Narrative Report on Kenya

PART 1: NARRATIVE REPORT Rank: 24 of 133

Kenya’s financial sector is highly secretive. The country scored 76 out
of 100 in terms of secrecy, which explains its high ranking of 24 in the How Secretive? 76
Financial Secrecy Index of 2020. Though the country’s share of the
offshore world is not large, it has increased since 2018 and it may be
set to increase further as the government positions Nairobi as the latest
African International Financial Centre. Moderately
secretive
0 to <25
Africa’s newest international financial centre

Kenya lies on the east coast of Africa with a population of nearly 50

million people as of 2019. In 2018, Kenya was identified as one of the 25 to <50
fastest growing economies in Sub-Saharan Africa with GDP per capita
over US $1,7101. The GDP grew by 5.9% in 2018, up from 4.9% in 2017,
driven by services, agriculture and industry.2

Kenya also takes the lead in East Africa on foreign direct investment with 50 to <75
a majority of inflows being attributed to extractives and infrastructure
projects.3 The key economic goal set out in Kenya’s Vision 2030 is to
sustain high levels of economic growth.4 However, key development
challenges remain, including inequality, healthcare, education and Exceptionally 75 to 100
secretive
climate change.

According to a study done by Oxfam Kenya, less than 0.1% of the

population own more wealth than the bottom 99.9%.5 The rising
inequality in Kenya cannot be ignored. In the recently published Paradise How big? 0.08%
Papers, a former minister was identified as having London based assets
owned through a Mauritius based company.6

In 2016, the Panama Papers implicated several Kenyans hiding their

huge
wealth in offshore jurisdictions, with a number of politically exposed
persons being identified.7 The use of secrecy jurisdictions is not
unknown in Kenya.

In 2019, the Mauritius leaks revealed that DAC Aviation International, large
a UN Contractor, had been engaging in tax avoidance, leading to the
revenue authority raising an audit.8 Despite this and efforts by Tax
Justice Network Africa to have the Kenya-Mauritius double taxation small
agreement suspended,9 the executive arm of government opted to sign
another agreement.
huge: >5% large: >1% to 5% small: >0.1% to 1% tiny <0.1%
Introducing the Nairobi International Financial Centre
Kenya accounts for 0.08 per cent of the global
market for offshore financial services. This makes it
In an effort to achieve a “well-functioning financial system in order to a tiny player compared to other secrecy jurisdictions.
accelerate economic growth by encouraging foreign direct investment,
safeguarding the economy from external shocks, and establishing
Kenya as a leading financial centre in Eastern and Southern Africa”,10 The ranking is based on a combination of its
the Government of Kenya included the Nairobi International Financial secrecy score and scale weighting.
Centre as one of the commitments for Vision 2030. Full data is available here: http://www.
financialsecrecyindex.com/database.
As a result, in September 2017, the Nairobi International Financial Centre To find out more about the Financial Secrecy
Index, please visit
Act, No. 25 of 2017, entered into force to provide a legal framework
http://www.financialsecrecyindex.com.
for the development of the Nairobi International Financial Centre and
The FSI project has received funding from the
the Nairobi International Financial Centre Authority. According to the European Union’s Horizon 2020 research and
National Treasury,11 the purpose of the Nairobi International Financial innovation programme under grant agreement
Centre is to establish a “stable, efficient and globally competitive No 727145.
© Tax Justice Network 2020
If you have any feedback or comments on this
report, contact us at info@taxjustice.net
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financial services sector in Kenya” with the ultimate Kenya has operationalized double taxation
objective of encouraging domestic and foreign agreements with China, the United Arab Emirates,
investment, generating saving opportunities and and the Netherlands. A number of these double
contributing to overall economic growth. taxation agreements have been identified as being
unfavourable to Kenya.17
To achieve this, the Nairobi International Financial
Centre Authority will improve the transparency and In tandem with these developments, the Kenya
ease of doing business by reforming the existing Revenue Authority and other regulatory bodies
regulatory and institutional framework, establish have been actively pursuing and committed to
a one-stop shop for financial services and related meeting the standards set out by the Global Forum
firms, and offer incentives and opportunities to on Transparency and Exchange of Information for
attract global firms to establish a presence in Tax Purposes (Global Forum) and the Organisation
Nairobi.12 The National Treasury is set on adopting for Economic Co-operation and Development
an integrated model similar to that of the City of (OECD) Base Erosion and Profit Shifting project.
London. Some of the efforts include signing the convention
on Mutual Administrative Assistance in Tax Matters
The International Monetary Fund (IMF) defines an and taking steps to meet the international standards
international financial centre as a centre (usually set out in the Global Forum’s Terms of Reference to
a city) where the bulk of financial sector activity is Monitor and Review Progress Towards Transparency
offshore, the transactions are initiated elsewhere, and Exchange of Information.
and the majority of institutions involved are
controlled by non-residents.13 International financial Additionally, in 2015, Kenya rolled out the overhaul
centres typically have large numbers of financial of the regulatory framework for business and
institutions engaged, primarily, in business with non- taxation that set a solid foundation for financial
residents; financial systems with external assets and transparency regarding the availability of ownership
liabilities out of proportion to domestic economies; information and reporting on beneficial ownership.
and, more popularly, centres which provide low or
zero taxation, moderate or light financial regulation, Financial sector requirements
banking secrecy and anonymity.14
The Kenyan banking sector is regulated by
The Nairobi International Financial Centre Authority the Central Bank of Kenya and has 43 banking
has yet to publish their strategy and framework institutions, eight representative offices of foreign
or widely consult the public, despite the threat banks, 12 microfinance institutions, and three credit
that the tax concessions and banking secrecy may reference bureaus.18
facilitate unhealthy tax competition, aggressive tax
avoidance, and illicit financial flows. Kenya’s Vision 2030 includes broad objectives
relating to consumer protection through the increase
In 2019, the National Treasury promised to fast track of transparency, fairness and affordability of banking
the operationalization of the Nairobi International and other financial products and services.19
Financial Centre. Governments has, since February
2019, been in the process of forming a Board The Proceeds of Crime and Anti-Money Laundering
of Directors to oversee the operations of the Act, No. 9 of 2009 became effective in June 2010
Nairobi International Financial Centre Authority to provide a framework for identifying, tracing,
and finalising the Nairobi International Financial freezing, seizing and confiscating any proceeds
Centre Regulations to implement the Act.15 So of crime. The provisions of the Proceeds of Crime
far government have yet to publicise any further and Anti-Money Laundering Act override any
information or invite public comment about the obligations relating to secrecy or other restrictions
progress of the Nairobi International Financial on disclosure of information imposed by any other
Centre. law or otherwise.20

Alongside the establishment of the Nairobi The Proceeds of Crime and Anti-Money Laundering
International Financial Centre, Kenya continues Act established the Financial Reporting Centre
to expand its tax treaty network. Kenya currently for purposes of assisting in the identification
has 15 double taxation agreements in force, of proceeds of crime and combating money
seven that are signed and not yet in force, seven laundering. The Financial Reporting Centre is
concluded and not signed, five under negotiation also tasked with the fight against financing of
and 15 under consideration.16 Most recently, terrorism under the Prevention of Terrorism Act

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Kenya

2012. The centre maintains a register of reporting professionals who are sole practitioners, partners
institutions, receives reports on suspicious activities or employees within professional firms. This is
or transactions from reporting institutions, receives could be a significant milestone for transparency as
cash transaction reports above a certain threshold, advocates and other legal professionals are currently
and receives reports on cross-border conveyancing protected from disclosing details of transactions or
of monetary instruments. money held on behalf of their clients and this has
been a useful tool for exacerbating illicit financial
The Proceeds of Crime and Anti-Money Laundering flows.
Regulations of 2013 have been effective since
March 2013 and set out the obligations of reporting This amendment is based on vulnerabilities
institutions. Reporting institutions include financial identified in money laundering and terrorism
institutions and designated non-financial businesses financing risk assessment of the legal profession as
and professions. All institutions are required to carry part of the Financial Action Task Force assessment.23
out Money Laundering Risk Assessments to identify, If the amendment is accepted by parliament, it will
assess, monitor, manage and mitigate risks. In this require lawyers to report to the Financial Reporting
regard, reporting institutions are required to carry Centre as banks do. However, those in the legal
out a customer due diligence to determine the profession have responded with concerns that
following: the amendments will infringe on advocate-client
privilege.24 Members of Parliament have, so far,
• Verified customer’s identity using reliable, opposed the amendment on similar grounds and
independent source documents (tax proposed that the new requirement should be
registration and identification documents); brought as a standalone, substantive bill.25
• The verified identity of the beneficial owner21 Regulation of business conduct on transparency
and develop an understanding of the ownership and accountability
and control structure of the customer;
Various types of entities are permitted in Kenya
• Purpose and nature of the business relationship; including companies, partnerships, limited liability
and partnerships, sole proprietorships, trusts, societies,
• On-going due diligence on the business and co-operative societies.
relationship and scrutiny of transactions carried
In 2015, the president of Kenya assented several bills
out to ensure consistency with the reporting
relating to the regulatory framework for business
institution’s knowledge of the customer, their
and taxation that were targeted at improving the
business and risk profile, including the source
ease of business. Some of these regulations include
of funds.
the Companies Act, the Insolvency Act, Special
The Proceeds of Crime and Anti-Money Laundering Economic Zones Act, the Business Registration Act
Regulations also apply to any persons (including 2015, the Companies and Insolvency Legislation
directors and senior management) who know or (Consequential Amendments) Act 2015 and the
ought to reasonably know that property forms part Finance Act Amendments 2015.
of the proceeds of crime or who fails to comply with
monitoring and reporting obligations. Failure to As of 2015, any individual attempting to register an
report a restricted activity constitutes a crime. entity is required to hold and provide a Personal
Identification Number (registration for tax purposes),
In 2016, Central Bank of Kenya adopted a Risk Based a copy of their identity card and photographs of the
Supervisory Framework for Anti-Money Laundering directors or partners in the case of a company or
and Countering Financing of Terrorism. The partnership. Companies and co-operative societies
framework was designed to further complement are required to maintain a register of members that
prudential supervisions and legal compliance. should be open and shared with the Registrar of
Companies in the case of a company. On registration,
In 2019, the Government of Kenya proposed to LLPs are required to provide the name, identification
introduce an amendment to the definition of document, nationality and the place of residence of
designated non-financial businesses and professions each partner and manager of the partnership.
required to report suspicious transactions under
the Proceeds of Crime and Anti-Money Laundering The Business Registration Act established the
Act. Section 50 of the 2019 Finance Bill22 includes Business Registration Services to administer
advocates, notaries and other independent legal incorporation, registration, operation and

3
Kenya

management of companies, partnerships and other In relation to trusts, significant improvement is

entities. The body is responsible for monitoring required in the access of competent authorities
these entities and supporting the functions of the to beneficial ownership information.30 Further,
Registrar of Companies including in maintaining advocates have no obligation to identify the
updated ownership information. beneficial owners of their clients.31 This can,
arguably, be extended to other professionals.
Information about companies incorporated in
Kenya is available online via the e-citizen portal.26 As identified above, Kenya has ratified the
The Register of Companies is required to include Mutual Administrative Assistance in Tax Matters
the shareholders, beneficial owners, directors and Convention, which is considered to be a positive
address of the company. This information is only step in supporting exchange of information and
accessible through payment of an administrative transparency.
fee. Information on the beneficial ownership is
limited to the name and address of the identified Kenya does not prohibit the use of nominee
persons; no verification of this information is shareholders and directors; however, the on-
required. In relation to Trusts, Section 54B of the going legislative reform is expected to remedy this
Income Tax Act, Chapter 470 of the Laws of Kenya weakness.32 The Companies Act 2015 prohibits the
(ITA), requires that the full identities and addresses use of bearer shares.33
of trustees, settlors and beneficiaries of the trust be
disclosed to the KRA. As of July 2019, following an amendment of the
Companies Act, it is now mandatory for companies
To support the operationalization of the Mutual to maintain a register of beneficial owners with
Administrative Assistance in Tax Matters Convention, the relevant information relating to the beneficial
the Mutual Legal Assistance Act sets out the owners.34 The relevant information to be provided
procedure for responding to foreign jurisdiction will be determined by the Companies (Beneficial
requests for information and identifies Kenya Ownership Information) Regulations, 201935, which
Revenue Authority as a Competent Authority. are still under review. Companies must submit a copy
of the register to the Companies Registrar within
Beneficial ownership transparency 30 days of preparation, failure to comply results in
a fine of approximately US$5,000. This should give
In 2017, Transparency International Kenya published rise to significant outcomes for transparency given
a report highlighting the state of beneficial that the Companies Act defines the beneficial owner
ownership transparency in Kenya.27 Transparency as a natural person with a threshold of 10% shares
International Kenya assessed the beneficial or voting rights.
ownership transparency legal framework against
the ten beneficial ownership transparency principles Global Forum on Transparency and Exchange of
covering several areas including the definition Information: Key findings
of a beneficial owner, availability and access to
information on legal entities including trusts, roles The Global Forum’s Phase 2 review of Kenya, carried
and responsibility of financial institutions, business out in 2016,36 analysed the practical implementation
and professionals, and bearer shares and nominees. and effectiveness of the legal framework and was
based on the laws, regulations and exchange of
The assessment determined that the anti- information mechanisms in force or effect as at 18
money laundering laws in Kenya adequately December 2015.
defined beneficial ownership, however, minor
shortcomings in the requirements of legal entities Based on a review of the regulatory framework as
to maintain information on all natural persons set out above, the Global Forum staff determined
who exercise ownership or control of the legal that Kenya’s overall rating was largely compliant.
entity were identified.28 In addition, the ability of Some of the justifications included the introduction
enforcement bodies, the tax authority and the of Section 54B of the ITA, the prohibition on bearer
FRC to access beneficial ownership information shares,
requires improvement particularly where the scope
information included in the Register of Companies The Global Forum team did, however, identify that
is limited and no proof of verification is provided.29 the anti-money laundering regime is limited, the
Registrar of Companies did not have a system of
In particular, access to beneficial ownership oversight to monitor compliance with ownership
information relating to private companies is limited. obligations and sanctions for non-compliance were

4
Kenya

not enforced in practice and trustees of Kenyan Centre is not as intense as that of some well-known
trusts are only required to maintain accounting offshore jurisdictions. Due to a lack of consultancy
records where the trust derives income subject to on the framework thus far, it is unknown which
tax in Kenya. direction the Authority will be taking, but progress
should be expected in the coming year.
What does the Nairobi International Financial
Centre mean for the future of transparency in With thanks to Joy Waruguru Ndubai
Kenya?

The Lord Mayor of the City of London Corporation

and one of the City Corporation’s main lobbying
bodies, the City UK, have strongly influenced and
participated in the design and implementation of
the Nairobi International Financial Centre.37

Despite the progress in transparency and exchange

of information, the establishment of the Nairobi
International Financial Centre will be a drastic
move in the wrong direction. International financial
centres thrive on secrecy and incentives, and it has
been demonstrated38 that the proposed Nairobi
International Financial Centre could lead to profit
shifting and base erosion.

In particular, Section 17 of the Nairobi International

Financial Centre Act stipulates that any person
connected to the Nairobi International Financial
Centre Authority or who has access to any
information relating to the affairs of the Authority
shall not divulge any of that information unless
disclosure is required by law or by a Court of
law. Disclosure in contravention of this section
constitutes an offence liable to a fine not exceeding
approximately US $2,000 or an imprisonment term
not exceeding three years or both.

A strong secrecy regime combined with a corruption-

ridden economy is certainly a recipe for disaster
with the potential to facilitate illicit financial activity
without the need of accessing offshore jurisdictions.
The majority of tax havens tend to powerful rich
countries or dependencies of such countries, which
attract money because people trust that their
money is safe in a legal system backed by a stable
democracy.39

As a result, less obviously trustworthy locations

will typically find their ‘competitive edge’ in going
down market, accepting dirtier money than other
jurisdictions.40 The Nairobi International Financial
Centre is expected to permit selected local investors
access on par with foreign investors.41

Already, Kenya’s beneficial ownership transparency

and anti-money laundering regime require
significant strengthening, although the secrecy
element of the Nairobi International Financial

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Endnotes (2000) https://www.imf.org/external/np/mae/

oshore/2000/eng/back.htm; 02.01.2020.
1 World Bank National Accounts Data,
http://data.worldbank.org/indicator/NY.GDP.PCAP. 14 Ibid.
CD?locations=KE; 04.02.2020.
15 Brian Ngugi, Treasury to pick city agen-
2 African Development Bank Group, Kenya cy board, (2019) Business Daily Africa News-
Economic Outlook, African Development Bank paper,https://www.businessdailyafrica.com/
Group (2019): https://www.afdb.org/en/coun- markets/marketnews/Treasury-to-pick-city-agen-
tries/east-africa/kenya/kenya-economic-outlook/; cy-board/3815534-4997102-135skpf/index.html;
14.01.2020. 02.01.2020.

3 FDI Intelligence, The Foreign Direct Invest- 16 National Treasury, http://www.trea-

ment Report, (2016): http://forms.fdiintelligence. sury.go.ke/avoidance-of-double-taxation.html;
com/report2016/files/The_fDi_Report_2016.pdf; 02.01.2020.
04.02.2020.
17 Munda, Constant, ‘KRA says Kenya risks
4 About Kenya Vision 2030, http://www. losing billions in China tax agreement’, (2017)
vision2030.go.ke/about-vision-2030/; 02.01.2020. Daily Nation, http://www.nation.co.ke/busi-
ness/996-4212418-52miiaz/index.html; 02.01.2020
5 Mutava, Catherine and Wanjala, Berna- - Kenya Revenue Authority’s chief manager of the
dette, Taxing for a More Equal Kenya – A Five Point International Tax Office, George Obell, recognised
Action Plan to Tackle Inequality, (2017) Oxfam, 1; that the agreement does not subject interest
https://kenya.oxfam.org/latest/policy-paper/tax- earned by Chinese nationals to tax. China is Kenya’s
ing-more-equal-kenya; 29.01.2020. largest bilateral lender, accounting for 20.9% or
$4.6 billion as at June 2017.
6 ICIJ, Offshore Leaks Database - Sally
Kosgei, (2017) ICIJ, https://offshoreleaks.icij.org/ 18 Central Bank of Kenya, Bank Supervi-
stories/sally-kosgei; 02.01.2020. sion Annual Report 2016, (2017) CBK, accessed
on 3 January 2018 at: https://www.centralbank.
7 ICIJ, Offshore Leaks Database – Ken- go.ke/uploads/banking_sector_annual_re-
ya, (2016) ICIJ, https://offshoreleaks.icij.org/ ports/323855712_2016%20BSD%20ANNUAL%20
search?c=KEN; 02.01.2020. REPORT%20V5.pdf; 02.01.2020.
8 Moses Michira, UN Contractor’s low tax 19 Ibid.
payments draw taxman’s attention, (2019) Stan-
dard Newspaper. https://www.standardmedia. 20 Section 17, PCAML Act.
co.ke/article/2001340513/aviation-guru-on-kra-ra-
dar; 02.01.2020. 21 Schedule 2, PCAML Regulations, The per-
sons who ultimately own or control a customer, the
9 Kenya-Mauritius tax agreement: TJNA wins person on whose behalf a transaction is carried out
case, Oxfam, https://panafrica.oxfam.org/latest/ or a person exercising effective control over a legal
stories/kenya-mauritius-tax-agreement-tjna-wins- person or arrangement.
case; 14.01.2020.
22 http://kenyalaw.org/kl/fileadmin/pdf-
10 Vision 2030 Objectives, http://www. downloads/bills/2019/FinanceBill_2019.pdf;
vision2030.go.ke/projects/?pj=104; 02.01.2020. 02.01.2020.

11 National Treasury Government of Kenya, 23 Geoffrey Mosoku, New plan to stop

Nairobi International Financial Centre, (2017), lawyers from hiding dirty money for clients, (2019)
http://www.treasury.go.ke/nifc/Nairobi%20Interna- Standard Newspaper https://www.standardmedia.
tional%20Financial%20Centre.pdf; 02.01.2020. co.ke/business/article/2001330140/why-dirty-
money-may-no-longer-be-hidden-by-lawyers;
12 Ibid. 02.01.2020.
13 Monetary and Exchange Affairs Depart- 24 Abdi Rizack, Ojienda fights MPs’ bid to
ment, International Monetary Fund (IMF), Off- force lawyers to disclose clients’ transactions,
shore Financial Centers IMF Background Paper, (2019) Star Newspaper, https://www.the-star.

6
Kenya

co.ke/news/2019-08-09-ojienda-fights-mps-bid- archive.org/web/20170910014037/http://www.
to-force-lawyers-to-disclose-clients-transactions/; taxjusticeafrica.net/?p=2866&lang=en; 29.01.2020.
02.01.2020.
39 Supra, note 28.
25 David MWERE, MPs oppose proposed law
on financial reporting by lawyers, (2019) Daily Na- 40 Ibid.
tion Newspaper, https://www.nation.co.ke/news/
MP-lawyers-oppose-finance-law/1056-5278118- 41 Ibid.
pp8luk/index.html; 02.01.2020.

26 https://www.ecitizen.go.ke/ecitizen-ser-
vices.html; 02.01.2020.

27 Desai, Nikhil et al., Towards Beneficial

Ownership Transparency in Kenya: An Assessment
of the Legal Framework, (2017) Transparency
International Kenya, https://tikenya.org/wp-con-
tent/uploads/2017/11/Beneficial-Ownership.pdf;
03.01.2020.

28 Ibid.

29 Ibid.

30 Ibid.

31 Ibid.

32 Ibid., p7.

33 Section 504 of the Companies Act, 2015

34 See Section 93A Companies Act as amend-

ed by the Statute Law (Miscellaneous Amendments
Act No. 12 of 2019)

35 For more, see: https://brs.go.ke/assets/

downloads/Companies%20(Beneficial%20Owner-
ship%20Information)%20Regulations,%202018.pdf;
02.01.2020.

36 OECD, Global Forum on Transpar-

ency and Exchange of Information for Tax
Purposes Peer Reviews: Kenya 2016, (2016)
OECD Publishing, https://www.keepeek.com//
Digital-Asset-Management/oecd/taxation/
global-forum-on-transparency-and-exchange-of-
information-for-tax-purposes-peer-reviews-kenya-
2016_9789264250796-en#page108; 03.01.2020.

37 Shaxson, Nick, ‘Kenya Tax Haven Ap-

proaching: Secrecy to be Enforced with Prison
Terms’, (2016) TJN, https://www.taxjustice.
net/2016/06/28/kenya-financial-centre-approach-
ing-secrecy-enforced-prison-terms/; 05.01.2020.

38 Tax Justice Network Africa, Nairobi Tax

Haven a Step Closer, TJNA (2017); https://web.

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PART 2: SECRECY SCORE

Secrecy Score
63 1. Banking Secrecy
OWNERSHIP REGISTRATION

50 2. Trust and Foundations Register

75 3. Recorded Company Ownership

50 4. Other Wealth Ownership Average: 64

100 5. Limited Partnership Transparency

Key Financial Secrecy Indicators

100 6. Public Company Ownership
LEGAL ENTITY TRANSPARENCY

100 7. Public Company Accounts

100 8. Country-by-Country Reporting

75 9. Corporate Tax Disclosure

100 10. Legal Entity Identifier

75 11. Tax Administration Capacity

INTEGRITY OF TAX AND FINANCIAL

38 12. Consistent Personal Income Tax

REGULATION

100 13. Avoids Promoting Tax Evasion

50 14. Tax Court Secrecy

Notes and Sources
The FSI ranking is based on a combination of a
country’s secrecy score and global scale weighting
(click here to see our full methodology).
50 15. Harmful Structures
The secrecy score is calculated as an arithmetic
average of the 20 Key Financial Secrecy Indicators
70 16. Public Statistics (KFSI), listed on the right. Each indicator is explained
in more detail in the links accessible by clicking on
the name of the KFSI.

A grey tick in the chart above indicates full

compliance with the relevant indicator, meaning
INTERNATIONAL STANDARDS

86 17. Anti-Money Laundering least secrecy; red indicates non-compliance (most

secrecy); colours in between partial compliance.
AND COOPERATION

This report draws on data sources that include

100 18. Automatic Information Exchange regulatory reports, legislation, regulation and news
available as of 30 September 2019 (or later in some
cases).

93 19. Bilateral Treaties Full data is available here:

http://www.financialsecrecyindex.com/database.

To find out more about the Financial Secrecy Index,

45 20. International Legal Cooperation please visit http://www.financialsecrecyindex.com.