Anti-Money Laundering in Kenya: The Legal Framework, Financial Reporting Centre, and Compliance Landscape

Anti-money laundering compliance has become a critical element of doing business in Kenya, particularly after the Financial Action Task Force placed the country on its grey list in February 2024 for deficiencies in prosecuting money laundering offences. This designation triggered sweeping reforms culminating in the Anti-Money Laundering and Combating of Terrorism Financing and Proliferation Financing Amendment Act of 2025, signed by President William Ruto in June 2025. Kenya's AML framework affects every financial institution, designated non-financial business, and increasingly the real estate, legal, and accounting professions, making understanding these regulations essential for anyone operating in the Kenyan economy.

The Legal Framework: POCAMLA and Its Evolution

The Proceeds of Crime and Anti-Money Laundering Act (POCAMLA) of 2009 provides the foundation for Kenya's AML regime. POCAMLA established the Financial Reporting Centre as Kenya's financial intelligence unit, created the Assets Recovery Agency for seizing criminally obtained property, and defined the reporting obligations for financial institutions and designated non-financial businesses and professions. The Act criminalizes money laundering with penalties of up to 14 years imprisonment or fines of up to KES 5 million, or both.

POCAMLA has undergone several amendments to address evolving threats and international standards. The Prevention of Terrorism Act 2012 complemented POCAMLA by criminalizing terrorism financing and enabling the freezing of terrorist assets. The 2025 Amendment Act expanded the framework to include Countering Proliferation Financing, aligning Kenya with FATF recommendations on preventing the financing of weapons of mass destruction. This expansion brought Kenya's legal acronym from AML/CFT to the comprehensive AML/CFT/CPF framework now enforced across all regulated sectors.

The Companies (Beneficial Ownership) Regulations further strengthened the framework by requiring companies to identify and disclose their ultimate beneficial owners, addressing a key vulnerability exploited by money launderers who use complex corporate structures to obscure the origins of illicit funds. The 2025 amendments also added compliance obligations for companies, branches, limited liability partnerships, and foreign LLPs operating in Kenya.

The FATF Grey-Listing and Kenya's Response

The FATF grey-listing in February 2024 was a watershed moment for Kenya's financial sector. Being placed on the FATF's list of jurisdictions under increased monitoring signalled to the international community that Kenya had strategic deficiencies in its AML/CFT regime. The practical consequences include enhanced scrutiny of Kenyan transactions by international correspondent banks, potential increases in compliance costs for cross-border business, and reputational concerns for Kenya as an East African financial hub.

The specific deficiencies identified by FATF included inadequate prosecution of money laundering offences relative to the scale of the threat, insufficient implementation of targeted financial sanctions against terrorism and proliferation financing, and gaps in the supervision of designated non-financial businesses and professions. Kenya committed to an action plan addressing these deficiencies within agreed timelines, with the goal of exiting the grey list once all action items are satisfactorily completed.

Kenya's response has been aggressive and multi-faceted. The 2025 Amendment Act addressed many of FATF's concerns by strengthening the FRC's operational independence, expanding the scope of regulated entities, enhancing beneficial ownership transparency, and introducing stricter penalties for non-compliance. The government also increased funding for the FRC and the Assets Recovery Agency, and established specialized money laundering prosecution units within the Office of the Director of Public Prosecutions.

The Financial Reporting Centre

The Financial Reporting Centre (FRC) serves as Kenya's financial intelligence unit, responsible for receiving, analysing, and disseminating financial intelligence to law enforcement and regulatory agencies. Established under POCAMLA in 2009, the FRC has evolved from a relatively small agency into a central pillar of Kenya's financial integrity architecture. The 2025 amendments enhanced the FRC's operational independence by excluding it from the definition of a State Corporation, insulating it from political interference.

All reporting institutions including banks, SACCOs, insurance companies, real estate firms, lawyers, accountants, and dealers in precious metals and stones must register with the FRC, submit annual AML compliance reports, and integrate national risk assessment findings into their internal policies and procedures. The FRC now requires reporting institutions to file Suspicious Transaction Reports within seven days of forming a suspicion, Cash Transaction Reports for transactions exceeding KES 1 million, and cross-border currency reports for physical cash movements above prescribed thresholds.

The National Assembly approved the nomination of Naphtaly Kipchirchir Rono as Director-General of the FRC in February 2026, tasked with leading the institution through this critical period of reform and enhanced international scrutiny.

Regulatory Supervision and Compliance Requirements

Multiple regulators oversee AML compliance across different sectors in Kenya. The Central Bank of Kenya supervises banks, microfinance institutions, and payment service providers. In April 2025, CBK conducted a comprehensive survey on cross-border movement of physical cash within the banking sector, while its December 2024 Preventive Measures Survey assessed implementation across six critical areas: Customer Due Diligence, Enhanced Due Diligence, Politically Exposed Persons screening, Suspicious Transaction Reports, AML/CFT/CPF training, and Targeted Financial Sanctions.

Regulated entities must implement risk-based Customer Due Diligence measures including verifying customer identity using reliable documents, understanding the nature and purpose of business relationships, conducting ongoing monitoring of transactions, and applying Enhanced Due Diligence for higher-risk customers including politically exposed persons, non-face-to-face relationships, and customers from high-risk jurisdictions. CBK's draft Non-Deposit-Taking Credit Provider Regulations of 2025 extended mandatory AML measures to non-bank digital lenders, reflecting the growing importance of fintech in Kenya's financial landscape.

The Real Estate Sector Vulnerability

Kenya's real estate sector has been identified as particularly vulnerable to money laundering, with the national risk assessment highlighting it as a preferred channel for laundering illicit proceeds. The sector's vulnerability stems from high-value transactions often conducted in cash, limited due diligence by property agents and developers, fragmented land registries that complicate ownership verification, and cultural preferences for real estate as an investment that drives demand regardless of the source of funds.

Real estate agents, developers, and property lawyers are now classified as designated non-financial businesses and professions under POCAMLA, requiring them to implement Customer Due Diligence procedures, report suspicious transactions to the FRC, maintain transaction records for at least seven years, and appoint compliance officers. However, compliance within the real estate sector remains significantly lower than in the banking sector, with many smaller agents and developers lacking the resources and expertise to implement effective AML programmes.

Money Laundering Methods and Emerging Threats

Money laundering in Kenya exploits multiple channels reflecting the country's diverse financial ecosystem. Traditional methods include cash-intensive businesses such as car washes, forex bureaux, and retail establishments that commingle legitimate and illicit funds. Trade-based money laundering through misinvoicing of imports and exports represents a significant but difficult-to-detect typology. The rapid growth of mobile money services, while transformative for financial inclusion, has created new channels for layering and integrating illicit funds through multiple transactions across different mobile money platforms.

Cross-border money laundering remains a significant concern given Kenya's position as East Africa's financial hub, with Nairobi serving as the regional headquarters for international banks and the base for cross-border payment systems. Somalia-related terrorism financing flows, narcotics trafficking proceeds, and corruption-related funds from neighbouring countries all transit through Kenyan financial institutions. The informal hawala system, widely used for remittances particularly within the Somali community, presents additional monitoring challenges.

Compliance Challenges and the Path Forward

For fintechs and regulated businesses, achieving full AML compliance requires significant investment in technology, training, and personnel. Smaller institutions face particular challenges, as the cost of compliance systems, ongoing monitoring tools, and qualified compliance staff can be prohibitive relative to their revenue. The transition from rule-based to risk-based compliance approaches, while more effective, requires sophisticated risk assessment capabilities that many institutions are still developing.

Kenya's path to exiting the FATF grey list depends on demonstrating sustained improvements in prosecution of money laundering cases, effective implementation of targeted financial sanctions, robust supervision of all regulated sectors including DNFBPs, and meaningful use of financial intelligence in criminal investigations. Success requires not just legislative reform but cultural change across the financial sector and the broader economy, embedding compliance as a core business function rather than a regulatory burden to be minimally satisfied.