Kenyan Newspaper The Nation Uncovers Pirate Money Laundering

April 2nd, 2009

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.


(four Somali Pirates in Kenyan Court, photo from the Nation)

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


• and 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.

Somali MP Awad Ahmed Ashareh denied reports that proceeds from piracy were being laundered in Kenya, saying investigations indicated that none of the Somalis who had invested in the country had links with pirates.

Another MP, who sought anonymity, named Puntland in Somalia, Djibouti and unidentified Western countries as among those benefitting from piracy.

“These pirates are well-connected and some work with mafias and other international criminals who supply them with arms through countries like Yemen,” the MP, who was in Nairobi for a recent Igad meeting, said.

The pirates, he said, were organised into three groups:

• those with military tactics who launch the first attack;


• educated ones with technological know-how who use satellite phones and computers to communicate with owners of the ships and demand ransoms;


• and those who collect the ransom.

Former fishermen who understand the waters help them navigate routes.

Lucrative business

Mr Ashareh said piracy erupted in Somalia in the 1990s when Somalis organised themselves to fight fishermen from Western countries who were fishing in Somali waters.

Once they had this under control, some of the Somalis resorted to hijacking ships and found it to be lucrative. Now, maritime experts warn that for as long as ship owners continue to pay the huge ransoms demanded, piracy will continue to thrive.

Mr Ashareh called on the international community to help the troubled country establish governing institutions to curb piracy, saying the Somali Transitional Federal Government urgently needed help to establish court systems, and police and coastal guards.

The Rest @ The Nation (Kenya)