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Saturday, November 22, 2008

Somali Pirates Launder Ransome Money Using Kenya Hawala

Millions of dollars obtained through piracy in the Indian Ocean off Somalia are ending up in Kenya and other parts of the world through a complex money laundering scheme, investigations have revealed.

Since the beginning of the year, at least 40 ships have been hijacked by Somali pirates who have received an estimated $30 million (Sh2.4 billion) in ransom payments. Most of these attacks occur in the Gulf of Aden, but the pirates have been widening their range of operations to include waters off Kenya.

International security agencies are now citing Kenya as a hub for piracy-related money laundering activities.

Piracy incidents

A report by the US State Department’s Bureau of International Narcotics and Law Enforcement Affairs says Kenya’s financial system may be laundering more than $100 million (Sh7.8 billion) each year due to the government’s failure to develop an effective anti-money laundering (AML) regime.

  • “Kenya lacks the institutional capacity, investigative skill and equipment to conduct complex investigations independently.
  • There have been no arrests or prosecutions for money laundering or terrorist financing,” the report says.
  • It adds that even for the existing regulations, there is little enforcement. It cites the cross-border currency controls that require any amount of cash above $5,000 (Sh393,000) to be disclosed at the point of entry or exit for record-keeping purposes, but says this provision is rarely enforced, and authorities keep no record of cash smuggling attempts.

Recent investigations in which a local bank was linked to laundering of tax evasion proceeds illustrate Kenya’s vulnerability to money laundering, the report adds. “This case illustrates that criminals have been taking advantage of Kenya’s inadequate AML regime for years by evading oversight and/or by reportedly paying off enforcement officials, other government officials and politicians.”

It also says that Kenya has not criminalised the financing of terrorism as required by the United Nations, adding that with the exception of intercepted drugs and narcotics, seizures of assets are rare.

Money transfer

Investigators also raised the alarm about hawala, an informal money transfer system known by its Arabic name, that is facilitating money laundering.

  • Players in the maritime industry say this elaborate money transfer system is not only thriving in major urban areas in Kenya, but in numerous African countries, the Arab region, Europe, America and Canada as well where millions of dollars are exchanged without any documentation.

Investigations by the Sunday Nation have unearthed a money laundering network being run in backstreet dens in:

  • Mombasa’s Old Town
  • Nairobi’s Eastleigh neighbourhood
  • Kampala
  • Juba
  • Khartoum
  • Dar-es-Salaam
  • other major towns in the region.

"Many people have opted for the hawala money transfer system as it is cheap and cost-effective, unlike going to the bank to process letters of credit or telegraphic transfers,” a trader conversant with the system told the Sunday Nation.

He said all one had to do was go to a hawala broker, deposit the money for a small fee, then the recipient is alerted by phone or e-mail where to collect the money.

  • Charges vary from Sh1,000 to transfer Sh100,000 within East Africa to Sh2,000 to transfer Sh260,000 to Dubai. Recognised financial institutions charge as much as Sh10,000 to transfer the same amounts.
  • Investigators say this system of money transfer not only abets piracy but also hampers investigations by countries tracking proceeds from drug-trafficking, arms-smuggling and terrorism activities.

The Rest @ The Sunday Nation (Kenya)

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