KENYA - A HAVEN FOR DIRTY MONEY? Live chat begins at 1400 GMT/ 0900 ET Illicit finance flowing into Kenya has jumped five fold in a decade. Kenya is the easiest place in the world to open a shell company. Global financial regulators tag Kenya as a high risk place for money laundering and terrorist finance, and the World Bank is studying the problem for regional anti-corruption agencies. Yet the government is pushing ahead with plans to turn Nairobi into an international financial centre. Is it building instead a major haven for laundering dirty money?
THOMSON REUTERS FOUNDATION HOSTS DISCUSSION ON RISKS OF KENYA TURNING INTO MAJOR MONEY LAUNDERING CENTRE: John Githongo, anti-corruption expert in Kenya; Alex Cobham, illicit flows analyst at the Center for Global Development based in London; and Raymond Baker, president of Global Financial Integrity in Washington. TODAY AT 1400 GMT
Welcome to THOMSON REUTERS FOUNDATION’S live chat on KENYA: A HAVEN FOR DIRTY MONEY? I am delighted that we are joined by top experts in the field of corruption, illicit finance, and its impact on development to take a critical look at some of the trends in Kenya, east Africa’s largest economy and a vital business centre for a fast-growing continent.
Let's get started. First may I welcome our guests. John Githongo, is well known for exposing fraud and bribery under the presidency of Mwai Kibaki and had to flee the country in fear of his life. He has since returned to Kenya where he has founded grassroots advocacy groups to fight corruption and injustice. .... Welcome John, thanks for joinging
Alex Cobham is a research fellow at the Center for Global Development in Europe. His research focuses on illicit financial flows, effective taxation for development, and inequality. He is the author of a range of academic and policy papers on the subject. ..... Hello Alex
And Raymond Baker is president of Global Financial Integrity, the advocacy group based in Washington DC, which has helped put the debate on illicit financial flows into the centre of development policy discussions. ... Good morning (on this side of the Atlantic) Raymond
Morning Stella. And greetings to other participants.
Katy Migiro, Thomson Reuters Foundation correspondent based in Nairobi, also is with us. I would like to start with you Katy........Our reporting on the Kenya Dirty Money story that we published last week began when you remarked that after 10 years living in Nairobi, you were shocked by the explosion in conspicuous wealth – million dollar apartments, fancy cocktail bars, flashy cash – and you were hearing rumblings of concern about a new international financial center. Tell us more about what you are observing in Nairobi.
Raymond - We reached out to GFI and you crunched some data for Thomson Reuters Foundation and found a 20 fold surge in illicit flows into Kenya in the decade to 2010 (or five fold to 2011). That flagged something more than economic growth was at play. Would you explain the significance of those findings? Does it help explain what is going on ?
While Raymond types his answer, take a look at the graphic below showing the rise in illicit inflows into Kenya -- it tells an interesting story
And the latest figures from GFI show that Kenya ranks No 6 in Africa for illicit inflows -- not the worst but up there
Our data indicates that trade mispricing in Kenya is huge. For 2011, the latest year, import underpricing was $1.8 billion. $11.5 billion for the decade. This is done to curtail payments of customs duties and VAT taxes. Where is all this money coming from? I've never known import underinvoicing that wasn't matched with some other way of getting money out of a country. But that mechanism for taking the money back out is unclear.
As a percent of GDP its enormous.
Yes, its over 7 pct of Kenya's GDP. So does that point to more money coming into Kenya to be laundered? Can we make that connection?
Nigeria and Ghana are higher in gross terms. But for most African countries trade mispricing is the biggest source of illicit flows.
What does it suggest about Kenya as a money laundering centre?
Yes, it certainly suggests huge sums being laundered. And you are right in the earlier post, Somali pirates do not account for all of this. Other sources of money are flowing in, but from where? Other East African countries? The emirates?
JOHN - How do you explain what is going on? What makes Kenya so attractive for illicit money, and what role does its long-standing and well publicized problem with political corruption play?
Money laundering is already well developed in the country. Kenya has been rated as the easiest country in the world where an anonymous corporation can be established.
Perfect storm of: sophisticated services sector that enjoys a reputation for professionalism and probity thus far; the growth in transnational crime (drugs, people trafficking etc); and, a government willing to turn a blind eye
The legal and accounting professions here have globalized pretty effectively, with larger firms entering into partnerships across the world that allow transactions that would be illegal in one jurisdiction to be reflected in the books of another arm of the same entity
So the complicitness of government plays a critical role here in your view. Certainly, the Financial Action Task Force, the global financial regulatory body, is unimpressed by Kenya's willingness to enforce its anti-money laundering laws. Others say it just needs to build capacity and skills. Is that letting the government off the hook too easily?
We don't have a capacity problem in Kenya..