• Themoneyisusedforanillegalpurpose,forinstance,financingdrugtrafficking.13Criminals

oftentransfermoneyillegallytoavoidanycomplicationswiththelaw.

Bycontrast,thenormativeapproachadoptsabroaderinterpretationofIFFs.Forstater

notesthat:

[A]normativedefinitionofIFFsisnotlimitedtofinancialorcapitalflowswithaconnectiontoillegality,butincludesactivitieswhicharedeemedtobeundesirable,immoral,or“unacceptabletothepublic”,inparticularfocusedontaxavoidance.14

TheHLPdefinesIFFsastheillegalmovementofmoneythathasbeenearned,transferred

and/orusedillegally.15ThisdefinitionissimilartotheGFIdefinition.However,theHLPfurther

explainsthatitconsiderstheterm“illicit”toincludeactivitieswhichmaynotbestrictlyillegal

8 OECD(2014)at16.9 GFI(2018),availableathttp://www.gfintegrity.org/issue/illicit-financial-flows/(visited8March2018).10 Reed&Fontana(2011)at6.11 Reed&Fontana(2011)at6.12 UNECA(2018)at2.13 UNECA(2018)at2.14 Forstater(2018)at5.15 HLP(2015)at23.


13

butnonethelessgoagainstestablishedrulesandnorms.16Thus,theHLPdefinitionincludesacts

suchasaggressivetaxavoidanceinitsunderstandingofthecausesofIFFs.17Wecaninfer,

therefore,thattheHLPhasadoptedabroaderdefinitionofIFFs.TheUNhasnotprovidedan

officialdefinitionofIFFs.However,recentpublicationsofUNorgansshowthattheUNis

endorsingthenormativeapproach.The2018UnitedNationsEconomicCommissionforAfrica

(UNECA)studyontheglobalgovernancearchitectureofIFFsnotesthattheword“illicit”refers

notonlytoillegalactsbutalsotoactsthatareimproperandnotsanctionedbyalawor

custom.18TheAfricanUnion(AU),too,doesnothaveaformaldefinitionofIFFs.However,the

AssemblyofHeadsofStateandGovernmentoftheAUformallyendorsedtheHLPreport,19

implyingthattheAUhasembracedtheHLPdefinitionofIFFs.

Thekeypointofcontentionbetweenthelegalisticandnormativeapproachesconcerns

thedefinitionof“illicit”and“illegal”.Thelegalisticapproachconsidersonlypracticesthathave

contravenedthelaw.Thenormativeapproachdoesnotlimititsdefinitiontoillegalitybutalso

considerspracticesthataremorallyunacceptable.Thisdivergencelinkstothedebateon

whethercommercialactivities—suchasaggressivetaxavoidanceandcorruptlynegotiated

contracts—aretoberegardedassourcesofIFFs.

Thenumberofacademicsandinstitutionsadoptingthebroaderapproachtodefining

IFFsisgrowing.Thereareseveraljustificationsfordoingso.Thefirstjustificationcomesfrom

theetymologyoftheword“illicit”.20TheMerriam-WebsterDictionarydefinesillicitas

“somethingthatisunlawfulorillegal;involvingactivitiesthataremorallyunacceptable”.21

Similarly,theOxfordDictionarydefines“illicit”actsas“actsnotauthorisedorallowed;

improper,irregular;[especially]notsanctionedbylaw,rule,orcustom;unlawful,forbidden”.22

Theterm“illicit”hasadualusagethatisnotlimitedlinguisticallytoillegality.Thesecond 16 HLP(2015)at23.17 HLP(2015)at24.18 UNECA(2018)at2.19 AssemblyofHeadsofStateandGovernmentoftheAfricanUnionSpecialDeclarationonIllicitFinancial

FlowsatDoc.Assembly/AU/17(XXIV).20 Forstater(2018)at6.21 Merriam-Webster(2018),availableathttps://www.merriamwebster.com/dictionary/illicit(visited18

August2018).22 OxfordEnglishDictionary(2018),availableathttp://www.oed.com/view/Entry/91445(visited18August

2018).


14

meaningofthetermincludespracticesandactivitiesthatsocietyorcustomcondemnsor

considersmorallyunacceptable.Therefore,fromanetymologicalperspective,IFFsoughtto

addresspracticesthatgobeyondwhatisstrictlyillegal.

Inaddition,equatingillicitnesstoillegalitymeansthatillicitpracticescannotbe

construedasillegalunlessacourtoflaworacompetentauthoritydeemsthemillegal.23There

isapresumptionofinnocenceinmostlegalsystemsandillegalitycanbeprovedonlyafterthe

completionofaformalprocess.24Regrettably,relyingsolelyuponformalproofofguiltentails

underestimatingthevolumeofIFFs,inthatthecountwouldbelimitedtothevaluesattached

toactivitiesthatacourtoflawhasconsideredillegal.25Therefore,adoptingthebroader

definitionofIFFswouldhelpcountriesobtainaclearerpictureofthefinanciallossesresulting

fromtheweaknessintheirlegalsystems.26Forstaterobservesthat:

ConsideringillicitpracticesassourcesofIFFswillenhancetheenforcementcapacityofrevenueauthoritiestotraceandstoptheseflows.27

Italsoplacesamoralobligationongovernmentstoamendlawsthatfacilitatetaxrevenue

losses.28

Thedevelopmentalapproachagreeswiththenormativeapproach,butexcludesflows

thathavenoadverseimpactonsustainabledevelopment.29Proponentsofthistheoryargue

thatsomeIFFs,suchasthoselinkedtocorruption,maycontributetopoliticalstabilitythrough

aclientelistdistributionofresources.Theybasetheirreasoningontheacceptanceofsome

formsofIFFs(corruption-relatedIFFsinparticular)asafactoflifeoralesserevilthanthe

instabilitycausedbythem.30Aninherentshortcomingofthisapproachisthatfailuretocrack

downuponIFFswillencourageperpetratorstocontinuewiththeillicitacts,whichultimately

willfosterinstability.31Anothershortcomingofthedevelopmentalapproachisthatitfailsto

23 Chowla&Falcao(2016)at15.24 Chowla&Falcao(2016)at15.25 Chowla&Falcao(2016)at15.26 Chowla&Falcao(2016)at15.27 Forstater(2018)at7.28 UNECA(2018)at3.29 Blankenburg&Khan(2012)at25.30 Miyandazi&Ronceray(2018)at9.31 Miyandazi&Ronceray(2018)at9.


15

considertheimpactofIFFsonhumanrights.32Thusfar,noresearcherhasestimatedthevalue

ofIFFsintermsofthisdefinition.33

The“nodefinition”approachavoidsthesemanticdiscussionembeddedintheother

approachesandtacklesthedifferentIFFsindividually.34TheEuropeanCommissionhasadopted

thisapproach.Itsmainshortcomingisthatitexcludesthepossibilityofanintegratedpolicy

approachandignoresthestrikingstatisticsoflargevolumesof“dirtymoney”.35

ThisresearchpaperadoptsthebroaderdefinitionofIFFswhichacknowledgesthat

illicitnessisnotsynonymouswithillegality.Italsoendorsesdefinitionsthatconsiderthe

adverseeffectsofIFFsonabroaderspectrumofglobalissues,includingdevelopment,

governanceandhumanrights.

2.2.2 DistinguishingIFFsfromRelatedConcepts

InordertounderstandtheconceptofIFFsbetter,itisimportanttodistinguishitfromcertain

relatedconcepts.

• IFFsandIllicitFinance

Illicitfinancereferstonationalandcross-borderfinancingofillicitactivitiesandincludes

domestictaxevasionandcorruptactivities.36TheconceptofIFFsemanatesfromthewider

conceptofillicitfinancingbutfocusesonlyoncross-borderfinancing.37Chowla&Falcaonote

that“thenegativeimpactofillicitfinanceonacountry’sdomesticresourcemobilisationability

isasdetrimentalasthatofIFFs”.38ThedefinitionofIFFssometimesincludesmoneythat

remainswithinnationalbordersandishiddenfromenforcementagenciesorlaundered

domestically.39ThispaperconsidersonlyIFFsthatcrossinternationalborders.

32 Miyandazi&Ronceray(2018)at9.33 Miyandazi&Ronceray(2018)at9.34 Miyandazi&Ronceray(2018)at9.35 Miyandazi&Ronceray(2018)at9.36 Chowla&Falcao(2016)at2.37 Chowla&Falcao(2016)at2.38 Chowla&Falcao(2016)at2.39 Ritter(2015)at10.


16

• IFFsandCapitalFlight

ResearcherssometimesusecapitalflightandIFFssynonymously.Ithasbeenobservedthat:

Capitalflightmeanscapitalflowsthatarenotrecordedintheofficialrecordsofthetransactionsbetweenacountryandtherestoftheworld.40

ThemainrecordofsuchtransactionsistheBalanceofPayments,whichrecordsthedifference

betweenthecapitalinflowsandthecapitaloutflowsofacountry.41Foreigndirectinvestments

areamajorsourceofcapitalinflowsinAfrica.42Thepurposeofcapitalflightistomovecapital

fromdevelopingcountriestosaferhavensandsecurebetterreturns.43Capitalflightmaybe

legalorillegaldependingonthesourceofthecapitalandthemethodusedtotransferthe

money.AccordingtoReed&Fontana:“Illegalcapitalflightisoftenunrecordedandistypically

proceedsofillegalactivities,namely,illicitflows.”44IFFscoverabroadersetoftransactions

thancapitalflight,includingcriminalproceedsandillicitcommercialactivities.45

• IFFsandMoneyLaundering

MoneylaunderingisasourceofIFFs.TheFinancialActionTaskForce(FATF)definesmoney

launderingastheprocessofdisguisingtheoriginofproceedsofillegalactivitiestomakethem

appearlegal.46Moneylaunderingisawell-foundedlegalconceptsupportedbyseveral

internationalandnationallegalinstruments.MergingmoneylaunderingandIFFsmayleadto

anover-relianceonanti-moneylaunderingmeasures,therebyrestrictingtheuseofanti-IFF

measures.47Anti-moneylaunderingmeasuresarelimitedtoproceedsofillegalactivities

originatingfromaspecificsetofpredicatecriminaloffenceswhichvaryacrosscountries.

Dependingonthejurisdiction,theseoffencesmayexcludecrimessuchascorruptionandtax

evasionwhicharesignificantsourcesofIFFs.

40 Ajayi&Ndikumana(2015)at3.41 Ajayi&Ndikumana(2015)at3.42 Ajayi&Ndikumana(2015)at3.43 Kant(2002)at345.44 Reed&Fontana(2011)at7.45 Ajayi&Ndikumana(2015)at4.46 FATF(2018),availableathttp://www.fatf-gafi.org/faq/moneylaundering/(visited18August2018).47 Reed&Fontana(2011)at8.


17

• IFFsandInformalFlows

Informalflowsarereferredtoalsoasthehawalamoneytransfersystem.Thehawalasystem

involvesthetransferandreceiptoffundsorequivalentvaluesettledthroughtrade,cashand

netsettlementoveralongperiod.48Itoftenislimitedtospecificgeographicregionsorethnic

communities.49

Likecapitalflight,informalflowsmaybeillicitorlicit.Somecountriesconsiderinformal

flowstobelegal.Theysupporttheuseoftheinformalsystemsbecauseofthedifficultiesof

transmittingmoney,thelackofaccesstobanking,thecultureofthecommunity,andthe

locationofthecountryofsourceordestination.50Othercountriesconsidersuchflowsasillegal

andrefertothemonlywithinthecontextofundergroundorcriminalmoneytransferservices.51

Sometimes,thesesystemsmaybeusedalsoforanillicitpurpose,suchastaxevasionor

evadingcurrencycontrols.

2.3 LinkbetweenCorruptionandIFFs

CorruptionandIFFsarebothcomplexglobalphenomenawithnoprecisedefinition.Still,

academicsandglobalinstitutionsreadilyblameglobalunderdevelopmentonthesetwo

phenomena.Thequestion,then,iswhatisthelinkbetweenthem?AccordingtoAyogu&

Gbadebo-Smith,“grandcorruptionliesatthecoreoftheproblemofIFFsfromAfrican

countries”.52CorruptionisasourceofIFFs,itfacilitatesopportunisticcrimesthatleadtoIFFs,it

reinforcesincidentsofIFFsandcorrodesthegoodgovernancestructuresusefulincurtailing

IFFs.Thissectiondetailsaspectsofthisrelationship.

2.3.1 CorruptionasaSourceofCriminalProceeds

Theembezzledproceedsofstatefunds,grandcorruptionandbribesconstitutesomeofthe

illicitfundsthatcriminalstransferillegallyoutofacountry.ThePanamaPapersrevealhow

48 FATFReport(2013)at12.49 FATFReport(2013)at12.50 FATFReport(2013)at1351 FATFReport(2013)at12.52 Ayogu&Gbadebo-Smith(2015)at278.


18

Africaneliteshideproceedsofcorruptionfromauthorities.53Criminalsoftenlaunderthese

illicitproceedstobankaccountsinforeignjurisdictionswithhighlevelsofbankingsecrecy.

Theythenusethemoneyforillegalorlegalpurposesinthecountryoforiginorelsewhere.

TheHLPestimationofcorruption-relatedIFFshasbeenatopicofdebate.Someargue

thatthevolumesoftheseIFFsisfarhigherthantheprojectedfivepercent.Infact,the

responsestothePanel’squestionnairesontheissueshowedthatmostpeoplefeltthat

corruptionwasthemaincauseofIFFsintheircountries.54Thepervasivenessofcorruption

makesitdifficulttoestimatethevolumeofIFFscausedbyit.Forinstance:

pettybribery—aphenomenonwhichplaguesthelivesofmillionsinmanycountries—ismuchlesslikelytoyielddetectableIFFsunlessoneofficialreceiveslargenumbersofsmallbribesthatthenneedtobelaundered.55

However,grandcorruptionyieldsdetectableIFFs.Forinstance,the2004KrollReportintothe

highlevelofcorruptionintheKenyangovernmentallegedthatformerPresidentDanielArap

Moi,togetherwithhisrelativesandcloseassociates,siphonedoffmorethan£1billionofstate

resourcesintoforeignbanksandacquisitions.56Iftrue,thiswouldplaceMoionaparwithother

Africankleptocrats,suchasformerPresidentMobutoSeseSekoofZaireandformerPresident

GeneralSaniAbachaofNigeria.57

2.3.2 CorruptionasanEnablerofAbusiveCommercialPractices

Thepotentialforevadingtaxandhidingillicitfundssecurelyintaxhavensisamajorincentive

forabusivecommercialactivitiessuchastransfermispricingandtrademisinvoicing.Corruption

lowersthechancesofdetectionandconsequentlyincreasestheprospectivereturns.

Corruptionisevidentinauthoritiesthataretaskedwiththecollectionoftaxrevenue.Often,

suchtaxauthoritiesare“weakandcharacterisedbyextensiveevasion,corruptionand

53 InternationalConsortiumofInvestigativeJournalists(ICIJ)(2017),availableat

https://www.icij.org/investigations/panama-papers/(visited20August2018).54 HLP(2015)at32.55 Reed&Fontana(2011)at20.56 Rice(2007),availableathttps://www.theguardian.com/world/2007/aug/31/kenya.topstories3(visited12

September2018).57 Rice(2007),availableathttps://www.theguardian.com/world/2007/aug/31/kenya.topstories3(visited12

September2018).


19

coercion”.58Corruptbusinessescanbribeataxofficialtomakea“favourable”interpretationof

taxregulationsthatlowerstheirtaxliabilityortoignoreanobviousincidentoftaxevasion.59

Corruptactsintaxagenciesalsomayinvolve:

chargingforfreeservices,divertingcash,makingfalserepaymentclaims;losingfiles;andreceivingpaymentstocompletetaxreturnsorbribestofavourablysettleaudits.60

KenyaRevenueAuthorityofficialsareamongstthetopbribe-takingofficialsinKenya.61The

InternationalMonetaryFund(IMF)notesthat:

corruptionaffectstaxationbyweakeningthestate’scapacitytotax,leadingtolowerrevenuecollections;creatingdisincentivesfortaxpayerstopaytaxes;reducingtheimpetusforthestatetocollecttaxes;andunderminingspendingprogrammes.62

However,corruptionisprevalentnotjustamongsttaxauthorities.Onecanfindittooamongst

intermediaries(alsoreferredtoasenablers,gatekeepersorfacilitators)oftheglobalfinancial

system.Intermediariesarea:

heterogeneousnetworkofprofessionalsthatfloutanduseloopholesinbothnationalandinternationallawstogenerateanddrivethecross-borderoutflowofillicitfinance.63

Theyarekeyvectorsofcorruptpractices.Corruptlawyers,forinstance,mayassistMNCsto

evadetaxandlaunderthecriminalproceeds.

2.3.3 CorruptionasanEnablerofTransnationalCriminalActivities

Corruptionisanintegralpartoftransnationalorganisedcrime.Itgivesrisetointernational

criminalnetworksthatrelyonboughtprotection,informationandinfluencetoruntheir

criminalactivities.Briberyremainsthemostcommonformofcorruptionrelatingto

58 Brautigam(2008)at1.59 Reed&Fontana(2011)at19.60 Tjen&Evans(2017)at246.61 BusinessToday(11December2015),availableathttps://businesstoday.co.ke/kra-and-judiciary-staff-top-

bribe-taking-list/(visited8September2018).62 IMF(2016),availableat

https://www.imf.org/external/error.htm?URL=http://www.imf.org/en/Publications/Staff-Discussion-%20%20Notes/Issues/2016/12/31/Corruption-Costs-and-Mitigating-Strategies-43888(visited8September2018).

63 Rai(2017)at4.


20

transnationalcrimes.64Criminalnetworksrelyonbribestoruntheircriminalactivitiesand

engageinillicitbusinesswithoutinterruptionfromlawenforcement.Policeofficersaccept

bribestointimidatelegitimatebusinessownerscompetingwiththecriminals.Labouror

immigrationofficialswillinglyacceptmoneytofeignignoranceandallowhumantraffickingand

smuggling.Criminalsbribejudgestoprotectthemfromprosecution.Theymaybribeprivate

citizensalso.Forinstance,theownerofatransportbusinessmayreceiveabribetotransport

traffickedpersonsorgoodswithoutreportingittotheauthorities.

Criminalgangsalsouseextortionandprotectionracketstointimidatelegitimate

businessowners.Protectionracketsinvolve:

circumstanceswhereavictimpaysmoneyunderduressinexchangeforavoidingdamagetoabusiness,constructionsite,orharmtoemployeesandcustomers.65

Corruptionisoneoftheunderlyingconditionsfortheexistenceofprotectionrackets,since

controlbylawenforcementauthoritiesisinefficient.

Insomeextremesituations,corruptionmayentailstatecapture.Thisisaformofgrand

corruptionwhichhasbeendefinedas:

thecorrupteffortsoffirmstoshapethelaws,policies,andregulationsofthestatetotheirownadvantagebyprovidingillicitprivategainstopublicofficials.66

However,statecaptureneednotinvolvefirmsandcaninvolveindividualsorcriminalnetworks

instead.AnexampleistheGuptafamilycontroloverSouthAfricanpoliticiansandgovernment-

ownedcompanies.67Criminalscanengageincorruptacts,suchasbribingofparliamentarians

tovoteonlawsthatfavourthem,bribingofgovernmentofficialstoenactfavourable

regulationsandbribingofjudgestoinfluencecourtdecisions.68Theseactsaimatcreatinga

favourableenvironmentfortheircriminalactivities,tothedetrimentofthegeneralwelfare.

64 Article8ofUNCTOC.65 E4JUniversityModuleSeries:OrganizedCrime(2018),availableat

https://www.unodc.org/e4j/en/organized-crime/module-4/key-issues/extortion-racketeering.html(visited20August2018).

66 Hellman&Kaufmann(2001),availableathttps://www.imf.org/external/pubs/ft/fandd/2001/09/hellman.htm(visited20August2018).

67 GUPTA-leaks.com(2018),availableathttp://www.gupta-leaks.com/(visited20August2018).68 Hellman&Kaufmann(2001),availableat

https://www.imf.org/external/pubs/ft/fandd/2001/09/hellman.htm(visited20August2018).


21

Moneyisthedrivingforcebehindorganisedcrime.Theglobalisationoffinancial

systemshascausedanincreaseininternationalcorruptionandmoneylaundering.Corruption

andmoneylaunderinghaveasymbioticrelationship.69Corruptioncontributesnotonlyto

enormousprofitsthatarelaunderedbutalsoisacatalystformoneylaundering.70Corruption

canrenderanti-moneylaunderingsystemsdysfunctionalbypreventingtheadoptionof

effectiveanti-moneylaunderingmeasuresandoverwhelmingthesystemwithalargevolumeof

cases.71

CorruptionisakeycatalystfortransnationalcrimesinKenya.The2017USState

DepartmentTraffickinginPersonsReportrecordsthatcorruptionisrampantatalllevelsofthe

Kenyangovernment.Thishasenabledtraffickerseasilytoobtainfraudulentidentitydocuments

fromcomplicitgovernmentofficials.72TheReportstatesitisunclearhowmanycorruptlaw

enforcementofficialshavebeenprosecutedorconvictedforbeingcomplicitinhuman

trafficking.73Thereasonforthislackofstatisticsmaylieinalackofproperrecordkeeping.

However,itisplausiblealsothatthecorruptgovernmentofficialsbribedthemselvesoutof

beingprosecutedorconvicted.

CorruptionhasfuelledtraffickinginwildlifeproductsinKenya.DrRichardLeakey,

chairmanoftheKenyaWildlifeService(KWS),hassaid:

Thecorruptionisn’tjustinwildlifemanagement,butattheports,atlawenforcementagencies,it’swiththecustoms,partsofthejudiciary,it’scertainlypresentatmanylevelsinthepoliceforce,it’scertainlyveryrealandstillistoacertainextentintheKWS.Governmentadministrationisinplaces,particularlyinthecountryside,compromised.74

CorruptpoliticiansandcriminalsyndicatesrunorganisedcartelsinKenya.Althoughthereis

insufficientevidencetopointtotheextentofthepowerofthesecartels,itispossiblethatthey

69 Chaikin&Sharman(2009)at1.70 Goredema(2011)at4.71 EasternandSouthernAfricaAnti-MoneyLaunderingGroup(ESAAMLG)(2009),availableat

http://www.esaamlg.org/userfiles/Corruption_and_AML_Systems.pdf(visited28August2018).72 USDepartmentofState(2017)at233.73 USDepartmentofState(2017)at233.74 Vaughan(2016),availableathttps://www.theguardian.com/environment/2016/may/30/kenya-poaching-

elephant-ivory-rhino-horn-future-communities(visited24August2018).


22

havesubstantialinfluenceinparliamentaryprocesses.75FormerChiefJusticeofKenya,Willy

Mutunga,admittedthatthelegalsystemwasill-equippedtodealwiththeoverwhelming

influenceofthecriminalsyndicates,statingthatthecriminalswouldbebroughtinto“acorrupt

investigatingsystem,throughacorruptanti-corruptionsystem,andacorruptjudiciary”.76

Alltheseformsofcorruptionweakentheefficiencyoflawenforcementagenciesand

thejudiciary.Theinfluenceandpowerofcriminalgangsmayoverwhelmpoliceincountries

withweaklawenforcementagencies.Thisreducesthechancesofcriminalsbeingcaughtand

encouragesmorecorruption.

2.3.4 CorruptionasanImpedimenttoGoodGovernanceandAnti-IFFMeasures

Goodgovernancereferstopoliticalandinstitutionalprocessesaimedatachievingdevelopment

goals.Theseprocessesembracerespectfortheruleoflaw,transparencyandaccountability,

andefficiencyandeffectivenessofthepublicsector.77“Grandcorruptionisatthecoreofthe

nexusofgovernanceandIFFs.”78AccordingtoAyogu&Gbadebo-Smith,corruptionand

governanceareembroiledintwoincompatiblecycles,thevirtuouscycleandtheviciouscycle.

Intheformer,goodgovernancecurbscorruption.Inthelatter,corruptioncorrodesgovernance

becausepoorgovernanceenablescorruption.79Itistheviciouscyclethatlinkscorruption,

governanceandIFFs.

ThepresenceofIFFsinaneconomyindicatespoorgovernance.Poorgovernance

enablescorruptionandopportunisticcrimeswhicharesourcesofIFFs.Corruptionisa

profitablebusiness.Businesspeoplefinditeasiertomakemoneythroughillicitactivitiesthan

throughlegitimatebusiness.80Curbingcorruption,therefore,meansinterferingwithalucrative

sourceofincomeforcorruptelites.Corruptleadershavenopoliticalwilltostopcorruptionor

theIFFscausedandfacilitatedbyit.They,therefore,hindertheenforcementoftheruleoflaw

andfrustrateanti-IFFmeasures. 75 Gastrow(2011)at9.76 Lindijer(2016),availableathttps://www.theguardian.com/world/2016/jan/13/kenya-is-run-by-mafia-

style-cartels-says-chief-justice(visited24August2018).77 HLP(2015)at51.78 Ayogu&Gbadebo-Smith(2015)at278.79 Ayogu&Gbadebo-Smith(2015)at296.80 HLP(2015)at41.


23

2.4 EffectsofCorruptionandIFFs

IFFshavereceivedconsiderableglobalattentionbecauseoftheiradverseimpacton

developmentobjectives.IFFshindertheachievementoftheUN’sSustainableDevelopment

Goals(SDGs).Theyimpedethedomesticresourcemobilisationeffortsofdevelopingcountries,

whichreducesthefinancialresourcesavailableforsocio-economicdevelopment.Thisobstructs

theeffortsoftheglobalcommunitytoachieveSDGTarget17,whichcallsfordomesticresource

mobilisation.81Thetransferoffundsfromdevelopingcountriestodevelopedcountriesalso

aggravatesinequalitiesbetweencountries,impedingtheachievementofSDGTarget10,which

seekstoreduceinequalitieswithinandamongcountries.82

“ThecostsofIFFsarenotjusttheplunderedmonieslosttoforeignjurisdictions,butalso

includenegativeimpactsongovernance.”83Poorgovernanceincreasestheincidenceof

corruption.ThediscussionsinthischapterhaveestablishedthatcountriescannotreduceIFFs

unlesstheyalsoconfrontcorruption.Thus,theSDGs,IFFsandcorruptionareinextricably

linked.WecannotendeavourtoachievetheSDGswithoutaddressingIFFsandthecorruption

thatfacilitatestheseflows.Africancountriesmustresolvetoworktogethersignificantlyto

promotegoodgovernance,transparencyandaccountabilityonthecontinentandtocurtail

IFFs.

RampantcorruptionandpowerfultransnationalcriminalgangsinKenyaareeroding

stateinstitutionsandpublicconfidenceinthem.Ownersoflegitimatebusinessesare

apprehensiveaboutinvestinginacountrythatisriddenwithcorruptgovernmentsandcriminal

gangs.

Asaresult,developmentisbeinghampered,governanceundermined,publictrustininstitutionsdestroyed,andinternationalconfidenceinKenya’sfutureisconstantlytested.84

81 SDG(2015),availableathttps://www.un.org/sustainabledevelopment/sustainable-development-goals/

(visited20September2018).82 Muchhala(2018),availableat

https://www.ohchr.org/Documents/Issues/Development/Session19/A_HRC_WG.2_19_CRP_3.docx(visited20September2018).

83 Ayogu&Gbadebo-Smith(2015)at289.84 Gastrow(2011)at2.


24

GFIestimatesthatintheperiod2002-2006,KenyalostapproximatelyKsh68.8billiontoIFFs.85

Presumably,theGFIestimateshaveincreasedsignificantlyinthepastdecadeandthecountryis

losingevenmoremoneytoIFFs.ThebillionsofshillingslosttoIFFscouldhavehelpedto

achievethedevelopmentagendaofthecountry.Toputitintoperspective,inthe2018-2019

budget,KenyaplanstospendKsh44.6billiononthehealthsector,Ksh20.25billiononfood

securityandKsh6.5billiononaffordablehousing.86ThismeansthelostKsh68.8billioncould

havehelpedKenyabetterequipitshospitals,feeditscitizensandpartlyfunddecenthousing

forall.

IFFsandcorruptionarenotonlyadevelopmentandgovernanceconcernbutarealsoa

humanrightsissue.IFFsdeprivecountriesofdevelopmentresourcesneededtoimplement

theirhumanrightsobligationsandtoestablishandstrengtheninstitutionsthatupholdhuman

rights.87“TherighttodevelopmentmakesthepreventionandregulationofIFFsahumanrights

imperative.”88IFFsalsounderminetheruleoflaw.Theexistenceofillicitfundsintheeconomy

encouragestransnationalcriminalactivitiesintheprivateandpublicsectors.Thelucrativeness

ofIFFslowerstheincentiveforcorruptpoliticalleaderstostrengthenrevenueauthorities,law

enforcementagencies,thejudiciaryandpublicfinancialmanagement.

2.5 Conclusion

ProperdefinitioniskeytounderstandingIFFs,theireffectsondevelopmentand,ultimately,the

mostappropriatemeasuresforcurbingthem.Despitethelackofanagreeddefinition,IFFsare

emergingasanimportantandvaluableconceptthatbringstogetherpreviouslydisconnected

issues.Now,countriesneedtofocusondevelopingeffectiveanti-IFFmeasures.However,in

orderadequatelytoaddresstheimpedimentsofIFFs,countriesneedtoappreciatetheunique

correlationbetweentheseflowsandcorruption.Thediscussioninthischapterhasshownthat

corruptionplaysanintegralroleintheproliferationandpersistenceofIFFsfromKenya.

85 Kar&Cartwright-Smith(2008)at67.86 TheNationalTreasury(2018),availableathttp://www.treasury.go.ke/budget-statement-2018-19.html

(visited20September2018).87 InternationalBarAssociation(2013)at2.88 Muchhala(2018),availableat

https://www.ohchr.org/Documents/Issues/Development/Session19/A_HRC_WG.2_19_CRP_3.docx(visited20September2018).


25

Corruptionisnotonlyasourceoftheillegalproceedsthataretransferredacrossinternational

bordersbutalsoanenableroftheotherillicitactivitiesthatcauseIFFs.Whatismore,it

hampersgoodgovernancemechanismsthatplayavitalroleinensuringtheefficiencyand

effectivenessofanti-IFFmeasures.


26

CHAPTERTHREE

USINGANTI-CORRUPTIONLAWSANDINSTITUTIONSAGAINSTILLICITFINANCIALFLOWS

3.1 Introduction

ChapterTwodiscussedtherelationshipbetweencorruptionandIFFs.Thischapterbroadens

thatdiscussionandconsidershowanti-corruptionlawsandinstitutionsmaybeusedtocounter

IFFs.Thefirstsectionofthischaptercontainsadiscussionofthedifferentroleswhichanti-

corruptionlawsandinstitutionscanplayincurbingIFFs.Theroleoftheselawsandinstitutions

isnotlimitedtoimposingcriminalsanctionsagainstcorruptindividualsbutalsoencompasses

preventivemeasureswhichpromotetransparency,accountabilityandgoodgovernance.The

firstsectionalsoconsidershowanti-corruptionlawscancurbtheabusivecommercialpractices

andcriminalactivitiesthatcauseIFFs.Thenexttwosectionsofthechapterdiscussspecificanti-

corruptionlaws(andinstitutions)which,ifeffectivelyimplemented,willreduceconsiderably

theprevalenceofIFFsinKenya.Theselawsincludebothnationalandinternationallawsthat

Kenyahasadopted.

3.2 Anti-CorruptionLawsandInstitutionsasKeyAnti-IFFTools

“Corruptionisacross-cuttingandintegralpartofIFFsbecauseofitsfacilitatingrole.”1Global,

regionalandnationalanti-corruptioneffortsthereforecanplayasignificantroleinreducing

IFFs.Anti-corruptionlawsandinstitutionslegitimiseanti-corruptionefforts.Theyprovidea

frameworkforgoodgovernance,whichisanimportantprerequisiteforreducingIFFs.Good

governanceencouragesadministrativeandfinancialaccountabilityintheprivateandpublic

sectors,enhancestransparencyintaxationandcustomsystems,createsasecureenvironment

forfilingcomplaintsagainstcorruptindividuals,andpromotesafairandjustjudiciary.

Thequestion,however,ispreciselyhowanti-corruptionlawsandbodiesprovidealegal

basisfortacklingIFFs?ThereisnointernationalornationallawonIFFs.Instead,governments

relyonlawswhichseektopreventthespecificsourcesofIFFs.Theseincludeanti-corruption

laws,taxlawsandlawsagainsttransnationalcrimes.Thispaperfocusesonanti-corruption 1 HLP(2015)at69.


27

laws,specifically,UNCAC,theAUConventionandKenyananti-corruptionlaws.Itassesses

specificprovisionsusefulinpreventingIFFs,curbingtheirrecurrenceandrepatriatingassets

lostthroughIFFs.

Preventionisacrucialanti-corruptiontoolwhichoffersproactivesolutionsandisa

crucialfirststepinreducingIFFs.Anti-corruptionlawsandinstitutionsplayaroleinpreventing

IFFs.Preventivemeasuresensurethatthegraveeffectsofcorruptionarereducedand,insome

instances,eliminated.Preventivemeasures,suchasawarenessraisingandeducatinglaw

enforcementofficersandthepublicontheeffectsofcorruption,alsomayplayasignificantrole

inencouraginggoodbehaviourthatreducestheoccurrenceofcorruptactivitywhichfacilitates

IFFs.Preventionalsostrengthenstheregulatoryabilityoflawenforcementandanti-corruption

agenciestoimplementproactivelylawsthatmitigatetheincidenceofIFFs.Unfortunately,most

anti-corruptionlawsfocusoncombatingcorruptionexpostfactoinsteadofpreventingit.The

AUConventionhasnospecificprovisionsonpreventionofcorruption,despitetheword

“prevention”beingincludedinitstitle.Similarly,thepreambletoKenya’sAnti-Corruptionand

EconomicsCrimeAct(ACECA)expresslystatesthattheActensuresthepreventionof

corruptionandotherrelatedoffences.2However,therearenoexpresspreventivemeasuresin

theAct.UNCACisthefirstanti-corruptionlawtodedicateanentirechaptertopreventionasan

anti-corruptionmeasure.3Thechapterprovidesfundamentalstepsintheachievementofthe

objectivesofUNCAC.4

PreventionofcorruptionalonecannotcurbthepervasivenessofIFFs.Anti-corruption

lawsplayanimportantpartincriminalisingcorruptionanditsroleinfacilitatingIFFs.

Criminalisationensuresthatcorruptindividualsarepunishedanditdetersthemandthe

generalsocietyfromcommittingcorruptionoffences.Moreover,criminalprosecutionofhigh-

levelindividualsoncorruptionchargesincreasesthetrustofordinarypeopleinthecriminal

justicesystemand,consequently,theirsupportincurbingcorruption.5Criminalisingboththe

demandandsupplysideofcorruptionisofimportancetoanti-IFFmeasures.Theprivatesector

2 PreambletoACECA.3 Chapter2ofUNCAC.4 UNODC(2006)at15.5 Sandgren(2005)at728.


28

isresponsibleprimarilyforthesupplysideofcorruption.Thisformofcorruptionisresponsible

fortheIFFsrelatedtoabusivecommercialpractices.TheHLPReportnotesthatlarge

companiesengageinabusivecommercialpractices,suchasabusivetransferpricing,trade

misinvoicinganduseofunequalcontracts.6Theprivatesectorthereforelargelyisresponsible

forthe65percentoftheIFFsfromAfricaoccurringthroughabusivecommercialpractices.7

Anti-corruptionlawsprovidealegalframeworkfortracing,freezingandrepatriating

moneylostthroughIFFs.AssetrecoveryiscrucialforcurbingIFFsfromKenya.Firstly,it

potentiallycanmakeavailableadditionalresourcestothegovernmenttorunitsprogrammes,

includingongoinganti-IFFmeasures.8Secondly,assetrecoveryprogrammescandeterfuture

corruptionbysendingthemessagethatcorruptmoneycannotbehidden.9Thiscanreduce

directlythescaleofcorruption-relatedIFFs.10Lastly,assetrecoveryprovidesameasureof

justiceforvictims.11UNCACisthefirstinstrumenttomakeprovisionforinternationalasset

recovery.12

Anti-corruptionlawsalsosupplythelegalbasisforestablishinginstitutionsvitalto

implementinglawsthatwillhelpreduceIFFs.Inaddition,anti-corruptionlawsestablishthe

standardsnecessaryfortheeffectiveoperationoftheseinstitutions,suchasindependenceand

adequateresourcing.

Thescopeofanti-corruptionlawsisnotlimitedtocorruption-relatedIFFs.Anti-

corruptionlawsconstituteanextensivelegalframeworkforcurbingthecorruptionthat

facilitatescommercialandcriminal-relatedIFFs.Forinstance,Gallaghernotesthat:

theprovisionsofUNCACalsoapplytothevariousformsoftrafficking-relatedcorruptionandaremoredetailedthanthoseoftheUNCTOC.13

6 HLP(2015)at37.7 HLP(2015)at24.8 Vlasic&Cooper(2011)at99.9 Vlasic&Cooper(2011)at99.10 FederalDepartmentofForeignAffairs(FDFA)(2015),availableat

https://www.eda.admin.ch/dam/mission-newyork/en/documents/150414_Swiss%20Working%20Paper%20AR_17%20March%202015.pdf(visited10October2018).

11 Vlasic&Cooper(2011)at99.12 ChapterVofUNCAC.13 Gallagher(2010)at446.


29

Insomecases,anti-corruptionlawshaveexpressprovisionsonothersourcesofIFFs.Articles14

and21ofUNCAC,forexample,arededicatedtopreventingmoneylaundering,whichisakey

driverofIFFs.

3.3 InternationalandRegionalAnti-CorruptionLawsandInstitutions

3.3.1 UnitedNationsConventionagainstCorruption(UNCAC)

Animpressive186countries,includingKenya,haveadoptedUNCAC.14Thissignifiestheglobal

acceptanceoftheinstrumentandtheanti-corruptionprincipleswhichitpromotes.UNCACalso

servesasanimportantinternationalinstrumenttodealwiththecorruptioncomponentofIFFs.

ChapterIIofUNCACprovidesanimportantbasisforcurtailingIFFsthroughitsdetailed

preventivemechanisms.PreventionisakeyfactorincurbingIFFs.UNCACcontainsprevention

measureswhichthepublicandprivatesectorscanadopttostopcorruption.Articles7-11of

UNCACfocusonpreventingpublicsectorcorruptionandcanhaveadirectimpacton

preventingIFFs.UNCACimposesmandatoryobligationsonStatesParties,likeKenya,to

implementpreventiveprovisionsintheareasofpublicprocurement,publicfinances,

accountingpractices,publicadministrationandjudicialcorruption.Theseareasallfocuson

publicmoneyandmaybepronetocorruption-relatedIFFs.Forinstance,lackoftransparencyin

governmentprocurementandsupplychainscanleadtocorruption-relatedIFFs.15Judicial

corruptionundermineseffortstocurbIFFsandisoneissuewithwhichKenyaisgrappling.16The

measuresimposedbyUNCACtopreventjudicialcorruptionplayanimportantroleinenhancing

thecountry’seffortstocurbIFFs.

Article12ofUNCACisanimportantprovisionincurbingIFFswithintheprivatesector.A

significantpartoftheprivatesectorinAfricacomprisesmultinationalcorporations,

internationalbanksandinternationallegalandaccountingfirms.17TheHLPReportfoundthat

multinationalcorporationsengageinIFFsthroughabusivetransferpricing,trademisinvoicing, 14 UNODC(2019),availableathttps://www.unodc.org/unodc/en/corruption/ratification-status.html(visited

18January2019).15 HLP(2015)at83.16 Kiplagat(2019),availableathttps://www.nation.co.ke/news/Judiciary-accused-of-derailing-anti-graft-

war/1056-4917948-15jv0riz/index.html(visited18January2019).17 HLP(2015)at36.


30

misinvoicingofservicesandintangibles,andtheuseofunequalcontracts.18Agoodexamplein

KenyaisKaruturiLimited,whichtheKenyaRevenueAuthorityfoundculpableoftransfer

mispricing.19Article12detailsarangeofpreventivemeasuresthatKenyashouldimplementto

preventprivatesectorcorruption.Thesemeasuresincludeenhancingaccountingandauditing

standardsandprohibitingthetaxdeductibilityofbribes.

Articles15-25ofUNCACcriminalisecorruptacts.Criminalisationofcorruptionisan

importantapproachthatKenyashouldimplementtocurbthecorruptioncomponentofIFFs.

Article21isasignificantprovisioninrelationtoprivatesectorcorruption.ItencouragesStates

Partiestocriminalisebothactiveandpassivecorruptionintheprivatesector.UNCACisnot

limitedtocorruption-relatedIFFs.Article23criminalisesmoneylaundering,whichfallsunder

thecriminalcomponentofIFFs.Corruptionandmoneylaunderingoftencoexistandreinforce

eachother.

Corruptionenablesmoneylaunderingthroughbribespaidtogovernmentagencies,suchasfinancialintelligenceunits,thatcollectandanalysesuspicioustransactionreports,ortoprivateindividualsandenterprises,whomustfilesuchreports.20

Conversely,moneylaunderingprovidesameansthroughwhichcriminalsconcealandenjoy

criminalproceedswithoutrevealingthecorruptsourcesofthefunds.21

UNCACisdesignednotonlytopreventcorruptionandholdcorruptindividualsliablebut

alsotoencourageinternationalco-operationinthefightagainstcorruption.ChapterIVof

UNCAChasdetailedprovisionsoninternationalco-operation.Article43(1)providesthat:

StatesPartiesshallco-operateincriminalmattersinaccordancewitharticles44to50ofthisConvention.Whereappropriateandconsistentwiththeirdomesticlegalsystem,StatesPartiesshallconsiderassistingeachotherininvestigationsofandproceedingsincivilandadministrativemattersrelatingtocorruption.

Article43showsthatinternationalco-operationrelatestobothcriminalandcivilmatters.

However,StatesPartiesareobligatedonlytoco-operateincriminalmattersandneedto

considerco-operatingincivilandadministrativematters.InordertocurbIFFsinKenya,thereis

18 HLP(2015)at37.19 InternationalTradeCentre(2014),availableathttp://www.intracen.org/itc/blog/market-insider/Tax-

authorities-investigate-flower-farms-in-Kenya/(visited20May2018).20 Chaikin(2008)at274.21 Chaikin(2008)at274.


31

aneedforinternationalinformationexchangethatrevealsillicitKenyanwealthheldoffshore,

andreportsonwhatprofitsmultinationalcorporationsmakeinKenyafortaxationbythe

Kenyanrevenueauthorities.22TheUNCACprovisionsoninternationalco-operationprovidea

basisforStatesPartiestoco-operateandfacilitatethesecureandrapidexchangeofthiskindof

information.23

ChapterVofUNCACprovidesforassetrecovery.AssetrecoveryiskeytocurbingIFFs.It

ensuresthatwesternpowersreturnstolenassetstotheircountriesoforigin.Durihasnoted

that:

WesternpowershavebeencomplicitinthefightagainstcorruptionandIFFsfromAfricaastheirsecrecyjurisdictionshaveallowedcriminalproceedstobelaunderedintheirfinancialsystemwithimpunity.24

TheHLPReportnotesthatassetrecoveryprovidesresourcesthatdevelopAfricancountries

whilealsoservingasadeterrentforthosewhostashillicitgainsabroad.25However,evenwith

theUNCACframework,assetrecoveryremainsacomplexprocess.Internationalco-operation

playsanimportantroleinfacilitatingthisprocess.“Efficientinternationalco-operationand

rapidexchangeofinformationbetweencountriesisneededforsuccessfulrecoveryofstolen

assets.”26

TheKenya—Jerseyextraditionandassetrecoverycasestudyisagoodexampleofthe

importanceChaptersIVandVofUNCACaslegaltoolswhichKenyacanusetocurbIFFs.Inthis

case,theformermanagingdirectoroftheKenyaPowerandLightingCompany(KPLC),Mr

SamuelGichuru,andtheformerMinisterofEnergy,MrChrisOkemo,facedcorruptionand

moneylaunderingchargesinJersey.Thetwoallegedlyhadusedaproxycompany,Windward

TradingLimited,tosquanderpublicfundsworthmillionsofKenyashillings.27Accordingto

JerseyCourtpapers,MrGichuru,usinghispositionasmanagingdirectorofKPLC,allegedly

22 Fröberg&Waris(2011)at53.23 Article48ofUNCAC.24 Duri(2018)at343.25 HLP(2015)at46.26 Duri(2018)at343.27 ChrysanthusBarnabusOkemo&anothervAttorneyGeneral&3others(2018)atpara3.


32

acceptedbribesfromforeignbusinesseswhichcontractedwiththecompany.28Thesebribes

werepaidintoanaccountinJerseyandthenintoanaccountinthenameofWindwardTrading

Limited.29MrOkemoallegedlyreceivedkickbacksfromWindwardTradingLimitedintheyears

between1999and2001.30

InaccordancewithArticle44ofUNCAC,JerseyauthoritiesissuedarequesttoKenyato

extraditethetwosuspects.31However,theCourtofAppealofKenyahashaltedtheextradition

request,althoughtheHighCourtofKenyahadvalidatedit.32Thematterisnowbeforethe

SupremeCourtofKenyaawaitingdetermination.33Inthemeantime,thecurrentDirectorof

PublicProsecutionsinKenya,MrNoordinHaji,willtraveltotheIslandofJerseytodiscusswith

hiscounterpartshowtoremovetheextantlegalimpedimentstotheextraditionprocess.34

On24February2016,WindwardTradingLimitedpleadedguiltytofourcountsofmoney

laundering.35InhisrulinggrantingtheconfiscationorderssoughtbytheAttorneyGeneralof

Jersey,JudgeJulianClyde-Smithsaid:

Thedefendantcompanyreceivedandheldtheproceedsofcriminalconductperpetratedbyitscontrollingmindandbeneficialowner,SamuelGichuru.ThecompanyknowinglyenabledGichurutoobtainsubstantialbribespaidtohimwhileheheldpublicofficeinKenya.Thecompanyplayedavitalrolewithoutwhichcorruptiononagrandscaleisimpossible:moneylaundering.36

KenyaandJerseysubsequentlyagreedtothereturnofstolenassetsfromJerseytoKenya.On

11December2018,thegovernmentsofKenyaandJerseysignedanagreement,titledthe

FrameworkforReturnofAssetsfromCorruptionandCrime(FRACCK).37Thiswasasignificant

28 BarclaysWealthDirectors(Jersey)LimitedandBarclaysWealthCorporateOfficers(Jersey)Limited

RepresentorsvHerMajesty’sAttorneyGeneral(2015)atpara5.29 BarclaysWealthDirectors(Jersey)LimitedandBarclaysWealthCorporateOfficers(Jersey)Limited

RepresentorsvHerMajesty’sAttorneyGeneral(2015)atpara5.30 ChrysanthusBarnabusOkemo&anothervAttorneyGeneral&3others(2018)atpara3.31 UNODC(2015)at151.32 ChrysanthusBarnabusOkemo&anothervAttorneyGeneral&3others(2018)atpara54.33 Muraya(2019),availableathttps://www.capitalfm.co.ke/news/2019/03/dpp-headed-to-jersey-in-pursuit-

of-justice-in-okemo-gichuru-case/(visited7April2019).34 Muraya(2019),availableathttps://www.capitalfm.co.ke/news/2019/03/dpp-headed-to-jersey-in-pursuit-

of-justice-in-okemo-gichuru-case/(visited7April2019).35 TheAttorneyGeneralvWindwardTradingLimited(2016)atpara1.36 TheAttorneyGeneralvWindwardTradingLimited(2016)atpara1.37 Agutu(2018),availableatavailableathttps://www.the-star.co.ke/news/2018-12-11-kenya-jersey-sign-

pact-to-return-sh516m-graft-proceeds/(visited31March2019).


33

achievementforKenya.ItservedasanexampleofhowKenyamayuselegaltoolsasrestitution

mechanismsforIFFsandproceedsofcorruption.

3.3.2 AfricanUnionConventiononPreventingandCombatingCorruption(AUConvention)

KenyabecameaStatePartytotheAUConventionon17December2003.38TheAUConvention

playsanimportantroleincurbingIFFsfromKenya.Tobeginwith,theConventiondefines

corruptionbygivingexamplesofcorruptactsandpractices.39Thisostensivedefinitionallows

forthecriminalisationofspecificcorruptactssuchasbribery,illicitenrichment,embezzlement

ofpublicfundsandlaunderingofproceedsofcorruption.Asdiscussedin§3.2above,

criminalisingcorruptioncurtailsthecorruptioncomponentofIFFs.

TheAUConventionalsosetsoutspecificmeasureswhichStatesParties,likeKenya,

shouldtaketocurbcorruption.Forinstance,theConventionrequiresStatesPartiestoestablish

andstrengthenindependentanti-corruptionagencies.40Kenyahasmetthisobligationby

establishingtheEthicsandAnti-CorruptionCommission.Article5(4)oftheAUConvention

requiresStatesPartiestoadoptmeasurestocreateandstrengtheninternalaccounting,

auditingandfollow-upsystems,particularlyregardingpublicfinancesandprocurement

processes.TheAUConventionalsorequiresStatesPartiestoimplementmeasuresthatprotect

whistleblowersandwitnessesofcorruption.41Thesemeasuresareimportantincurbingthe

corruptioncomponentofIFFs.Establishinganti-corruptionagencies,forinstance,setsupthe

institutionalframeworkneededtocurbcorruption.Protectingwhistleblowersandwitnesses

encouragescitizenstoreportincidentsofcorruption.

Article11oftheAUConventionseekstopreventandcombatactsofcorruptionand

relatedoffencesintheprivatesector,andisparticularlyimportantincurbingIFFsfromKenya.

Thus,Article11(2)requiresStatesPartiestoestablishmechanismswhichencouragetheprivate

sectortoparticipateinthefightagainstunfaircompetitionandtorespecttenderprocedures

andpropertyrights.AndArticle11(3)requiresStatesPartiestoadoptmeasureswhichprevent 38 AfricanUnion(2019),availableathttps://au.int/sites/default/files/treaties/7786-sl african_union_convention_on_preventing_and_combating_corruption.pdf(visited12December2018).39 Article1andArticle4oftheAUConvention.40 Article5(3)oftheAUConvention.41 Article5(5)-(6)oftheAUConvention.


34

companiesfrompayingbribesinordertowintenders.

Article12highlightstheimportanceofinvolvingcivilsocietyandthemediainthefight

againstcorruption.Thiscreatesanenablingenvironmenttoholdgovernmentstothehighest

levelsoftransparencyandaccountabilityinthemanagementofpublicaffairs.LikeUNCAC,the

AUConventionhasspecificarticlesonassetrecoveryandinternationalco-operation.42

3.3.3 AfricanUnionAdvisoryBoardonCorruption

Article22oftheAUConventionestablishestheAfricanUnionAdvisoryBoardonCorruption

(AUBoard).TheAUConventionfurtherstipulatesthefunctionsoftheAUBoard,whichareto

promotetheadoptionofanti-corruptionmeasuresinAfrica,toadvisegovernmentsonhowto

dealwithcorruptionandrelatedoffencesintheirdomesticjurisdictions,andtobuild

partnershipswithrelevantstakeholderstofacilitatedialogueinthefightagainstcorruptionand

relatedoffences.43

TheAUConventiondoesnotmentionwhatroletheAUBoardshouldplayincurbing

IFFs.However,theAUBoardcaninterprettheAUConventioninnovatively.Forinstance,in

interpretingArticle22(5)(b)&(c),theAUBoardcancollectanddocumentinformationonthe

extenttowhichcorruptionhasenabledtheprevalenceofIFFsinAfricaanddevelop

methodologiesforcurbingcorruption.Infact,theHLPReportrecommendsthattheAUshould

amendArticle22oftheAUConventiontoallowitto:“Developmethodologiesforanalysingthe

natureandextentofillicitfinancialflowsfromAfrica,anddisseminateinformationand

sensitisethepubliconthenegativeeffectsofillicitfinancialflowsfromAfrica.”44

Article22(5)(e)isalsoimportanttotheAUBoardasregardsthecurbingofIFFs.It

providesthatonefunctionoftheAUBoardistocollectinformationandanalysetheconduct

andbehaviourofmultinationalcorporationsoperatinginAfricaandtodisseminatesuch

informationtospecifiednationalauthorities.45Multinationalcorporationsarethemainculprits

whenitcomestoIFFs:insteadofpayingthetaxestheyoweinthecountriesinwhichthey

42 Articles16and19oftheAUConvention.43 Article22(5)oftheAUConvention.44 HLP(2015)at84.45 Article22(5)(e)oftheAUConvention.


35

generateincome,theyshifteveryexpenseandcosttothosecountriesandmovetheprofitsto

theirhomecountries.TheAUBoardthereforecanplayacrucialroleinanalysingtheconductof

multinationalcorporationsoperatinginAfricancountries,includingKenya,andreportingany

suspiciousactivitytotherelevantnationalauthorities.

TheAUBoardalreadyhastakenconcretestepstoofferinstitutionalsupportincurbing

IFFsfromAfricancountrieslikeKenya.Its2018—2022StrategicPlanprovidesthatunderits

approachofenhancingthelegalframeworktocombatcorruption,theAUBoardwilldevelop

strategiestoaddressthecorruptioncomponentofIFFs.46TheAUBoardwillimplementthese

strategiesthroughintegratingIFFsintoArticle22(asproposedbytheHLP),ensuringthatthe

minimumnumberofStatesPartiesratifythisamendment,anddevelopinganIFFprogramme

withintheSecretariatoftheBoard.47TheIFFprogrammewillimplementactivitiesrelatingto

thedevelopmentofmodellawsaroundgovernmentprocurement,theenhancementofpublic

accesstonationalbudgets,andthepromotionofpublicawarenessactivitiesaimedatdetailing

theeconomic,socialandpoliticalimpactofIFFs.48

3.4 KenyanAnti-CorruptionLawsandInstitutions

3.4.1 ConstitutionofKenya,2010

TheConstitutionofKenyaistheSupremelawofthecountry.49AnyKenyanlawthatcontradicts

theConstitutionisvoid.Itisalsothesourceofalleconomic,political,socialandlegalpolicies

andregulations.50Theexecutive,thejudiciaryandthelegislaturecannotactagainstits

provisions.TheConstitutionthereforeformsanimportantbasisofKenya’santi-corruptionlaws

andinstitutions.

Article10oftheConstitutionstipulatesthenationalvaluesandprinciplesofgovernance

towhichstateorgans,stateofficersandpublicofficersshouldadherewheninterpreting

nationallawsandimplementingpublicpolicydecisions.Thesevaluesaregoodgovernance,

46 AUBoard(2017)at22.47 AUBoard(2017)at29.48 AUBoard(2017)at30.49 Dragne(2013)at40.50 Dragne(2013)at41.


36

integrity,transparencyandaccountability.51Thenationalvaluesandprinciplesenshrinedin

Article10areprerequisitesforimplementinganti-corruptionandanti-IFFmeasuresinKenya.

Transparencyisimportanttoallanti-IFFeffortssincethemaingoalofcriminalsistohide

wealth.52GoodgovernancewilldiscourageIFFsandrenderitdifficulttomakemoneythrough

illicitbusiness.53

ChapterSixoftheConstitutionaimsatpromotinggoodgovernanceamongstateofficers

byprescribingtheprinciplesofleadershipandintegrity.Article73considersstateofficerstobe

bearersofthepublictrustwhoareaccountabletothepublic.54Oneoftheguidingprinciplesof

leadershipandintegrityis“objectivityandimpartialityindecision-making,andinensuringthat

decisionsarenotinfluencedbynepotism,favouritism,otherimpropermotivesorcorrupt

practices”.55Article73canbereadwithArticle232,whichprovidesthatthepublicservice

shouldoperateaccordingtohighstandardsofprofessionalethics.Theseprinciplesarekeyin

reducingIFFs,sincecorruptpracticesofstateofficersandthepublicserviceplayasubstantial

roleinfacilitatingIFFsfromKenya.TheHighCourtofKenyaconfirmedtheimportanceof

ChapterSixand,specifically,Article73inthecaseofTrustedSocietyofHumanRightsAlliancev

AttorneyGeneral&2others.TheCourtheldthat:

ThepeopleofKenyadidnotintendthattheseprovisionsonintegrityandsuitabilityforpublicofficesbemerelysuggestions,superfluousorornamental;theydidnotintendtoincludetheseprovisionsasloftyaspirations…TheydesiredthesecollectivecommitmentstoensuregoodgovernanceintheRepublicwillbeputintopractice.56

ChapterSixalsoprohibitsstateofficersfromreceivinggiftsordonations,frommaintaining

bankaccountsoutsideKenya(unlessallowedbyanActofparliament),andfromseekingor

acceptingpersonalloansorbenefitsthatwouldcompromisetheirintegrity.57Thisprovisionis

crucialincurtailingcorruption,moneylaunderingandotheractivitieswhichfacilitateIFFs.

MaintainingabankaccountoutsideKenya,particularlyinataxhaven,isonewayinwhich

51 Article10(2)(c)oftheConstitution.52 HLP(2015)at45.53 HLP(2015)at41.54 Akech(2011)at386.55 Article73(2)(b)oftheConstitution.56 TrustedSocietyofHumanRightsAlliancevAttorneyGeneral&2others(2012)at37.57 Article76oftheConstitution.


37

moneyillicitlyflowsoutofKenya.In2016,theInternationalConsortiumofInvestigative

JournalistsleakedasetofpapersknownasthePanamaPaperswhichimplicated191Kenyans

inopeningcompaniesandbankaccountsinPanama,anotorioustaxhaven.58Thosenamed

includedthethenDeputyChiefJustice,KalpanaRawal.ThePanamaPapersallegedthatduring

hertenure,JusticeRawalwasthedirectorofcertaincompaniesregisteredinPanama.59Ifthe

allegationsaretrue,JusticeRawalwouldhavecontravenedArticle76oftheConstitution.

Article79providesthelegalbasisfortheestablishmentoftheEthicsandAnti-

CorruptionCommission(EACC)asanindependentbody.ItisimperativethattheConstitution

guaranteestheindependenceoftheEACC,sinceitisaprerequisiteofaneffectiveanti-

corruptionagency.

Article244oftheConstitutionprovidesthat“oneoftheobjectivesofthenationalpolice

serviceistopreventcorruptionandpromoteandpractisetransparencyandaccountability”.

Wecaninterpretthisprovisionintwoways.Firstly,thepoliceareobligatedtoprevent

corruptioninthepublicdomain.Secondly,thepoliceareobligatedtopreventcorruptionand

promotetransparencywithinthepoliceforce.TheKenyanationalpoliceserviceisamongstthe

publicinstitutionsmostaffectedbycorruption.60ThisprovisionisimportantincurtailingIFFs

sincethepoliceplayacrucialroleinprosecutingperpetratorsofIFFsandrecoveringthelost

funds.Theroleofthepoliceisnotlimitedtocorruption-relatedIFFs.Theyalsoplayan

importantroleinarrestingandprosecutingpersonsengagingintransnationalcrimesand

facilitatingcorruptactivities.

Article71isanimportantconstitutionalprovisiononnaturalresourcegovernance.The

articlespecifiesthatParliamentshouldratifyagreementsrelatingtotheexploitationofany

naturalresourcesinKenya.TheHLPfoundthatmorethanhalfoftheIFFsfromthecontinent

(56.2percent)derivefromtheextractiveindustries,includingmining.61Corruptionplaysarole

infacilitatingtheseIFFs.Grandcorruptionisevidentintheawardingofminingrights,while

58 ICIJ(2017),availableathttps://www.icij.org/investigations/panama-papers/(visited20August2018).59 ANCIR(2016),availableathttps://panamapapers.investigativecenters.org/kenya/(visited15October

2018).60 Martini(2012)at4.61 HLP(2015)at97.


38

pettycorruptionusuallyisobservedamongsttaxofficials.62TheHLPnotedthattheawardingof

miningcontractsis“shroudedinsecrecyandfuelledbybribestocircumventexistinglegal

provisionsforthepaymentofroyaltiesandtaxes”.63Theconstitutionalrequirementof

parliamentaryratificationofminingcontractsisanimportantstepinencouragingtransparency

intheawardingofminingrightsanddiscouragingcorruptionandrelatedIFFsintheextractive

industry.

TheConstitutionidentifiesprinciplesandvaluesthatwillenhanceanti-corruption

mechanismsinKenya.However,theConstitutionalonewillnotpromotegoodgovernance.64

Thenecessarynationallawsalignedtoitsvaluesandprinciplesshouldsupportthe

Constitution.65

3.4.2 Anti-CorruptionandEconomicCrimesAct,2003

TheAnti-CorruptionandEconomicCrimesAct(ACECA)isthemaindomesticlawgoverningthe

prevention,investigationandpunishmentofcorruptionandothereconomiccrimesinKenya.66

ACECAhasanostensivedefinitionofcorruptionandeconomiccrimes.Thecorruptionoffences

prohibitedarebribery,fraud,embezzlementofpublicfunds,abuseofoffice,breachoftrust,

bidrigging,conflictofinterest,solicitingbenefitsanddishonestyrelatedtoanytaxleviedunder

Kenyanlaw.67TheeconomiccrimesprohibitedbyACECAarestipulatedinSection2andSection

45.Thelimitationoftheostensiveapproachisthatconductnotexpresslyprohibitedisnot

consideredcorruptionoraneconomiccrime.

Despitethislimitation,ACECAgoesalongwayincurbingcorruption-relatedIFFsand

limitingtheroleofcorruptioninenablingotherIFFs.Forexample,Section44,which

criminalisesbidrigging,andSection45(2)(b),whichcriminaliseswilfulorcarelessfailureto

followprocurementandtendercontracting,areimportantinreducingtheuseofunequal

contracts.UnequalcontractsareaharmfulaspectofcommercialIFFs,particularlyinthe

62 OECD(2016a)at9.63 HLP(2015)at31.64 Akech(2011)at394.65 Akech(2011)at394.66 PreambletoACECA.67 Section2ofACECA.


39

extractiveindustry.68Thesecontractsoftenresultfrombribespaidtopublicofficersandinvolve

theawardofaresourceconcessionthatissubstantiallylowerthantheamountbidor,inthe

caseofpublicprocurement,overpayingforgoodsandservices.69Also,Section45(1)(d)

criminalisesfailingtopaytaxesorfraudulentlyobtaininganexemptiontopaytaxes.This

provisionisusefulinlimitingtax-relatedIFFssuchastaxevasion.

Sections27and28ofACECAarealsoimportantincurbingIFFsfromKenya.Section

27(3)providesthat:

theEACCmaybynoticeinwritingrequireanypersontoprovide,withinareasonabletimespecifiedinthenotice,anyinformationordocumentsintheperson’spossessionthatrelatetoapersonsuspectedofcorruptionoreconomiccrime.

Section28(7)providesforproductionofspecificrecordswhicharebankaccounts,legalor

businessdocumentsandcorrespondencethatisnotofastrictlypersonalnature.Adequate

informationonIFFsiskeytocurbingthem.TheHLPReportnotedthatitisdifficulttoacquire

ampleinformationaboutIFFsbecausetheculpritstakedeliberatemeasurestohidethem.70

ThissectionempowerstheEACCtoobtaininformationwhichmaybevitalintrackingIFFsand

theculpritsdrivingthem.

ACECAalsoprovidesfortheestablishmentsofanumberofinstitutionsvitalto

implementinganti-corruptionlaws.Section3catersfortheappointmentofspecialmagistrates

tohearanddeterminecasesofcorruptionandothereconomiccrimes.Section16setsupthe

KenyaAnti-CorruptionAdvisoryBoard,theprimaryfunctionofwhichistoadvicetheEACC.71

AlthoughtheBoardcomprisesrepresentativesofkeyinstitutionsrelevanttoreducing

corruption,itlacksarepresentativeoftheFinancialReportingCentre,whichplaysanimportant

roleinpreventingandcurbingmoneylaunderinginKenya.

Section23(1)ofACECAprovidesthatthesecretaryoftheEACC,orapersonappointed

bythesecretary,caninvestigatecorruptionandeconomiccrimes.Specialisedinvestigationsare

68 UNECA(2018)at13.69 UNECA(2018)at13.70 HLP(2015)at3.71 Section17ofACECA.


40

importantinthesuccessfulprosecutionofcorruptionandrelatedIFFs.Section23(3)stipulates

that:

theSecretaryandaninvestigatorshallhavethepowers,privilegesandimmunitiesofapoliceofficerinadditiontoanyotherpowerstheSecretaryorinvestigatorhasunderthisPart.

Thissectionenhancestheeffectivenessandefficiencyofinvestigationsintocorruptionand

othereconomiccrimes.

Section65ofACECAprotectstheidentityofinformersandshieldsthemfrom

disciplinaryaction.Informers,alsocalledwhistleblowers,exposecorruptionintheprivateand

publicsectorsandhelpsavebillionsofdollarsinpublicfundswhilepreventingfutureincidents

ofcorruption.Protectingwhistleblowersfacilitatesthereportingofcorruption-relatedIFFsand

assistsinthesuccessfulinvestigationandprosecutionofIFFsandrelatedoffences.Section56

ofACECAstipulatestheprocedureofassetrecovery.Assetrecoveryisimportantbecause

corruptionandIFFsaredrivenbythedesiretomakemoney.

ThemainshortcomingofACECAisthatitlackstheelementofcorporatecriminal

liability.CorporatecriminalliabilityisvitalincurbingIFFs.Multinationalcorporationsarethe

maindriversofcommercialIFFs.KenyaneedstoamendACECAandimposecivilsanctionson

multinationalcorporationswhichengageincorruptactivitieswhileoperatinginthecountry.


41

3.4.3 BriberyAct,2016

TheBriberyActisarelativelynewlawthatcameintoforceon13January2017.TheAct

specificallyprovidesfortheprevention,investigationandpunishmentofbribery.72Itfocuseson

briberywithinprivateentities.73Section2oftheActdescribesaprivateentityas“anypersonor

organisation,notbeingapublicentity,andincludescorporatebodieshoweverestablished

whichcarryonbusiness,orpartofbusiness,inKenya”.Thissectionisimportantbecauseit

makesclearthattheActappliesalsotomultinationalcorporations.

Section9isaprogressiveprovision.Itobligatesdirectorsorseniorofficersofpublicand

privateentitiestoputinplacemeasurestopreventbriberyintheirorganisations.TheActalso

imposesadutyonprivateandpublicpersonsholdingapositionofauthoritywithintheir

organisationstoreporttotheEACC,withintwentyfourhours,anyknowledgeorsuspicionof

bribery.74TheActprotectspersonswhoreportbribery,includingwhistleblowersandwitnesses,

fromintimidationandharassment.75

ThisActplaysacrucialroleincurtailingIFFsfromKenya.TheHLPnotedinitsfindings

thatcorruptionwasnotlimitedtothepublicsector.76TheHLPReportremarkedthat:

therearebothdemandandsupplysidestobribery,whichiswhythelegislationinsomedevelopedcountriesagainstthegivingofbribesbycompaniesmakesanimportantcontributiontostemmingcorruptpracticesinAfrica.77

TheBriberyActisanexampleofsuchlegislation.

3.4.4 PublicOfficerEthicsAct,2003

ThePublicOfficerEthicsActaimsat:

advancingtheethicsofpublicofficersbyprovidingforaCodeofConductandEthicsforpublicofficersandrequiringfinancialdeclarationsfromcertainpublicofficers.78

72 PreambletotheBriberyAct.73 Section4oftheBriberyAct.74 Section14(1)oftheBriberyAct.75 Section21oftheBriberyAct.76 HLP(2015)at32.77 HLP(2015)at32.78 PreambletothePublicOfficerEthicsAct.


42

TheActstipulatesthatthepubliccommissionsresponsibleforthedifferentpublicofficersare

requiredtoestablishspecificCodesofConductandEthics.79Thesepubliccommissionsinclude

thePublicServiceCommission,theJudicialServiceCommission,theParliamentaryService

CommissionandtheCommitteeoftheNationalAssemblyresponsiblefortheethicsof

members.80

Forinstance,theJudicialServiceCommissionhasestablishedtheJudicialServiceCode

ofConductandEthics,2003.81Rule11(2)oftheCodeprohibitsjudicialofficersfromaccepting

anykindofbenefitfromcorporations.Itisevident,therefore,thatthesecodescanbeusefulin

curbingIFFsfromKenyabyprohibitingcorruptioninthepublicservice.Theybindpublicofficers

toactethicallyandcanbeapositivestimulusfornon-corruptconductwithinthepublicsector.

Theycanbeusedalsoasabasisforinvestigatingandpunishingunethicalconduct.82

Unfortunately,theActonlyappliestopublicofficers.However,thesecodesofethicscanbea

usefulanti-corruptiontoolintheprivatesector,particularlywhenadoptedandappliedby

professionalssuchasaccountants,auditorsandlawyerswhooftenprovidetechnicalandlegal

supporttocorruptindividuals,taxevadersandmoneylaunderers.

Section14oftheActprohibitspublicofficersfromfurtheringtheinterestsofaforeign

government,organisationorindividualinawaythatmaybedetrimentaltothesecurity

interestsofKenya.83Publicofficerscanfurthertheinterestsofforeignorganisations,suchas

multinationalcorporations,byallowingthemtoevadetax.IFFsareathreattonationalsecurity.

Theyhelporganisedgangsmoveandspendtheirillegalgains.84Theyarealsointegraltothe

financingofterrorism.85Thissectionisthereforeveryimportantinprohibitingbehaviour

encouragingIFFsthatmayposeathreattonationalsecurity.

79 Section5(1)ofthePublicOfficerEthicsAct.80 Section3ofthePublicOfficerEthicsAct.81 LegalNotice50of2003.82 IllinoisInstituteofTechnology(2018),availableathttp://ethics.iit.edu/ecodes/codefunctions(visited20

October2018).83 Section14(1)ofthePublicOfficerEthicsAct.84 Vittori(2018)at38.85 Vittori(2018)at38.


43

Section26oftheActstipulatesthat“everypublicofficershalldeclareannuallytheir

income,assetsandliabilitiesandthatoftheirspouseorspousesandtheirdependentchildren

undertheageof18years”.86Assetsdeclarationsbypublicofficialsareapowerfulanti-

corruptiontoolthatcandeteranddetectincidentsofillicitenrichment.

Fromtheaboveanalysis,itisevidentthatthePublicOfficerEthicsActisacruciallawin

curbingIFFsfacilitatedbypublicofficers.

3.4.5 LeadershipandIntegrityAct,2012

TheLeadershipandIntegrityActisanimportantanti-corruptionlawthatcodifiesChapterSixof

theConstitution.Section3oftheActstatesthat“themainpurposeoftheActistoensurethat

Stateofficersrespectthevalues,principlesandrequirementsoftheConstitution”.87An

importantprovisionoftheActisSection37,whichestablishesleadershipandintegritycodesin

thepublicsectorinlinewiththeActandChapterSixoftheConstitution.

3.4.6 PublicProcurementandDisposalAct,2005

ThePublicProcurementandDisposalActisalawwhich:

establishesproceduresforefficientpublicprocurementandforthedisposalofunserviceable,obsoleteorsurplusstores,assetsandequipmentbypublicentities.88

ItgovernsprocurementproceduresinKenyaandensuresthatthereistransparencyinthese

procedures.Publicprocurementisthemainavenuethroughwhichthepublicsectorandthe

privatesectorinteract.AccordingtotheOECD,publicprocurementisoneofthegovernment

activitiesthatismostsusceptibletocorruption.89

OpaquegovernmentprocurementandsupplychainsfacilitateIFFsfromAfrica.90PartV

ofthePublicProcurementandDisposalActprovidesforopentenderingwhichincreases

transparencywithinKenya’spublicprocurementactivities.Sections40&41oftheActalso

86 Section26(1)ofthePublicOfficerEthicsAct.87 Section3(1)oftheLeadershipandIntegrityAct.88 PreambletothePublicProcurementandDisposalAct.89 OECD(2016b)at6.90 HLP(2015)at83.


44

prohibitcorruptionandfraudwithinanyprocurementprocedures.Theseprovisionspromote

transparency,whichhelpreduceIFFs.

3.4.7 ProceedsofCrimeandAnti-MoneyLaunderingAct,2009

TheProceedsofCrimeandAnti-MoneyLaunderingActisanimportanttoolinKenya’seffortto

fightcorruptionasitensuresthatcorruptproceedsarenotbeyondthereachofgovernment

authorities.Section2oftheActprovidesthatapredicateoffenceformoneylaunderingin

KenyaisanoffenceagainstaprovisionofanylawinKenya.Corruptionisanoffenceaccording

toACECAandthereforequalifiesaspredicateoffenceformoneylaundering.

3.5 KenyanAnti-CorruptionInstitutions

3.5.1 EthicsandAnti-CorruptionCommissionofKenya

TheEthicsandAnti-CorruptionCommissionisanimportantregulatorybodythatenforcesanti-

corruptionlawandanti-IFFmeasuresinKenya.TheCommissionderivesitspowersfromthe

Constitution,theEthicsandAnti-CorruptionCommissionAct(EACCAct)andACECA.

AnimportantpoweroftheCommissionistoundertakepreventivemeasuresagainst

corruptpractices.91EffortstocurbIFFsshouldbeginwithpreventivemeasures.Onefunctionof

theCommissionisto“raisepublicawarenessonethicalissuesandeducatethepubliconthe

dangersofcorruptionandenlistandfosterpublicsupportincombatingcorruption”.92

Membersofthepublichavearesponsibilitytopreventpublicandprivatesectorcorruption.93

Article252oftheConstitutionempowerstheCommissiontoconductinvestigationson

itsowninitiativeorasafollow-uptoacomplaintmadebyamemberofthepublic.94TheEACC

ActalsoprovidesforthispowerunderSection13(2)(c).InordertocurbIFFs,itisimportantfor

theCommissiontobroadenitsinvestigationsbeyondcorruptioncases.Investigationsplaysa

crucialroleintrackingIFFsandrecoveringthestolenmoney.However,investigatingcorruption

ischallengingtask. 91 Section13(2)(b)oftheEACCAct.92 Section11(1)(h)oftheEACCAct.93 Lashin(2014),availableathttps://blogs.worldbank.org/arabvoices/citizens-are-key-fight-against-

corruption(visited5January2018)94 Article252(1)(a)oftheConstitution.


45

Thereisoftennosceneofthecrime,nofingerprint,noeye-witnesstofollowup.Itisbynatureaverysecretivecrimeandcaninvolvejusttwosatisfiedparties,sothereisnoincentivetodivulgethetruth.95

However,theEACCActandACECAcanmitigatethischallenge.TheEACCActempowersthe

Commissiontohireexpertinvestigatorstoconductitsinvestigations.96TheCommissionshould

utilisethispowertoappointexpertswhowillfocusoncrimesrelatedtoIFFs.ACECAempowers

theCommissiontodiscontinueinvestigationsornegotiateout-of-courtsettlementsincriminal

andcivilproceedingsinspecificcircumstances,suchaswhenasuspectmakesafullandtrue

disclosureofallmaterialfactsrelatingtopastcorruptionoreconomiccrimeandhaspaidor

refundedanypropertyormoneyobtainedcorruptly.97Thiswillencouragesuspectstoassistin

theinvestigationofcorruptconduct.

Section32ofACECAstipulatesthattheCommissionhaspolicepowers.Thesection

providesthat:

theSecretaryoftheCommissionandinvestigatorsshallhavepowertoarrestanypersonforandchargethemwithanoffence,andtodetainthemforaninvestigation,tothelikeextentasapoliceofficer.98

TheCommissionprovidesinstitutionalsupportintherecoveryofassetslostthroughIFFs.

Section11(1)(j)oftheEACCActempowerstheCommissionto:

instituteandconductproceedingsincourtfortherecoveryorprotectionofpublicproperty,orforthefreeze[ing],orconfiscationofproceedsofcorruptionorrelatedtocorruption,orthepaymentofcompensation,orotherpunitiveanddisciplinarymeasures.99

TheCommissionremainsanimportantinstitutionthattheKenyangovernmentcanusetocurb

IFFs.TheformerchairpersonoftheCommission,MrMumoMatemu,notedthatthe

CommissionalreadyisimplementingdiversestrategiesaimedatcurbingandpreventingIFFs.100

95 Man-Wai(2009)at140.96 Section13(2)(e)oftheEACCAct.97 Sections26Aand56BofACECA.98 Section32ofACECA.99 Section11(1)(j)oftheEACCAct.100 Matemu(2013),availableathttp://www.eacc.go.ke/PRESSRELEASES.ASP?ID=476&cat=speeches(visited

30January2018).


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3.5.2 OfficeoftheDirectorofPublicProsecution

TheOfficeoftheDirectorofPublicProsecution(ODPP)isaconstitutionallyestablishedoffice

thatismandatedprimarilytoexercisestatepowersofprosecution.101TheEACC,although

empoweredtoinvestigateandarrestpersonssuspectedofcorruptionandothereconomic

crimes,doesnothaveprosecutorialpowers.TheEACCandtheODPPthereforeneedtowork

togethertoensurethatsuchcasesareinvestigatedandprosecuted.Thisco-operationisatwo-

waystreet.Section11(1)(d)oftheEACCActprovidesthattheEACCmayrecommendtothe

ODPPtheprosecutionofanyactsofcorruption,violationsofcodesofethicsandanyother

offencesprescribedunderKenyanlaw.Equally,theODPPAct(2013)stipulates,inSection5(2),

thattheDirectoroftheODPPmaydirectaninvestigativeagency(suchastheEACC)toconduct

investigationsoveramatter.102

Thedepartmentofeconomic,internationalandemergingcrimeswithintheODPPdeals

specificallywithcorruptionandothereconomiccrimes.103Thisdepartmentalsohasdivisions

thatdealwithorganisedcrime,extraditionandinternationalco-operation.104Thesedivisions

canplayacrucialroleinprosecutingIFFsresultingfromtransnationalcrimes.TheODPPhas

developedanti-corruptionprosecutionguidelinesforprosecutorshandlingcorruptioncases,

whichenhancestheefficiencyoftheODPPinprosecutingcorruptioncases.105

TheODPPalsoreviewsevidenceofeconomicandfinancialcrimessubmittedbyother

investigativeagencies,suchastheDirectorateofCriminalInvestigationsandtheBankingFraud

InvestigationUnit.106In2016,theDirectorateofCriminalInvestigationsconductedtwo

inquiriesrelatingtotheallegedmismanagementofpublicfundsmeantfortheKenyanteam

thattookpartintheRioSummerOlympicgames.107Uponperusal,theODPPfoundthatoneof

theinquiriesrelatedtotheoffencesofstealingandmoneylaunderingandthereforeinstituted

101 Article157(6)oftheConstitution.102 Section5(2)(b)oftheEACCAct.103 ODPP(2016)at10.104 ODPP(2016)at10.105 ODPP(2017)at12.106 ODPP(2016)at2.107 ODPP(2016)at2.


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criminalproceedingsagainstthesuspects.108

3.5.3 TheJudiciary

TheroleofthejudiciaryinfightingIFFsliesindecidingcasesbroughtbeforeitinaccordance

withthelaw.Ifthelawisunclear,judgeshavethefreedomtoinfertheoriginalintentionsof

thelegislators.109Ifthelawissilentontheissue,judgesrefertothegeneralprinciplesoflaw.110

Deficienciesinlegislative,regulatoryandinstitutionalframeworksimpedetheabilityofAfrican

countriestocurbIFFs.111JudicialprecedentsbecomeanimportantsourceoflawonIFFswhere

thelawisabsentorineffective.112

TheKenyanJudiciaryiscommittedtoensuringthatalltheanti-corruptionandeconomiccrimescasesbroughtbeforecourtsaredealtwithimpartially,expeditiouslyandinaccordancewiththelawandtheevidencepresented.113

In2015,thethenChiefJusticeofKenya,JusticeWillyMutunga,establishedtheAnti-Corruption

andEconomicCrimesDivisionoftheHighCourttoadjudicatealldisputesrelatingtocorruption

andothereconomiccrimes.114

3.5.4 ParliamentofKenya

TheParliamentofKenyaisaconstitutionallyestablishedbodythatcomprisestheNational

AssemblyandtheSenate.115Parliamentshavethreebroadfunctions:legislative,oversightand

representative.Parliamentusesitslegislativefunctiontoensurethattherearestronglawsin

placetocurbcorruptionandothereconomiccrimes.Thisroleinvolvespromotingthe

ratificationanddomesticationofregionalandinternationalinstruments,suchasUNCACand

theAUConvention.

108 ODPP(2016)at2.109 Amiraghdametal(2016)at58.110 Amiraghdametal(2016)at58.111 HLP(2015)at71.112 SeeAmiraghdametal(2016)at64:“Theroleofjurisprudencecannotbeignoredand,inasense,judicial

decisionsarethesourceoflifeinthelaw.”113 Maraga(2018),availableathttps://www.judiciary.go.ke/7582-2/(visited2February2019).114 TheKenyaGazetteNoticeNo9123.115 Article93(1)oftheConstitution.


48

TheParliamentofKenyausesitsoversightroletoholdthegovernmentaccountablefor

itsactionsandtoensurethatthegovernmentoperateswithinanethical,transparentand

accountablelegalframework.116Parliamentexercisesthisfunctionthroughholdingregular

parliamentaryhearings,participatinginbudgetaryprocesses,operatingoversightcommittees

andexposingparliamentariansguiltyofcorruption.117Theoversightroleofparliamentshould

extendtotheindustriesthatareparticularlysusceptibletoIFFs,suchastheextractiveindustry.

Moreover,thisroleshouldnotbelimitedtothegovernment.Itshouldextendtothejudiciary

andtheprivatesector.

Infulfillingtheirrepresentativeresponsibility,membersofparliamentneedtopromote

ethicalstandardsandadheretothehigheststandardsofintegrity.Thiswillgoalongwayin

restoringthefaithofthecitizensinaninstitutionperceivedasoneofthemostcorruptinmany

partsoftheworld.118

MembersoftheKenyanParliamentalsohavearesponsibilitytoengage

parliamentariansinotherregions,sinceIFFsarearegionalproblemthatrequiresaregional

approachtoeliminateit.TheKenyanParliamenthasrepresentativesintheAfrican

ParliamentaryNetworkonIllicitFinancialFlowsandTax(APNIFFT)andtheAfrican

ParliamentarianNetworkagainstCorruption(APNAC).Theseforaprovidemembersof

parliamentwithopportunitiestodiscussissuesofIFFsandcorruptionandenhancetheir

capacityandknowledgetomakesubstantivelaws.

3.5.5 AssetRecoveryAgency

TheAssetRecoveryAgency(ARA)isasemi-autonomousbodyestablishedundertheofficeof

theAttorney-General.119ItsmainfunctionsrelatetotheimplementationofPartsVIItoXIIof

theProceedsofCrimeandAnti-MoneyLaunderingAct,whichencompasscriminalforfeiture,

civilforfeiture,preservationandforfeitureofproperty,productionorders,thecriminalassets

116 Chêne(2017)at3.117 Chêne(2017)at3.118 TransparencyInternational(2017b)at5.119 Section53oftheProceedsofCrimeandAnti-MoneyLaunderingAct.


49

recoveryfundandinternationalassistanceininvestigationsandproceedings.120

TheActprovidesthat“theAgencyshallhaveallthepowersnecessaryorexpedientfor

theperformanceofitsfunctions”butdoesnotspecifywhatthosepowersare.121TheARAisan

importantinstitutionincurbingIFFsfromKenyaasitseekstoensurethatstolenassetsare

repatriatedtothecountry.

3.5.6 Multi-AgencyTaskTeam

TheMulti-AgencyTaskTeam(MAT)wasestablishedinNovember2015andiscomposedof

representativesoftheODPP,theEthicsandAnti-CorruptionCommission,theNational

IntelligenceServices,theKenyaRevenueAuthority,theDirectorateofCriminalInvestigations

andtheARA,amongstothers.122TheprimaryaimofMATistoinvestigateandprosecute

corruptionandothereconomiccrimesinKenyathroughinter-agencyco-operationamongst

institutionsinthecriminaljusticesystem,theanti-corruptioncommissionandthetaxand

revenueauthority.MATfocusesoncorruptionandothereconomiccrimes,organisedcrimes

andcriminalsyndicates.123Inter-agencyco-operationisanimportantapproachinthefight

againstIFFs.TheHLPReportrecommendsthat:

AfricanStatesshouldcreatemethodsandmechanismsforinformationsharingandco-ordinationamongthevariousinstitutionsandagenciesofgovernmentresponsibleforpreventingIFFs,withsuchco-ordinationbeingledbythecountry’sfinancialintelligenceunit.124

3.6 Conclusion

EffortstocurbIFFsfromKenyamustfocusonestablishingstrong,responsiveandeffectivelaws

andinstitutionsthatencouragecitizensandcompaniestoengageinlegalactivities.Thelackof

specificinternationalandnationallawsonIFFsshouldnotbeanimpedimenttocurbingIFFs.

ThischapterhasdiscussedhowKenyamayuseamulti-prongedapproach,centredonanti-

corruptionlawsandinstitutions,tocurbIFFsandrepatriatestolenassets.Anti-corruptionlaws

maybeusedtopreventcorruptionandcriminalisecorruptactswhichfacilitateIFFs.Anti- 120 Section54(1)oftheProceedsofCrimeandAnti-MoneyLaunderingAct.121 Section54(2)oftheProceedsofCrimeandAnti-MoneyLaunderingAct.122 ODPP(2016)at4.123 ODPP(2016)at4124 HLP(2015)at82.


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corruptionlawsmaybeusedalsotocurbthecommercialandcriminalcomponentofIFFs.Anti-

corruptioninstitutionsensurethatanti-corruptionlawsareimplemented.Theroleplayedby

thedifferentanti-corruptioninstitutionsincurbingIFFsincludeinvestigation,prosecution,

adjudicationandrepatriationofstolenassets.Thischapterhasnotedalsotheimportanceofan

inter-agencyapproachtocurbingIFFssinceIFFsareamultifacetedproblem.

However,withoutaneffectiveimplementationstrategy,theselawsandinstitutionsare

useless.Corruptionisstillthegreatestthreattoimplementationofanti-corruptionlaws.It

weakenslawenforcementagenciesandinstitutionschargedwithimplementinganti-corruption

efforts.AsdiscussedbyAyogu&Gbadebo-Smith,“anti-corruptionlawsandinstitutionsare

entrappedinthevirtuousandtheviciouscyclebetweengoodgovernanceandcorruption”.125

Stronglawsandinstitutionsenableanti-corruptionefforts,butcorruptionalsoweakensthe

legalsystem.126AccordingtoSandgren,“aweaklegalsystemencouragestheuseofinformal

lawwhichisabreedinggroundforcorruption”.127Thus,effortstocurbcorruptioninKenya

shouldfocusalsoonchangingpublicperceptionsandbehaviour.Ashiftinattitudeisalong-

termprocesswhichinvolvesinculcationofpublicconfidenceintheruleoflawthrough

educationalinitiativesandmediadiscussionsonanti-corruptionefforts.

Lastly,thoseseekingtocurbIFFsandcorruptionshouldtakecarenottofocussolelyon

theroleofanti-corruptionlaws.Sandgrennotesthattherearelawssuchasthosethatprovide

fortransparency,accountability,checksandbalances,taxreforms,amerit-basedsystemfor

officials,privatisationandcompetitionlawwhichhavenodirectbearingoncorruptionbutare

necessaryelementsforreducingtherisksofcorruption.128

125 Ayogu&Gbadebo-Smith(2015)at296.126 Sandgren(2005)at724.127 Sandgren(2005)at724.128 Sandgren(2005)at726.


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CHAPTERFOUR

CONCLUSIONANDRECOMMENDATIONS

4.1 Conclusion

Thispaperhasdiscussedtheroleofanti-corruptionlawsandinstitutionsincurbingIFFsfrom

Kenya.TakingdirectionfromtheHLPReportonIFFsfromAfrica,thisstudyfoundthatabusive

commercialpractices,criminalactivitiesandcorruptionarethemainsourcesofIFFsfrom

Kenya.Abusivebusinesspracticessuchastaxavoidance,taxevasion,transfermispricingand

trademisinvoicinghaveledtosubstantialillicitoutflowsfromKenya,whichhavediverted

resourcesawayfromthecountry’ssustainabledevelopmentgoals.CriminalactivitiesinKenya

contributesignificantlytoIFFsbecausecriminalsintendtohidetheirillegalprofitsfromlaw

enforcementagencies.

ThispaperhaspaidparticularattentiontotherelationshipbetweencorruptionandIFFs.

Inordertoanalysethisrelationship,thepaperbeganbyexaminingthedifferentapproachesto

definingIFFsanddiscussingthenormative,legalistic,developmentalandthe“nodefinition”

approaches.ItwasalsoimportanttodistinguishIFFsfromrelatedconcepts,suchasillicit

finance,capitalflight,moneylaunderingandinformalflows.Thestudyfoundthatthereisno

agreeddefinitionofIFFs.ThelackoftheoreticalclarityonwhatcomprisesIFFsposesa

challengenotonlyforunderstandingtheconceptofIFFsbutalsoforestimatingthevolumeof

assetsKenyaislosingtoIFFs.ProperdefinitioniskeytounderstandingIFFs,theireffectson

developmentand,ultimately,themostappropriatemeasuresforcurbingthem.Thepaper

adoptedthenormativeapproachtodefiningIFFswhichrecognisesthatillicitnessisnot

synonymouswithillegality.Thepaperfurtherendorseddefinitionsthathaveabroadoutlook

ontheadverseeffectsofIFFs.

OntherelationshipbetweencorruptionandIFFs,thisstudyfoundthatthereexistsa

causalnexusbetweentheformerandtheorigins,growthandconsequencesofthelatter.This

findingconfirmedthemainhypothesisofthepaper:thatcorruptionplaysanoverarchingrole

infacilitatingIFFs.CorruptionisasourceofIFFs.Proceedsofcorruptacts,suchas


52

embezzlement,grandcorruptionandbribes,makeupsomeoftheillicitfundsthatcriminals

transferoutofacountry.Corruptionfacilitatesabusivecommercialpracticesbyloweringthe

chancesofdetectionandincreasingprospectivereturns.MNCsbribetaxauthorities,lawyers,

auditorsandaccountantstoensurethatthepublicisnotawareoftheillicitcommercial

practices.Corruptionremainsakeycatalystoftransnationalcriminalactivities.Transnational

crimeisdrivenbytheneedtomakeillegalmoney.Corruptactsensurethatcriminalnetworks

engageinillegalactivitieswithoutinterferencefromlawenforcementagencies.Lastly,

corruptionimpedestheimplementationofanti-corruptionandanti-IFFmeasures,which

furtherfrustratesanyeffortstocurbIFFsfromKenya.Itisclear,therefore,thatcorruptionand

IFFstogetherposeafundamentalchallengetodomesticresourcemobilisation,weakengood

governancestructures,erodepublictrustingovernmentinstitutions,andundermine

internationalconfidenceinKenya.

Thispaperthenconsideredwhatroleanti-corruptionlawsandinstitutionscanplayin

curbingIFFsfromKenya.ItfoundthatKenyahasalaudablelegalandinstitutionalanti-

corruptionframework.ThecountryhasratifiedUNCACandtheAUConvention.Italsohas

enactedseverallawsthatdirectlyorindirectlyassistinthecountry’santi-corruptionandanti-

IFFefforts.TheselawsplayanimportantroleincurbingIFFssincethereisnospecific

internationalornationallawonIFFs.Thestudyestablishedthatanti-corruptionlawshelpto

curbIFFsbypreventingcorruption,criminalisingcorruptacts,assistingintherecoveryofstolen

assets,andsettingupstructuresthatsupportinternationalco-operation.Itisimportanttonote

thatthisstudydoesnotlimittheroleofanti-corruptionlawstothecorruptioncomponentof

IFFs.Anti-corruptionlawshaveprovisionsthatcanbeuseddirectlyorindirectlytocurbthe

commercialandcriminalcomponentsofIFFs.Lastly,anti-corruptionlawsprovidethelegal

foundationforinstitutionsthathelpimplementthelawsandanti-IFFstrategies.

Thisstudyhasshownthat,despiteKenyahavinganextensiveanti-corruptionlegal

framework,theincidenceofcorruptionremainshighinthecountry.Thestudyhighlighted

somekeychallengestoKenya’seffortstocurbIFFsusingtheexistinglegalandinstitutional

frameworks.Firstly,IFFsremainacomplexproblemthatisstillsubjecttodebateamongexperts

regardingitsconceptualisation.ThecomplexityisoccasionedbythefactthatIFFsarecausedby


53

avarietyoffactorsandinfluencedbyamosaicofactorswhohaveinterestsvaryingfrom

runningseeminglylegalprofit-makingtransactionstoobviousillegalventures.

Secondly,andcloselyrelatedtothecomplexitiesofdefiningIFFs,arethedifficultiesin

estimatingtheprecisevolumesofIFFsfromKenya.TheHLPReportnoted:

ThedifficultiesinestimationarisefromtheverynatureofIFFs,whichbydefinitionaremostlyhiddenandthereforedifficulttotrack.Asaresult,dataarenotusuallyavailablenorcantheaccuracyofexistingdatabeeasilyverifiedduetoadditionalandwell-knowndifficultiesofgeneratinggoodstatisticsonthecontinent.1

ThechallengeofestimatingthevolumesofIFFsfromKenyabecomesevenmoreseriouswhen

oneattemptstoassessthevolumeslostbecauseofcorruption.Forinstance,oneofthe

researchlimitationsofthisstudyisthelackofempiricaldatarelatingtocorruptionamong

multinationalcorporations,whichsuggestssignificantunder-reportingofthiscrime.Itisno

wonderthatmostpeopleacrossAfricaarguethatthevolumesofIFFsrelatedtocorruptionare

farhigherthantheprojectedfivepercentintheHLPReport.2

Thirdly,corruptionremainsthemainprimaryimpedimenttoimplementinganti-

corruptionlaws.Theviciouscyclebetweendeclineofgoodgovernanceandcorruption

underminestheefficiencyofanti-corruptionlawsandinstitutions.3

Thelackofcapacityofanti-corruptioninstitutionstoimplementanti-corruptionlawsis

thefourthchallengetocurbingIFFsfromKenya.IFFsareacomplexproblemthatrequires

adequatefinancial,technologicalandhumancapacitiestoconfrontandcurb.Unfortunately,

Kenyananti-corruptioninstitutionsarenotequippedadequatelytocurbIFFs.TheEACC,for

instance,lackstherequiredhumanresourcescapacitytofulfilitsmandate.4TheHLPReport

alsohighlightsthischallenge,notingthat:

theincapacitiesofAfricancountriestocombatIFFswasreflectedatvariouslevelssuchasthelackofaccuratedataandup-to-dateinformation,inadequateunderstandingofthevariousmechanismsused,andabsentorineffectivelegislative,regulatoryandinstitutionalframeworks.5

1 HLP(2015)at32.2 HLP(2015)at32.3 Ayogu&Gbadebo-Smith(2015)at296.4 Odhiambo(2016)at50.5 HLP(2015)at71.


54

Lastly,theabsenceofpoliticalcommitmenttocurbIFFsfromKenyahasaffected

negativelytheefficiencyofanti-corruptionlawsandinstitutions.Thisstudyhashighlighted

severalcorruptionscandalsthatinvolvekeypoliticalfiguresinKenya.Sadly,investigationsand

prosecutionsofmostofthesescandalsremainpending.Lawenforcementagenciescitepolitical

interferenceasoneofthemainreasonswhythesecorruptioncaseshavenotbeenconcluded.

4.2 Recommendations

4.2.1 StrengthenAnti-CorruptionLaws

LawisoneofthemosteffectivemeansofcurbingIFFsfromKenya.Stronglawsmakeitdifficult

forcriminalsandrogueMNCstomovefundsillicitlyandhidethesefundsfromauthorities.

Anti-corruptionlawsshouldfocusoncurbingIFFsthroughprevention,criminalisationand

facilitatingassetrecoveryandinternationalco-operation.Theyalsoshouldformastrong

foundationfortheinstitutionstaskedwithimplementingthem.

ThispaperrecommendsthatKenyashouldassessitsanti-corruptionlawsandidentify

anyshortcomingsthatmaylimittheabilityoftheselawstocurbIFFs.Forinstance,Parliament

shouldamendACECAtoincludeelementsofcorporatecriminalliability,whichisimportantin

curbingIFFswithintheprivatesector.Parliamentshouldengageexpertswhenamendingthese

lawsordraftingnewlawstoensurethattherearenoloopholesthatcriminalsmayabuse.

ThegovernmentshoulddomesticatethehortatoryprovisionsofUNCAC,especially

thosethatareimportantincurbingIFFs.Forinstance,Article12ofUNCAC,whichprovidesfor

preventivemeasureswithintheprivatesector,oughttobecomepartofKenyanlaw.

DomesticationensuresthattheprovisionsofUNCACbecomelocallyapplicableand

enforceable.

Further,thegovernmentshouldfocusondevelopingsoftlaws,suchascodesofethics,

forthepublicandprivatesectors.Softlawsareimportantinestablishingconsensusonissues

andserveasanimportantfirststepinthecodificationofnorms.Inparticular,thispaper

recommendsthatthegovernmentencourageprofessionalbodies,suchasthoseinchargeof

accountants,auditorsandlawyers,todevelopcodesofethicsfortheirmembers.Anexampleof


55

suchacodeisthePan-AfricanLawyersUnionCodeofEthicsonAnti-corruptionand

ProfessionalComplianceStandardsforLawyersWorkinginAfrica.6

4.2.2 EnhancetheCapacityofAnti-CorruptionInstitutions

Thispaperrecommendsthestrengtheningofanti-corruptioninstitutionstoensurethatthey

properlyimplementanti-corruptionlaws.Thisinvolvesincreasingthefinancial,humanand

technicalresourcesavailabletotheseorganisationstoenablethemtodealwithcrimesrelated

toIFFs.Also,anti-corruptioninstitutionsshouldfocusonenhancingthetechnicalcapacityof

theirstaffmembersintheareasoffinancialinvestigation,recordkeepinganddataanalysis.

Thegovernmentshouldbroadenthemandateofsomeanti-corruptioninstitutions.This

willensurethattheycandealappropriatelywithabroadrangeofcrimesrelatedtoIFFs.For

instance,themandateoftheEACCshouldbeexpandedtoincludeprosecutorialpowerssoit

canprosecuteIFFsrelatedtocorruption.Thegovernmentalsoshouldmergeanti-corruption

andanti-moneylaunderingmeasurestoavoidduplicatingthemandateofanti-corruption

institutionsandtoensureoptimumutilisationofresources.

InstitutionsandindividualsseekingtocurbIFFsshouldengagethecourts.Thisstudyhas

shownthatsomeIFFsfromKenyaalreadyviolateexistinganti-corruptionlaws.Courtsare

importantanti-corruptioninstitutionswhichprovidelegalrecoursefortheseviolations.Agood

exampleinthisregardistherecentdecisionoftheHighCourtofKenyatonullifyKenya’s

DoubleTaxAvoidanceAgreementwithMauritiusbecauseitwasunconstitutional.7Courtsalso

couldprovidelegalguidanceonthecontentiousissuesrelatingtoIFFs,forinstance,byguiding

anti-corruptioninstitutionsonthemostappropriatedefinitionofIFFs,basedonthecountry’s

lawsandjudicialprecedents.

Thisstudyrecommendsalsothatthegovernmentshouldbroadenthemandateofthe

multi-agencytaskteam.IFFsareamultifacetedproblemthatrequiresamulti-pronged

approachandinter-agencyco-operationamonginstitutionsinthecriminaljusticesystem,the

6 Pan-AfricanLawyersUnion(2019),availableathttps://lawyersofafrica.org/po/code-of-ethics/(visited7

April2019).7 TaxJusticeNetwork-AfricavCabinetSecretaryforNationalTreasury&2others[2019]atpara43.


56

anti-corruptioncommission,andthetaxandrevenueauthority.Thiswouldensurethatthe

governmentutilisesthestrengthsofthevariousinstitutionalmandatesjointlytoinvestigate

andprosecutecrimesrelatedtoIFFsandrecoverstolenassets.

4.2.3 BuildStructuresthatPromoteInternationalCo-operation

Co-operationwithforeignbodiesandgovernmentsiskeytocurbingIFFsfromKenya.Kenya

shouldutilisetheprovisionsofUNCACandotherlawsoninternationalco-operation,focusing

specificallyonregulatory,investigativeandassetrecoverymechanisms.AsproposedbyChowla

&Falcao,Kenyashouldsignbilateralandmultilateralagreementswithdifferentgovernments

toenhancethelevelofco-ordinationamongstthedifferentinstitutionsinthedifferent

jurisdictions.8Internationalco-operationwillmitigatethehurdlesthatanti-corruption

institutionsfacewhenseekinginformationfromforeignjurisdictions.Moreover,these

institutionscanobtaineasilythetechnicalhelpandlogisticalsupporttheyneedtocurbIFFs

effectively.

4.2.4 EnhancePublicParticipation

Kenyacanimplementanti-corruptionlawssuccessfullyifthegovernmentengagesnon-state

actorssuchascivilsociety,themedia,theprivatesectorandthecitizenry.Non-stateactorscan

endorseordiscreditreportsissuedbyanti-corruptioninstitutions.Thiswouldhelpinexposing

thecorruptionimpedingtheefficiencyoftheseinstitutions.Moreimportantly,non-stateactors

cancreatepoliticalwillamongpoliticiansandleaderstocareabouttheconsequencesofIFFs.

AsAyogu&Gbadebo-Smithnote:

Politiciansdonotcreatepoliticalwill.Theyrespondtoit.ItisthegovernedorthosewhoconsenttobegovernedwhoshouldalignthepoliticalfortunesofthepolicymakerstotheconsequencesofIFFs.9

8 Chowla&Falcao(2016)at3.9 Ayogu&Gbadebo-Smith(2015)at296.


57

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