2nd Annual General Meeting and Conference of African Organization of Public
Account Committees (AFROPAC)
Remarks by Dr. Patrick Njoroge
Governor, Central Bank of Kenya
August 30, 2016 - Safari Park Hotel, Nairobi
As prepared for Delivery
It is a privilege for me to join this panel to discuss the role of banks and the securities
markets in curbing the movement of illicit financial flows. I would like to take this
opportunity to thank the African Organization for Public Account Committees
(AFROPAC) for inviting me to speak on this topical issue. I would also like to recognize
and appreciate AFROPAC’s role in promoting transparency and accountability in the
governance of public resources.
It is apt to note that the topic of illicit financial flows was recently highlighted at the 14th
Session of the United Nations Conference on Trade and Development (UNCTAD) that
recently convened in Nairobi about a month ago, a meeting that brought together Heads of
States and Governments, and key stakeholders from the business world and civil society.
The damaging effects of illicit financial flows on the African continent are now welldocumented and it is only fitting that AFROPAC has brought the issue to the fore.
Stemming illicit financial flows from developing countries has emerged as one of the key
issues shaping the global development agenda. As you are aware, Goal No. 16 of the
Sustainable Development Goals (SDGs) under the United Nations 2030 Agenda for
Sustainable Development, commits to “significantly reduce illicit financial and arms
flows, strengthen the recovery and return of stolen assets and combat all forms of
organised crime”1. There are good reasons for this:
1 United Nations Sustainable Development Goals (September 2015)

• First, the amounts involved are massive. With assistance from the IMF and the World
Bank, the advocacy group Global Financial Integrity (GFI) has estimated that Africa
loses about US$50 billion annually to illicit financial flows2. Additionally, According
to the Report of the High Level Panel on Illicit Financial Flows, between 1970 and
2008, Africa lost an estimated US$854 billion in illicit financial flows.3 This amount is
equivalent to the development assistance received by the continent over the same
period.
• Second, illicit financial flows have far-reaching effects, particularly on the African
continent. These flows and the activities that support them have been shown to lead to
increasing inequality in the source countries, in addition to undermining the economic
and social institutions, discouraging transparency, and undermining international
development cooperation.
• Third, all countries are involved in this fight, and there are no winners if illicit
financial flows are not dealt with.
It is noteworthy that the financial sector is the most common conduit for illicit financial
flows. This is largely attributed to the interconnection between national and international
financial systems, which can thereby provide a wider geographical reach through which
illicit financial assets are moved and laundered. The financial sector, therefore, has to be at
the forefront of the agenda to stem illicit financial flows.
Nevertheless, in order to develop and implement policies that would appropriately address
the issue of illicit financial flows it is important to appreciate the vulnerabilities of African
financial systems. More importantly, to understand how they enable or facilitate the
movement of illicit financial flows.
Available at:
2 Global Financial Integrity (2010) Illicit Financial Flows From Africa Hidden Resource for Development
Available at
3 Stop it! Track it! Get it! Report of the High Level Panel on Illicit Financial Flows From Africa (2015)
Available at

Most of our economies are characterized by the presence of informal financial systems
that are primarily cash based. However, significant gains have been made in increasing
the level of financial inclusion, most notably in Sub-Saharan Africa, where countries like
Kenya and Tanzania have embraced mobile and financial products and services. But the
overall level of financial inclusion in Africa remains low. Only a small percentage of the
population has bank accounts, and the percentage of those owning insurance policies and
securities is even lower. This is relevant given that it serves to hamper efforts to trace
illicit financial flows from the continent.
Weak banking regulatory and supervisory frameworks has largely hindered the effective
implementation of initiatives aimed at reducing illicit financial flows from Africa. This is
reflected at the national level, given that most African countries are yet to fully adopt and
implement the 2012 Financial Action Taskforce (FATF) recommendations, the
international standards on combating money laundering and the financing of terrorism.
The FATF standards are a comprehensive framework of preventive measures that
financial institutions are required to implement to address threats to the financial system
including illicit financial flows.
Recent assessments of several African countries Anti-Money Laundering and Combating
the Financing of Terrorism (AML/CFT) regimes conducted by the Eastern and Southern
Africa Anti-Money Laundering Group (ESAAMLG), a FATF regional body, revealed that
most countries generally exhibit a low level of compliance with preventive measures.4 The
implementation of customer due diligence, in particular the identification and verification
of beneficial owners of corporate entities remains a significant challenge. Closer
international cooperation is also needed.
The lack of institutional, technical and human capacity also hampers financial sector
regulators’ ability to curtail the movement of illicit financial outflows from financial
institutions in Africa. The necessary infrastructure that would support regulators efforts to
combat illicit financial flows such as Financial Intelligence Units (FIUs), beneficial
ownership registries or asset recovery units are either non-existent or in the early stages of
development. As a result, the requisite skills required for tracking illicit financial flows,
4Massa I. (2014) ‘Capital Flight and the Financial System’ Overseas Development Institute (ODI) Working Paper 413
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including the ability to profile money laundering risks and analyse suspicious transactions,
are severely lacking and in short supply within the continent. New technologies can help
but could also facilitate illicit financial flows.
I cannot overemphasise the need for African countries to develop mechanisms that will
facilitate transparency. Adoption of mechanisms such as the Kimberley Process for
diamonds or the Extractive Industries Transparency Initiative (EITI) would help. In
addition, lifting the veil of secrecy and determining who ultimately owns and controls
corporate entities that have established business relationships with financial institutions
exposes wrongdoing and disrupts a key vehicle for illicit financial flows. In this regard, I
would therefore urge the continent’s legislatures to consider implementing changes to our
national laws that would enhance our national registries, particularly as relates to the
obtaining and sharing of beneficial ownership information.
I would be remiss if I did not mention the Kenyan experience and initiatives that the
Central Bank of Kenya (CBK) has adopted in order to foster transparency within the
Kenyan financial system. In the past year, CBK has adopted the following measures:
• Stepped up close collaboration with the Financial Reporting Centre (FRC)—Kenya’s
financial intelligence unit (FIU)—to foster a culture of compliance in the banking
sector. Emphasis has been placed on the preventive measures outlined in the Proceeds
of Crime and Anti-Money Laundering Act (POCAMLA), Kenya’s primary anti-money
laundering legislation.
• Provided additional clarity on reporting obligations under POCAMLA including the
issuance of guidelines on large transactions in January 2016, intended to provide a
clear trail of large cash transactions conducted over the counter in banks.
• Enhanced AML/CFT on-site inspections. CBK is currently developing a risk based
AML/CFT supervisory framework with assistance from the International Monetary
Fund (IMF).
• Required greater transparency on the part of banks to ensure public confidence.
Transparency extends to disclosures by banks on their corporate governance and risk
management structures. In this regard, CBK has enhanced the disclosures by banks on
their significant shareholders. Banks are now required to disclose on their websites
details of significant shareholders who own 5 percent or more shareholding.

Let me take the few remaining minutes to share with you some of our key lessons relating
to money laundering, particularly with respect to illicit financial flows:
i) Kenya’s financial sector is very vulnerable given its strategic position in the region,
facilitated by easy access through sea ports, airports and land. Kenya is a fast
growing economy with high potential especially in the financial sector. It is therefore
attractive to both well-intentioned and ill-intentioned investors.
ii) Inter-agency cooperation between the financial sector regulators, law enforcement
agencies and the financial institutions has had a positive effect in stemming illicit
financial flows.
iii) The perpetrators of money laundering are very smart and sophisticated, ready to take
advantage of any existing loopholes in the law and weaknesses in the internal
controls of financial institutions.
iv) Regular interaction with international bodies tasked with the responsibility of
preventing money laundering is key in shaping or improving a country’s institutional,
legal and regulatory framework in combating illicit financial flows.
In conclusion, the battle against illicit financial flows in Africa cannot be won
singlehandedly. Governments, legislatures, the judiciary and the private sector must come
together. Tackling the underlying sources of illicit financial flows is imperative. For the
African financial sector, investment must be made in strengthening preventive measures.
Surveillance, detection and recovery procedures must be enhanced. With this
comprehensive approach, Africa will be well armed to combat the scourge of illicit
financial flows.
I look forward to benefiting from your thoughts and diverse experiences.
Thank you for your attention.