Presentantion On AML - Internal Auditors-13.06.2018

INTERNAL AUDITORS’ 16TH ANNUAL
CONFERENCE HELD ON 13TH – 15TH

JUNE 2018 AT SAROVA WHITESANDS,
The
Ethics and
MOMBASA
Anti-Corruption
Commission
BY DAVID TOO
DIRECTOR, LEGAL SERVICES
DIRECTORATE
EACC
Outline
• Introduction
The
Ethics and
• History of Anti-Money Laundering Legislation
Commission
•
Anti-Corruption
Definition of concepts
• Provisions of POCAMLA
• Bodies established under POCAMLA
• Anti-Money Laundering and Internal Audit
• Recommendations
Introduction (1)
• Corruption and economic crimes offences are
often driven by the expected financial gain.
The
Ethics and
• The fight against corruption is inseparably
Anti-Corruption
Commission
intertwined with that against money
laundering; in that the stolen assets of a
corrupt public official are useless unless they
are laundered through the financial network in
a manner that does not raise suspicion.
TUKOMESHE UFISADI TUIJENGE KENYA

Introduction (2)
• POCAMLA 2009 grants wide sweeping powers to
investigative bodies to trace, preserve and recover
illegally acquired assets through financial investigations
The
Ethics and
• This
Anti-Corruption topic will elucidate the major concepts in
Commission
POCAMLA and the provisions of POCAMLA relevant,
financial investigations, asset tracing and recovery.
• The topic will cover the bodies established under

POCAMLA
• Recommend actions for Internal Auditors in the fight

against money laundering

History of Anti-Money
Laundering Legislation (1)
• Establishment of Financial Action
The Task Force on Money Laundering
Ethics and
Anti-Corruption (FATF)-G7 summit of 1989
Commission
• 1990, the FATF issued a report with
40 recommendations
• 2001, the development of standards
and recognised as the global anti-
money laundering (AML) and counter-
terrorist financing (CFT) standard
• revise of the FATF standards in 2003,
2004 and 2012

History of Anti-Money
Laundering Legislation (2)
• Kenya is a member of FATF and has
The signed and ratified all of the United
Ethics and
Anti-Corruption Nations (UN) Conventions on
Commission
combating Money Laundering and the
Financing of Terrorism.
• The enactment of Proceeds of Crime
and Anti-Money Laundering, 2009.
(POCAMLA)was Kenya’s first major
step in aligning to the global anti-
money laundering (AML) and financial
crime standards.

Proceeds of Crime and Anti-money
Laundering Act, 2009 (POCAMLA)
An Act of Parliament
The •to provide for the offence of money laundering,
Ethics and
Anti-Corruption
Commission
•to introduce measures for combating the
offence,
•to provide for the identification, tracing,

freezing, seizure and confiscation of the
proceeds of crime, and
•for connected purposes

What is Money Laundering?
Money-laundering is the process that disguises
illegal profits without compromising the
The
Ethics and
criminals who wish to benefit from the proceeds.
Anti-Corruption
Commission
There are two reasons why criminals - whether
drug traffickers, corporate embezzlers or corrupt
public officials - have to launder money: the
money trail is evidence of their crime and the
money itself is vulnerable to seizure and has to
be protected. Regardless of who uses the
apparatus of money-laundering, the operational
principles are essentially the same.

The
Ethics and
Anti-Corruption
Commission

Stage I: Placement
Initial entry of the "dirty" cash or

The proceeds of crime into the financial
Ethics and
Anti-Corruption system
Commission
• It is during the placement stage that
money launderers are the most
vulnerable to being caught as it
involves large transactions.
• Methods include: Loan Repayment,
Gambling, Currency Smuggling,
Currency Exchanges, Asset
Purchase, Bank Complicity

Stage II: Layering/structuring
(complex)
The international movement of the funds.
The
• Purpose-to separate the illicit money
Ethics and from its source.
Anti-Corruption
Commission • Methods:
 moving funds electronically from one
country to another
 divide them into investments placed in
advanced financial options or overseas
markets;
 constantly moving them to elude
detection;

Stage III: Integration
Making the money available to the

The criminal from what seems to be a
Ethics and
Anti-Corruption reputable source.
Commission
Methods: Purchasing luxury good&
making large-scale investments
The business may carefully follow all
other regulations in order to avoid
detection, such as carefully paying all
employee and business taxes and filing
tax returns on a timely basis

Money Laundering is defined under
POCAMLA (1)
• Money Laundering is defined in a number of ways
under Sections 3, 4 and 7 of the Act as follows:
The • 1. A person who knows or who ought reasonably
Ethics and to have known that property is or forms part of the
Anti-Corruption
Commission
proceeds of crime and –
• a) Enters into any agreement with anyone in
respect to that property irrespective of whether that
agreement is legal or not; or
• b) Performs any other act, either independently
or with another person, in respect to that property
whose effect is to conceal the source, or assist any
person who has committed an offence to avoid
prosecution or remove any property acquired as a
result of the commission of an offence.

Money Laundering is defined under
POCAMLA (2)
• 2. A person who acquires, uses, or

The has possession of property and who
Ethics and
Anti-Corruption knows or ought to reasonably have
Commission known that it is or forms part of the
proceeds of crime.
• 3. A person who, knowingly

transmits, or receives or makes an
attempt to transmit or receive a
monetary instrument or anything of
value to another person, with intent to
commit an offence.

Penalties under POCAMLA
o Section 16 POCAMLA
The o Imprisonment for a term not exceeding
Ethics and
Anti-Corruption fourteen years, or a fine not exceeding five
Commission
million shillings or the amount of the value of
the property involved in the offence,
whichever is the higher, or to both the fine
and imprisonment; and
o in the case of a body corporate, to a fine not
exceeding twenty-five million shillings, or the
amount of the value of the property involved
in the offence, whichever is the higher.

Proceeds of Crime is defined
as:
• Any property or economic advantage

The derived or realized, directly or
Ethics and
Anti-Corruption indirectly, as a result of or in
Commission connection with an offence.
• Any property derived or realized
directly from the offence and later
successively converted, transformed or
intermingled,
• Income, capital or other economic
gains or benefits derived or realized
from such property from the time the
offence was committed;

Realizable Property (1)
Section 2: Interpretation "realizable property"
means —
The
Ethics and •(a) property laundered;
Anti-Corruption
Commission •(b) proceeds from or instrumentalities used
in, or intended to be used in money laundering
or predicate offences;
•(c) property that is the proceeds of, or used, or
intended or allocated for use in, the financing
of any offence; and
•(d) property of corresponding value.

Realizable Property (2)
Section 57. Realizable property
(1) Subject to the provisions of subsection (2),
The
Ethics and
the following property shall be realizable in
terms of this Part—
Anti-Corruption
Commission
(a) any property held by the defendant
concerned; and any property held by a person
to whom that defendant has directly or
indirectly made any affected gift.
(2) Property shall not be realizable property so
long as a forfeiture order is in force in respect
thereof.

Is Money Laundering a
Stand Alone Offence? (1)
• A question arises as to whether a
The finding must have been made that the
Ethics and
Anti-Corruption property is, or forms part of proceeds
Commission
of crime before one can be charged
with the offence of money laundering.
Specifically, whether money
laundering proceedings are
‘standalone’ or can only be proceeded
on prior poof of a predicate offence or
crime upon which the charges are
dependent.

Is Money laundering a stand
alone offence? (2)
• Predicate offences
The – Corruption: ACECA
Ethics and
Anti-Corruption – Drug trafficking
Commission – Human trafficking and child exploitation
– Wildlife trophies and endangered species
trafficking
– Prevention of Organised Crime Act, No. 59
of 2010
– Section 2 POCAMLA adopts an all crimes
approach with respect to predicate

Is Money Laundering a
Stand Alone Offence? (3)
This question was answered his
The Lordship Justice J.L.O. Onguto (RIP) in
Ethics and
Anti-Corruption the case of Republic v Director of
Commission
Public Prosecutions & Another Ex-
Parte Patrick Ogola Onyango & 8
Others (2016) eKLR.
•Prosecution need not prove that there existed a
conviction or an affirmation of a predicate
offence prior to any charges of money
laundering.
•The offence of money laundering must
be deemed as ‘stand-alone’ offence.

Is Money Laundering A Stand
Alone Offence? (4)
• This question was answered his Lordship
The Justice J.L.O. Onguto (RIP) in the case of
Ethics and
Anti-Corruption Republic v Director of Public Prosecutions
Commission
& Another Ex-Parte Patrick Ogola
Onyango & 8 Others (2016) eKLR.
• Prosecution need not prove that there existed
a conviction or an affirmation of a predicate
offence prior to any charges of money
laundering.
• There is no need to await any prior
convictions of other offences before launching
the prosecution of alleged money launderers

Justice J.L.O Decision
• Section 3 of POCAMLA 2009 outlines

The the offence of money laundering as
Ethics and
Anti-Corruption may be committed by third parties. It
Commission
is for the prosecution of those who
launder on behalf of others….to help
the state to catch up with persons
who in the cause of their business or
otherwise facilitate money laundering
by or on behalf of others and
especially the originators of the crime.

Justice J.L.O’s Decision
In making the findings above, the Hon. Judge

The observed that the intention of the legislation
Ethics and (POCAMLA) was to dispense with the need to
Anti-Corruption
Commission
prove a predicate offence before laying a charge
of money laundering. He remarked as follows:
“153. The principal offender who committed the
predicate offence may never be there to be
prosecuted, yet access to the proceeds of crime
would have been achieved. He may have left
jurisdiction with assistance of others. He may be
a fugitive. He may have passed on. Behind him
though, he would have left money launderers. If
the principle offender may not be indicted, would
it then mean that the money laundered would
never be prosecuted?...”

Bodies created under the Act
(1)
The Act creates the Anti-Money Laundering
Advisory Board, Asset Recovery Agency and
The
the Financial Reporting Centre. These bodies
Ethics and are intended to assist with the identification of
Anti-Corruption
Commissionproceeds of crime and combating money
laundering in compliance with international
standards and to collaborate with similar bodies
Bodies created under the Act
in other countries regarding anti-money

laundering efforts and related offences.

Bodies created under the Act (2)
• Financial Reporting Centre

• The principal objective is to assist in the
The
Ethics and
identification of the proceeds of crime and
Anti-Corruption the combating of money laundering and the
Commission
financing of terrorism.
• Registers and maintains a register of
reporting institutions, receives reports on
suspicious activities or transactions, receives
cash transaction reports that meet a given
threshold from, and receives reports on
cross-border conveyancing of monetary
instruments.

Financial Reporting Centre
• FRC analyses the aforesaid reports

The and disseminates intelligence to
Ethics and
Anti-Corruption investigating authorities including the
Commission
Ethics and Anti-Corruption
Commission (EACC), Directorate of
Criminal Investigation (DCI), National
Intelligence Service (NIS); authorities
such as the Kenya Revenue Authority
(KRA), Capital Markets Authority
(CMA) and supervisory bodies.

Reporting Institutions
• Financial Institutions and

The
Ethics and
• Designated Non-Financial Businesses
Anti-Corruption and Professions (DNFBPs) - Casinos,
Commission
Motor Vehicle Dealerships, Real Estate
agencies, Dealers in Precious Metals, and
Dealers in Precious Stones, accountants both
sole practitioners or partners in their
professional firms, and such other business
or profession in which the risk of money
laundering exists as the Minister may, on the
advice of the FRC, declare

Obligations of Reporting Institutions
• Monitoring and Report

The Monitor on an ongoing basis complex, unusual, large
Ethics and transactions whether complete or not and;
Anti-Corruption
Commission  Report to the FRC all suspicious transactions including
attempted transactions immediately or within 7 days of the
date of transaction or activity
 Examine background and purpose of transactions and
record findings in writing which shall be retained for 7 years
and made available to the FRC, supervisory bodies or
auditors
 File Cash Transaction Reports equivalent to or exceeding
USD 10,000 whether they appear to be suspicious or not.
 FRC may require to be furnished with further particulars
concerning reported suspicious transactions.

Obligations of Reporting
Institutions
• Undertake Customer due Diligence;

The Identify customer, beneficial owner,
Ethics and
Anti-Corruption nature of business, financial status
Commission
• Establish and maintain customer
records;
• Establish and maintain internal
reporting procedures; and
• Register with the FRC
• Undertake Money Laundering Risk
Assessment
• Prevent use of New Technologies in
Money Laundering
Obligations of Reporting
Institutions
• Ensure foreign branches and subsidiaries
observe AML Measures
The • Undertake Correspondent Relationship
Ethics and
Anti-Corruption measures
Commission
• No dealings with shell banks
• Wire transfers; ensure availability of
information accompanying transfers
• Establish legitimacy of source of funds
• Appoint Money Laundering Reporting
Officer
• Independent Audit to check Compliance

• FRC has powers under Section 24B of POCAMLA

The to impose civil penalties for non-compliance by a
Ethics and reporting institution:
Anti-Corruption
Commission (a) liability against a natural person is a
monetary penalty not exceeding Kshs. 5 Million;
(b) Liability against a corporate body is a monetary
penalty not exceeding Kshs. 25 Million;
(c) in the case of continued failure, the person or
reporting institution shall be liable to an additional
monetary penalty of Kshs. 10,000/- per day on
which such failure continues for a maximum
period of one hundred and eighty days.

• Under Section 24C the FRC had powers to

The
Ethics and
take administrative action for non-
Anti-Corruption compliance including issuing an order to a
Commission
competent supervisory authority requesting
the suspension or revocation of a license,
registration, permit or authorization of the
defying reporting institution or its employees.

Asset Recovery Agency
The Agency is created among other tasks in charge of

recovery of assets that are suspected to have been
The acquired illegally or with illegally acquired finances.
Ethics and
Anti-Corruption
Commission
•The Agency has mandate under Part VII POCAMLA to
apply for Confiscation Orders whenever a Defendant is
convicted of an offence. If the court finds that the
defendant has so benefited, the court shall, in addition
to any punishment which it may impose, make an
order against the defendant for the payment to the
Government of any amount it considers appropriate.

Value of the Proceeds of
Crime
• The value of the defendant’s proceeds

The of crime shall be the sum of the
Ethics and
Anti-Corruption value of the property, services,
Commission
advantages, benefits or rewards
received, retained or derived by him
in connection with the offence
committed by him or any other
person.

Evidence relating to proceeds of
crime
For the purpose of determining whether

The a defendant has derived a benefit, if is
Ethics and
Anti-Corruption found that the defendant did not, at the
Commission
fixed date, have legitimate sources of
income sufficient to justify the interests
in any property that he holds, the court
shall accept this fact as prima facie
evidence that the interests form part of
the benefit.

Restraint Orders
• The Agency can apply to Court for a restraint

The order prohibiting any person from dealing in
Ethics and any property subject of the investigations:
Anti-Corruption
Commission • To facilitate criminal investigations,
• Where there is reasonable cause to believe
that a person leads a criminal lifestyle and
has benefited from his criminal conduct
• Where a prosecution for an offence has been
instituted against the defendant concerned
• Where either a confiscation order has been
made against a Defendant or it appears to the
Court that there are reasonable grounds that
a confiscation order will made

• The Agency is mandated under Part VIII POCAMLA
to apply to Court for preservation and recovery of
The
Ethics and property suspected to be from proceeds of crime.
Anti-Corruption
Commission
• The Agency may apply to Court for preservation of
property suspected to be or has been used in the
commission of an offence or is from proceeds of
crime.
• The Agency through a publication in the Kenya

Gazette is required to notify all persons who have
an interest on the property of the existence of the
preservation order. Such notice is for purposes of
giving an affected party an opportunity for oppose
the making of a forfeiture order.

• Section 85 empowers a police officer to seize
The property, subject of a preservation order, if he
Ethics and has reasonable grounds to believe that the
Anti-Corruption
Commission
property will be disposed or removed.
• Preservation orders have a time duration of
90 days.
• Before the lapse of the 90 days, the agency
may make an application to court for
forfeiting the property subject of the
preservation order.

Examples
 Preservation Orders of 8 parcels of land
The suspected to have been purchased out of the
Ethics and
Anti-Corruption Kshs. 791 Million illegally paid out by the
Commission NYS See H.C (Nairobi) Miscellaneous
Application No. 524 of 2015 Asset Recovery
Agency v Josephine Kabura Irungu & 7 Others
 Preservation orders freezing property
belonging to four suspected drug traffickers
including eight vehicles and Kshs. 21 Million.
See H.C (Mombasa) Misc Civil Application
No. 195 of 2017 Asset Recovery Agency v
Stephen Vicker Mangira & 2 Others

Examples
 Preservation Orders for Kshs. 19,688,152.35 held
The in Bank Accounts Numbers xxxxxxxxxx in the
Ethics and name of Pamela Aboo, Equity Bank Limited
Anti-Corruption
Commission Donholm Branch Nairobi. See Assets Recovery
Agency v Pamela Aboo ACEC Application No. 58
of 2017
 Prohibition order against the transfer and or
disposal off or other dealings (Howsever Described)
with the property known as Duplex Apartment No.
C16 Situated on L.R. NO. 209/5990/13 GRANT
NO. 18295/9 Asset Recovery Agency v
Quorandum Limited & Another ACEC
Miscellaneous Application No. 32 OF 2016

Protection of third parties
Third parties who have an interest on property

subject of forfeiture but without knowledge of
The the same being from proceeds of crime are
Ethics and protected under Section 93 POCAMLA. Such
Anti-Corruption
Commission
third party may apply to the Court before a
forfeiture order is made proving that:
•He was not in any way involved in the commission of
the offence; and
•He acquired the interest in the property during or
after the commission of the offence (1) for sufficient
consideration and (2) without knowledge that the
aforesaid was tainted property.
•Following such application, the court shall make an
order declaring the nature, extent and value (at the
time the order was made) of the person’s interest.

Criminal Assets Recovery Fund
• Moneys derived from the fulfilment of

The confiscation and forfeiture orders and
Ethics and
Anti-Corruption any money or property recovered
Commission
under the Anti-Corruption and
Economic Crimes Act, 2003shall be
deposited in the Criminal Assets
Recovery Fund established under
Section 109 POCAMLA.

International Assistance
• Part XII of the Act provides for international

The assistance in investigations and proceedings. The
Ethics and
Anti-Corruption Attorney General can arrange for:
Commission
 evidence, information, documents or articles to be
obtained from the requested country;
 a warrant or other instrument authorising search
and seizure to be obtained and executed in the
requested country;
 a person from a requested country to come to Kenya
to assist in the investigation or proceedings;

International Assistance
 a restraint order or forfeiture order

The
Ethics and made under this Act to be enforced in
Anti-Corruption
Commission that country;
 an order or notice under this Act to be
served on a person in that country; or
 other assistance to be provided,
whether pursuant to a treaty or other
written arrangement between Kenya
and that country.

The
Ethics and
Anti-Corruption
Commission

Investigative Challenges in MLA
• International Banking Transactions

The
Ethics and
– Different authorities have different pieces
Anti-Corruption of the puzzle
Commission
– Mutual Legal Assistance Procedures –
Stringent, elaborate
• Use of Trust and Corporation Structures to
Frustrate Investigation
• Costs of Financial Expertise

Anti-Money Laundering and the
Internal Auditor
Money Laundering Scandals

The
Ethics and
Imperial Bank
Anti-Corruption
Commission Charter House Bank
Kshs. 791 Million National Youth
Service

• Dubai Bank
The
Ethics and
The founder and chairman of Dubai Bank,
Anti-Corruption which was placed under receivership in
Commission
August by the regulator, is alleged to
have used depositors’ funds to
guarantee his private companies to the
tune of Sh1.6 billion.
The CBK discovered that Hassan Zubeidi
had amassed substantial wealth
through irregular insider lending deals
he covered up by cooking books.

Recommended Actions for
Internal Auditors
• Whistle Blow (Ministry of Health

The Scandal) or Make anonymous report
Ethics and
Anti-Corruption to investigative agencies eg EACC
Commission
• Disclose suspicious transactions
property represents proceeds of crime
to Money Laundering Reporting
Officer
• Be the first line of defense against
money laundering scrutinize books
and should notice any irregularities

Recommended Actions for
Internal Auditors
• Undertake performance audits in line

The with Section 11(2)(c) of the Public
Ethics and
Anti-Corruption Finance Act, 2004.
Commission
• The regulator/professional body –
ICPAK should lobby for the
Amendment of the Accountants Act to
provide for stiffer penalties where
auditors are found to be culpable for
manipulating financial statements.

End
The
Ethics and
Anti-Corruption
Commission
TUKOMESHE UFISADI TUIJENGE KENYA 52

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INTERNAL AUDITORS’ 16TH ANNUAL

CONFERENCE HELD ON 13TH – 15TH

TUKOMESHE UFISADI TUIJENGE KENYA

• The topic will cover the bodies established under

• Recommend actions for Internal Auditors in the fight

TUKOMESHE UFISADI TUIJENGE KENYA

TUKOMESHE UFISADI TUIJENGE KENYA

TUKOMESHE UFISADI TUIJENGE KENYA

•to provide for the identification, tracing,

TUKOMESHE UFISADI TUIJENGE KENYA

TUKOMESHE UFISADI TUIJENGE KENYA

TUKOMESHE UFISADI TUIJENGE KENYA

Initial entry of the "dirty" cash or

TUKOMESHE UFISADI TUIJENGE KENYA

TUKOMESHE UFISADI TUIJENGE KENYA

Making the money available to the

TUKOMESHE UFISADI TUIJENGE KENYA

TUKOMESHE UFISADI TUIJENGE KENYA

• 2. A person who acquires, uses, or

• 3. A person who, knowingly

TUKOMESHE UFISADI TUIJENGE KENYA

TUKOMESHE UFISADI TUIJENGE KENYA

• Any property or economic advantage

TUKOMESHE UFISADI TUIJENGE KENYA

TUKOMESHE UFISADI TUIJENGE KENYA

TUKOMESHE UFISADI TUIJENGE KENYA

TUKOMESHE UFISADI TUIJENGE KENYA

TUKOMESHE UFISADI TUIJENGE KENYA

TUKOMESHE UFISADI TUIJENGE KENYA

TUKOMESHE UFISADI TUIJENGE KENYA

• Section 3 of POCAMLA 2009 outlines

TUKOMESHE UFISADI TUIJENGE KENYA

In making the findings above, the Hon. Judge

TUKOMESHE UFISADI TUIJENGE KENYA

in other countries regarding anti-money

TUKOMESHE UFISADI TUIJENGE KENYA

• Financial Reporting Centre

TUKOMESHE UFISADI TUIJENGE KENYA

• FRC analyses the aforesaid reports

TUKOMESHE UFISADI TUIJENGE KENYA

• Financial Institutions and

TUKOMESHE UFISADI TUIJENGE KENYA

• Monitoring and Report

TUKOMESHE UFISADI TUIJENGE KENYA

• Undertake Customer due Diligence;

TUKOMESHE UFISADI TUIJENGE KENYA

• FRC has powers under Section 24B of POCAMLA

TUKOMESHE UFISADI TUIJENGE KENYA

• Under Section 24C the FRC had powers to

TUKOMESHE UFISADI TUIJENGE KENYA

The Agency is created among other tasks in charge of

TUKOMESHE UFISADI TUIJENGE KENYA

• The value of the defendant’s proceeds

TUKOMESHE UFISADI TUIJENGE KENYA

For the purpose of determining whether

TUKOMESHE UFISADI TUIJENGE KENYA

• The Agency can apply to Court for a restraint

TUKOMESHE UFISADI TUIJENGE KENYA

• The Agency through a publication in the Kenya

TUKOMESHE UFISADI TUIJENGE KENYA

TUKOMESHE UFISADI TUIJENGE KENYA

TUKOMESHE UFISADI TUIJENGE KENYA