Kenya’s Secret Financial Flows
Kenya ranks among the most secretive places in the world for financial flows in and out of the country. According to the Global Finance Integrity Report, these illegal activities cost the Kenyan government a staggering $3.9 billion between 2002 and 2010.
In an effort to fight money laundering, tax evasion, and illicit transactions, the country committed to passing legislation that requires all companies to publish the names and addresses of their real, or “beneficial” owners in a registry. This makes it harder to hide money through anonymous shell companies, or behind a fake owner.
The term “beneficial owner” is useful when contrasted to a nominal owner. By registering the company under the name of a nominee, which could be a friend, family member, or someone hired to appear as the legal owner, the real owner can be hidden. The real owner is therefore free to have conflicts of interest, or to hold positions in public office, because their financial motivations cannot be traced. The absence of proper checks and balances within the Kenyan financial architecture has resulted in limits to full disclosure of information such as contract beneficiaries.
Building from Consolidation to Transparency
Kenya passed the Companies Act of 2015, which consolidated the law relating to the ways that companies are incorporated and registered, how they operate, and a host of other provisions. But this did not go so far as to implement a legal mandate for companies to disclose beneficial ownership information. Therefore, Kenya’s 2016-2018 action plan continued towards transparency by including a commitment to create an open, usable, and publicly accessible beneficial ownership register. This makes Kenya one of the first in Africa and one of only about two dozen countries worldwide to develop a public registry of companies. A number of other countries, such as Armenia, the UK, and the Philippines also are using their OGP action plans to establish beneficial ownership registers.
The information contained in the beneficial register must also be publicized through the website of the procuring company, e-Citizen, Public Procurement Regulatory Authority platforms, public notice boards, and official government publications, meaning that the information is widely available and cannot be hidden from the public.
Though the register should expand to include all companies operating within Kenya, the initial focus was on companies bidding for, and being awarded public procurement contracts, as it most directly concerns the spending of public money.
The government partnered with civil society organizations to share information that will help broaden the number of companies reporting. Some, like InfoNET Africa, even have their own beneficial ownership documents that they can share directly with the Kenyan government. Key government departments have also undertaken training about beneficial ownership, and public forums have been held to discuss the development of the register and its findings.
Fighting Against the Tide: Strong Foundations for Squeezing Out Corruption
The commitment, as implemented, has laid the basis for a major change in access to information on bids and contracts in public procurement and ultimate beneficial owners.
The legal framework it has established, through amendments to the Companies Act in 2015 and Executive Order no. 2 in 2018, requires that information about a supplier or contractor is published so it can be subjected to public scrutiny. The required information includes the identities of the beneficial owners.
The reforms enacted during the 2016-2018 action plan have laid the groundwork for a more comprehensive beneficial ownership register in Kenya. These first steps are complicated, and require struggling against the tide of deeply entrenched business practices that account for billions of dollars in illicit flows.
Kenya continues to advance beneficial ownership transparency through the OGP platform, including through a commitment in its 2020-2022 action plan to expand the scope of the register. It also prescribes the publication of a central public register in an open, centrally-accessible, and machine-readable format.
The development of a beneficial register requires time, significant legal work, and consultation with the public and civil society organizations to develop a road map to eventual complete transparency about financial flows within (and into and out-of) Kenya.
When fully implemented, the new law and public register will be a powerful tool for investigators, public watchdogs and journalists to expose conflicts of interest and wrongdoing, which will provide a much-needed foothold in the fight against corruption.
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