How Kenyan has become a nation of dirty cash

Economists and lobbying groups have identified the Kenyan government as one of the primary enablers of illicit financial flows (IFFs), making it increasingly difficult for stakeholders to curb the economic damage caused by these secretive and unlawful transactions.

IFFs refer to the movement of unaccounted money through various channels – often across borders – into individual or group accounts. These transactions typically involve money laundering, smuggling, and tax evasion.

Government entities including the National Treasury, the ministries of Agriculture and Mining, and even religious institutions have been flagged as key players in facilitating these flows.

Regulatory failures

“Lack of proper regulatory framework that would otherwise help streamline operations are not being adequately enforced and that is why in as much as stakeholders try to push for the same, the general public tend to miss out on the actual benefits,” said Grace Mburu, a forensics and anti-financial crimes specialist at Flywheel Advisory, during a July 9 engagement with financial reporters.

Mburu’s remarks come amid growing concerns about transparency in government dealings, particularly following Auditor General Nancy Gathungu’s revelation that Sh44.8 billion collected through the eCitizen digital payments platform during the 2023/2024 financial year cannot be accounted for.

According to the audit report for the year ending June 30, 2024, the government collected Sh100.8 billion through eCitizen, including Sh44.8 billion in revenue attributed to various government receivers.

However, a review of the platform, revenue statements, and ledger records revealed major inconsistencies, raising serious doubts about the completeness and accuracy of the reported receipts. The funds appear to have been siphoned through opaque transactions, unauthorised accounts, and loopholes created by weak oversight mechanisms.

Presidential pledges

This revelation has intensified scrutiny of other cases involving sudden, unexplained public expenditures, including President William Ruto’s recent financial pledge to Harambee Stars, Kenya’s national men’s football team.

During a public engagement with the team, President Ruto promised Sh1 million per goal scored, Sh500,000 for every draw, and an additional Sh600 million if the team wins the 2024 Africa Nations Championship (CHAN). The team would also receive Sh60 million upon reaching the quarter-finals and Sh70 million for advancing to the semi-finals.

“I’m aware that the performance bonus payment plan that had been set by the Sport Cabinet Secretary was to bring your total winning to Sh200 million. I have decided to triple that figure. Guys, it cannot get better than this. Everyone has to do their best now,” he said just hours before the match.

If the team wins the title, President Ruto will have pledged about Sh793 million, an amount exceeding half of the Sh1.3 billion ($10.4 million) prize money allocated by the Confederation of African Football (CAF) for the entire tournament.

While the current fiscal year’s budget allocates Sh29.7 billion to Sports, Culture, and Recreation – with Sh13.5 billion earmarked for the Sports, Arts, and Social Development Fund and smaller amounts for digitisation, anti-doping, and sports institutions – the legality and transparency of reallocating such a substantial bonus remain questionable.

Article 223 of the Constitution permits reallocation of public funds for emerging needs but requires the executive to report such reallocations to Parliament in the next supplementary budget. Sources within the Ministry of Sports indicate that while the Principal Secretary, as the accounting officer, may initiate such payments, Parliament must be notified.

For now, however, the origin of the pledged funds remains unclear, raising serious questions.

“It raises a lot of questions because we have just started a new fiscal year which has a very tight fiscal space,” said one source familiar with current budget constraints.

Religious institutions

These sudden and unverified disbursements extend beyond the sports sector. Religious institutions have increasingly become recipients of large sums from politicians under the guise of donations for projects such as church renovations, community outreach, or new constructions.

These contributions, often amounting to millions of shillings, frequently coincide with political events or elections and are rarely subjected to financial audits or accountability checks. Meanwhile, basic sectors such as education and healthcare continue to suffer from chronic underfunding, particularly in marginalized areas.

“For religious places such as churches, it’s an easy target,” said Mburu. “When questioned by the banks, they will always cite the sources of the huge deposits to be fundraising, and the banks won’t have to come and confirm because they mostly deal with documents.”

In one documented case, a church in Western Kenya received a Sh10 million donation from a high-ranking official during a weekend service, purportedly for a school construction project. Months later, the school still lacks classrooms and no follow-up audits have been conducted.

In another widely circulated incident, a pastor was filmed receiving stacks of cash during a televised prayer meeting, with no details provided about the source or intended use of the funds.

Such incidents mirror classic money laundering strategies, where illegitimate funds are disguised through reputable institutions like churches to gain legitimacy. The trust that churches enjoy, combined with limited regulatory scrutiny, makes them convenient vehicles for injecting questionable money into the formal economy.

Debt transparency

Institutions such as the Institute of Public Finance (IPF) and economists have raised alarms about the government’s continued failure to publish updated reports on the country’s public debt, a lapse viewed as a serious loophole for IFFs.

According to Prof Samuel Nyandemo, an economics lecturer at the University of Nairobi, the government’s refusal to implement a “sink fund” – a dedicated reserve for debt repayment – creates opportunities for rogue State officials to embezzle funds by manipulating public debt figures.

“There’s no transparency on how these figures are generated or what they actually represent,” Nyandemo said.

James Kinyua, a public finance management expert at Transparency International, explained that IFFs typically follow three key stages: placement, layering, and integration.

During the placement stage, illicit funds are introduced into the financial system – often through “smurfing” (depositing small amounts across various accounts), purchasing high-value items, or mixing dirty money with legitimate business revenue.

Layering, the second stage, aims to conceal the source of the money through complex and confusing financial transactions.

“The second stage is somehow overlapping with the first stage where you do so through the different bank accounts while the second step is all about making the trail complex, but largely that’s how it flows,” Kinyua said.

Techniques employed include transferring funds between multiple domestic or offshore accounts, converting cash into money orders or securities, and using shell companies to generate fake invoices – commonly referred to as trade-based laundering.

The final stage is integration, where the laundered money re-enters the economy as seemingly legitimate income or assets. This is typically accomplished by investing in legitimate businesses, purchasing property or stocks, or simply spending the funds on personal expenditures.

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