OVERVIEW
Subject to existing policy
directions of the Law Society of Kenya, this document offers guidance as a checklist
which Advocates in Kenya are encouraged to follow, to ensure end-to-end
legal compliance with Article 48 of the Proceeds of Crime and Anti-Money
Laundering Act (POCAMLA) and related AML regulations, when engaging in
specified activities.
The Checklist includes statutory references, practical compliance measures, and notable legal lacunae that may be cautiously navigated to protect clients and the advocate.
Disclaimer:
It should be noted that this document ought to serve merely as
a guide and/or reference tool, and not the exhaustive formal authority on AML
Compliance Requirements. As such, legal practitioners have absolute discretion
on whether or not to be guided by it.
GENERAL COMPLIANCE FOR ALL CATEGORIES (Cross-cutting Obligations)
1. Client Due Diligence (CDD) - Reg. 13, POCAMLA Regulations
ü Obtain and verify client identity (ID/passport, PIN, KRA
certificate, etc.)
ü Ascertain source of funds/wealth
ü For legal persons: collect incorporation documents,
ownership structure, beneficial owners
2.
Enhanced Due
Diligence (EDD) - Reg. 15, POCAMLA Regulations
ü Required where client is a PEP, foreign national,
or high-risk entity
ü Perform risk assessment and document findings
ü Ongoing monitoring of transactions
3.
Record-Keeping - Section 45, POCAMLA
ü Maintain records for at least 7 years after transaction or
relationship termination
ü Includes CDD documents, transactional records,
communications
4.
Suspicious
Transaction Reporting (STR) - Section 44,
POCAMLA
ü File STRs with Financial Reporting Centre (FRC) promptly and confidentially
ü No tipping off (Section 50, POCAMLA - criminal offence)
5. Internal Policies & Training - Advocates (where operating as firms)
ü AML policy manual
ü Staff AML/CFT training
ü Appoint compliance officer (for law firms)
A. Buying and Selling of Real Estate
Risk: Property is a common vehicle for money laundering due to large cash-based transactions.
Checklist
ü Confirm property ownership and title details at Lands
Registry
ü Verify source of purchase funds (especially in cash
transactions)
ü Ensure funds are routed through regulated financial
institutions
ü Obtain valuation reports to confirm fair market value
ü Insist on bank-to-bank transfers only
Key Law
ü Real Estate Reporting: Legal Notice No. 107 of 2019 –
Declares Advocates as reporting institutions when handling real estate
ü Land Control Act
compliance (consent in controlled areas)
Legal Lacuna
ü No cap on cash transactions (unlike other jurisdictions), but cash deals raise red flags
ü Advocates may exclude themselves from being the transaction agent if acting solely as
conveyancing counsel to reduce exposure
B. Managing Client Money, Securities, or Other Assets
Risk: Client accounts can be used to layer illicit funds.
Checklist
ü Operate separate client accounts (as per Advocates
Act, s.34 & LSK Account Rules)
ü Require instructions in writing
ü Avoid accepting large unexplained deposits
ü Maintain full ledger and audit trail for all disbursements and receipts
Key Law
ü Section 48(a), POCAMLA
ü Rule 6 of Advocates (Accounts) Rules
ü Central Bank of Kenya Guidelines for Reporting Institutions
Legal Lacuna
ü Advocate-client privilege limits third-party access unless court-ordered
ü If acting as trustee, advocate may rely on trust deed
terms to justify holdings or transfers
C. Management of Bank, Savings, or Securities Accounts
Risk: These accounts may be used to obscure fund origins or funnel illicit proceeds.
Checklist
ü Avoid operating bank accounts directly for clients unless specifically permitted by court or power of attorney
ü If acting as signatory, obtain full mandate in writing
ü Advise client to open accounts in their own name
ü Insist on documentation for all deposits or withdrawals
Key Law
ü Section 48(b), POCAMLA
ü CBK Prudential Guidelines and CMA (Capital Markets
Authority) Regulations
Legal Lacuna
ü Advocates may distance themselves by referring clients to licensed trustees or corporate service providers
ü Where acting under power of attorney, include specific indemnities and AML disclaimers
D. Organization of Contributions for the Creation, Operation or Management of Companies
Risk: Shell companies are classic ML tools; contributions may mask illicit investments.
Checklist
ü Know your client (KYC) and all beneficial owners
ü Verify legality of source of startup capital
ü Insist on documentation of shareholder contributions
ü Avoid nominee directorships unless mandated and declared
ü Register company with Business Registration Service (BRS)
and provide UBO declarations
Key Law
ü Section 93A, Companies Act (Disclosure of Beneficial
Ownership)
ü Section 48(c), POCAMLA
ü Registrar of Companies Practice Note on AML Compliance
Legal Lacuna
ü No centralized public UBO register yet accessible - compliance still largely self-reported
ü Clients may use layered holding companies, but
advocate must inquire into beneficial control
E. Creation, Operation or Management
of Buying and Selling of Business Entities
Risk: Business acquisitions may be used to launder money through overvaluations or fictitious valuations.
Checklist
ü Conduct legal due diligence (contracts, tax status,
ownership)
ü Assess fair market value through independent valuation
ü Require audited financials
ü Request source of acquisition funds
ü Ensure transaction documents reflect true purchase
consideration
Key Law
ü Section 48(d), POCAMLA
ü Income Tax Act (Capital Gains on sale of business)
ü Competition Act (if involving significant mergers)
Legal Lacuna
ü No mandatory notification to the FRC or CBK of
private business sales unless flagged
ü Advocates may frame the sale as a share transfer to limit disclosure but must not conceal beneficial ownership
Protective Clauses Advocates Should Include in
Engagements
· AML Disclaimer Clauses
“The Advocate shall
not be liable for any delay or refusal to proceed with any transaction where
such action is necessary to comply with Anti-Money Laundering obligations under
POCAMLA or other applicable law.”
· Indemnity Clauses:
“The Client agrees to
indemnify and hold harmless the Advocate from any liability arising from reliance
on incomplete or false information provided by the Client.”
· Transaction Justification Clauses:
“This transaction is
being conducted pursuant to lawful authority and in accordance with the
applicable laws of Kenya, including but not limited to the Proceeds of Crime
and Anti-Money Laundering Act.”
Lacunae AND Strategic Justifications in Law
|
Area |
Lacuna/Gray
Area |
How
to Strategically Navigate |
|
Beneficial Ownership Disclosure |
Enforcement weak; relies on
self-reporting |
Document client declaration and
attach to file - shift liability |
|
Cash Transactions in Real Estate |
No absolute cash ban |
Encourage bank transfers; if cash, insist on source documentation |
|
Client Privilege vs. STR |
No explicit override |
Report suspicious activity without
revealing STR to client |
|
Shell Companies |
Legal to incorporate holding entities |
Request multi-level UBO declaration; document all entities involved |
|
Power of Attorney Transactions |
Not clearly regulated under POCAMLA |
Include AML compliance caveat in the instrument of appointment |
CONCLUSION
Legal practitioners must balance AML obligations with client confidentiality. The safest legal posture is to document all inquiries, instructions, and disclosures. Where in doubt, make a defensive STR and retain documentation to protect against complicity claims.
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