A recent amendment to the companies registration form will demand more detail about the physical address and number of employees of any company seeking registration in a bid to weed out shell companies that have been used to defraud the government through procurement abuses.
Its a good move, but remember that Kenya’s anti-money laundering efforts were reviewed nearly 5 years ago by the East and Southern Africa Anti-Money Laundering Group (ESAAMLG). In its report (available here), the ESAAMLG noted that most companies and legal persons in Kenya are registered through lawyers and Certified Public Secretaries (p.171 of the report). Yet the same report noted that lawyers in particular were not subject to the same stringent reporting requirements as other financial and designated non-financial bodies and professions. Thus the beneficial owners of shell companies can still use lawyers as fronts and hide behind client confidentiality rules. This is a glaring loophole that both the FATF (in its 40+9 recommendations) and the ESAAMLG have urged all states to seal, yet it subsists in Kenya despite the good intentions of the new rules. If lawyers know that they too can be prosecuted like bankers or casino owners for failing to conduct adequate due diligence and for failing to file suspicious transaction reports, they may be more cautious before agreeing to front for beneficial owners of companies and other assets. Due diligence requirements were clearly a worry for Mossack Fonseca as the Panama Papers reveal.
Secondly, the company registrar is not known for keeping close tabs on the changes to company ownership, directorship and employee records. Such laxity may still allow companies with inadequate or out of date info to slip through the cracks. For example, will the registrar’s staff physically visit each company location? Will there be impromptu inspections to ensure that claims about the number of company staff contained in the company registration are true? Without such a deterent to giving false information, a fraudster will provide all the requirement information, maintain a temporary physical address and temporary ’employees’ just long enough to conclude the fraud; at which point everything, including the physical address mysteriously disappears.