The Kenyan Asset Recovery Agency (ARA) has dropped money laundering charges against three Nigerian companies because the source of the funds was adequately explained.
The agency asked the High Court in April 2022 to halt any transfers or withdrawals of the three companies’ Sh5.6 billion ($48.6 million).
At the time, it was said that the money came from money laundering and that the firm’s leaders were helped by a prominent politician. Kenyan media said that the directors of the affected companies didn’t want to meet with the ARA while investigations were still going on.
Since then, other Nigerian businesses—Flutterwave being the most well-known—have been caught up in a web of money laundering accusations in East Africa. Kando Technologies, Kiwipay, and Korapay were a few of the startups that were involved in the dispute.
A few people believed that these were politically motivated when the news first surfaced because Kenya was getting ready for its presidential elections. However, it also highlights how difficult it is to set up cross-border payments in Africa.
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The ARA had asserted that every company was a part of a money-laundering conspiracy, but a close source revealed that neither Flutterwave nor Korapay had conducted any business in Kenya.
With this new development, it’s possible that the accusations against Flutterwave, Korapay, Kiwipay, and all the other concerned businesses will be withdrawn.
Visiting Kenya’s Money Laundering Feud With Nigerian Fintechs
The freezing of 56 accounts, many of which belonged to Nigerian fintech giant Flutterwave, was ordered by a Kenyan high court, according to an announcement made by the Kenyan website Star.co on July 6, 2022. The Asset Recovery Agency of Kenya (ARA) told the court that the accounts were probably being used to launder money, so the court decided to freeze these accounts, which had a total of Ksh7 billion ($59 million).
Huge emotions accompanied this revelation, and although Flutterwave’s situation didn’t seem promising given its recent scandals, things weren’t looking bright for other Nigerian fintech firms either.
A Kenyan high court once more ruled on July 14, 2021, to freeze the accounts of two further Nigerian fintech businesses, Korapay and Kandon Technologies, with the sum of ksh 45 million ($380,000).
The ARA said that both businesses moved money in the wrong way, which caused up to $6 billion to be stolen. It was also said that there was a link between both businesses, Flutterwave and the companies it works with and accused of money laundering.
In their public statements, both Flutterwave and Korapay have said that these claims are not true. While Flutterwave said that the accusations were untrue, it made no further mention of the situation’s facts.
On the other hand, Korapay clarified that the relevant frozen money is absolutely a requirement for obtaining a payments processing license in Kenya.
However, the problems are serious, and Kenya has previously blacklisted several Nigerian businesses. The Kenyan government has so far placed a billion dollars worth of funds that belonged to Nigerian businesses on ice.
Globally, there are extremely strong laws against money laundering, and they need to be revised frequently. The UN thinks that people who try to hide where illegally obtained money came from creating between 2% and 5% of the global GDP, or between $800 billion and $2 trillion, using foreign banks or legal businesses as fronts.
Money laundering schemes can involve a business or its founder directly, or customers of financial institutions can find ways to get around the law to speed up their criminal prosecution.
Because of the risk of financial loss, organized crime, and terrorism, the financial industry has some of the strictest rules in the world. Despite the rigorous laws that financial services organizations must follow, money laundering nevertheless drains the global economy of an average of $1.6 trillion per year.
Observations
According to research, Fintechs have higher risks than traditional financial companies. Traditional finance companies have long struggled to keep up with the dynamism of fraudsters who keep coming up with new ways to launder money.
The emergence of fintechs has changed how the world views the financial services industry. Due to their rapid growth and a large number of transactions, fintechs are vulnerable to several bad actors who may be hard to control. Kenya’s Proceeds of Crime and Anti-Money Laundering Act (POCAMLA) 2009 has a lot of rules to stop money laundering schemes and other serious financial crimes.
An airtight system is never completely secure, and when the organization in question is a fintech, this might happen frequently. In light of this, regulators either modify or update any current frameworks.
Kenya’s Proceeds of Crime and Anti-Money Laundering Act (POCAMLA) 2009 has a lot of rules to stop money laundering schemes and other serious financial crimes.
Because of this, the ARA was made. Its job is to find, identify, freeze, seize, and take away the money made from crimes in Kenya. The National Financial Intelligence Unit is a comparable organization in Nigeria (NFIU).
Regulation-related problems frequently do not reach the ARA. The burdensome task of making sure financial services providers adhere to these rules is carried out by the Central Bank of Kenya (CBK). When businesses don’t follow these rules and the CBK can’t keep an eye on them directly, the ARA will have to step in.
In most countries, when a bank notices a questionable transaction, it marks the account as suspicious and asks the consumer to explain its purpose. In more severe situations, In Nigeria, the bank could tell the NFIU what happened, or if it was a big enough deal, the organization could get involved.
It’s important to note that even if the ARA freezes the accounts, it will still need to establish if the persons in question committed any violations.
So far, the agency has gotten some well-known court rulings that froze the bank accounts of questionable companies.
