Henry Paulson, former US Secretary of Treasury.
Money laundering is deemed as the process of making ‘dirty money’ (illegally obtained money) appear as ‘clean’ (legally obtained). Anti-money laundering is mainly sets of laws, regulations and procedures implemented with the intent to prevent criminals from disguising illegally obtained funds as legitimate income.
Laws aimed at addressing the ills of money laundering have been in existence in some jurisdictions as early as the 1930s. In the US, for instance, these laws were implemented during the prohibition period, wherein the sale of alcohol was illegal. Additionally, in the 1980s the war on drugs prompted the US government to track and seize proceeds of drug crimes in order to capture organisers and individuals running drug empires.
Kenya joined the global fight against money laundering by virtue of its membership to the UN and ratification of various conventions in support of anti-money laundering and against terrorism financing. The country is also a member of the Eastern and Southern Africa Money Laundering Group (ESAAMLG), a 19-member countries body that subscribes to global standards to combat money laundering, financing of terrorism and proliferation, with the following objective;
- Adopt and implement the 40 recommendations of the FAFT
- Apply anti-money laundering measures to all serious crimes
- Implement measures to combat the financing of terrorism, and
- Implement any other measures to combat the financing of terrorism.
ESAAMLG includes various regional and international observers, however, the council members are responsible for the decision making and consist of at least one ministerial representative from each member country. Additionally, ESAAMLG is also an associate member of the global Financial Action Task Force (FATF).
B. Anti-money laundering in Kenya
In 2009, Kenya enacted the Proceeds of Crime and Anti-Money Laundering Act No. 9 of 2009 (POCAMLA). This was the first substantive legislation on anti-money laundering for the country. The objective of the Act as per its preamble was to provide for the offence of money laundering, introductions of measures for combating the offence, to provide identification, tracing, freezing, seizure and confiscation of the proceeds of crime, and for connected purposes. The Act established 3 bodies that were responsible for ensuring compliance and enforcement as follows;
a) The Financial Reporting Centre (FRC)
The Centre is established pursuant to the provisions of Section 21 of the Act. It is responsible for ensuring compliance with the Act and has the powers of imposing civil penalties for non-compliance. Under POCAMLA institutions submit reports to the FRC indicating the institutions compliance with the Act and regulations. Some of the reporting institutions are;
- Financial institutions regulated by the Central Bank of Kenya e.g. Commercial Banks, Mortgage Finance Institutions, Deposit taking Micro-finances, Foreign Exchange Bureaus, Money Remittance Service Providers,
- The Capital Markets Authority e.g. stockbrokers, Investment Banks, Fund Managers
- The Retirement Benefits Authority e.g. Administrators, Fund Managers, and custodians.
It also has the role of compiling of statistics and records arising out of information received and creates and maintains a database of suspicious transactions. It helps detect money laundering and also liaise with other agencies outside of Kenya.
In order to ensure compliance with POCAMLA, reporting institutions are required to undertake extensive due diligence on their clients, this in principle is commonly referred to us KYS (know your customer).
b) The Anti-Money Laundering Advisory Board.
The board is established under Section 49 of the Act. The board is mandated to advise the government on policy, best practices to identify proceeds of crime or proceeds of unlawful activities, advices the FRC on its functions and exercise of its power and generally acts as a consultant to various entities.
c) The Assets Recovery Agency.
The Agency is established pursuant to the provisions of Section 53 of the Act. This a body corporate that is responsible for the investigation and implementation of sanctions against persons who contravene the Act. The Agency has become synonymous with their powers of applying and obtaining courts orders for orders to confiscate, forfeit, restraint and preservation of property allegedly obtained illegally.
C. Amendment of Pocamla
The Act has over the years faced some amendments, with the first significant change coming through the Proceeds of Crime and Anti-Money Laundering (Amendment) Bill 2015 which later morphed into the 2017 Bill, that was later assented into law by the President on 3rd March 2017.
It is noted that the Amendment Act of 2017, strengthens the powers of the FRC to impose civil penalties on non-compliant entities and persons. The aforesaid also extended the categories that fall under the authority of the FRC as reporting institutions, through expansion of the meaning of ‘designated non-financial businesses or professions’ to include;
- casinos (including online casinos);
- real estate agencies;
- those dealing in precious metals;
- those dealing in precious stones;
- non-governmental organizations; and
- any business or profession that the Minister of Finance, on the advice of the FRC, deems vulnerable to money laundering.
The Amendment also allowed the FRC from barring an individual from employment within a particular institution of employment in a specific capacity, furthermore, the authority to request the suspension or revocation of a licence.
Also, this was the first time, an attempt was made to have Advocates included as a reporting institution under the Act. That would have meant that lawyers would have to report to the FRC transactions of their clients.
D. Advocate-client confidentiality
An advocate-client confidentiality arises from the legal privilege that keeps confidential communication between an advocate and their client. Therefore, such communications should not be disclosed to third parties, unless within the exceptions of the rule. This common law concept is applicable in Kenya as has been expounded under the provision of Section 134 of the Evidence Act CAP 80 Laws of Kenya, which provides;
“134. Privilege of advocates
- No advocate shall at any time be permitted unless with his client’s express consent, to disclose any communication made to him in the course and for the purpose of his employment as such advocate, by or on behalf of his client, or to state the contents or condition of any document with which he has become acquainted in the course and for the purpose of his professional employment, or to disclose any advice given by him to his client in the course and for the purpose of such employment:
Provided that nothing in this section shall protect from disclosure —
- any communication made in furtherance of any illegal purpose;
- any fact observed by any advocate in the course of his employment as such, showing that any crime or fraud has been committed since the commencement of his employment, whether the attention of such advocate was or was not directed to the fact by or on behalf of his client.
- The protection given by subsection (1) of this section shall continue after the employment of the advocate has ceased.
As noted above, the privilege places the duty on the Advocate not to disclose any communication between them and their client, inclusive of documentation or contents therein. This privilege continues to be operational between the Advocate and the Client even after the relationship between the two ceases to exist.
It is further operational to the staff of an advocate, Section 135 of the Evidence Act provides for the same, wherein it reads;
“135. Privilege of interpreters, and advocates’ clerks and servants
The provisions of section 134 of this Act shall apply to interpreters, and the clerks or servants of advocates.”
This rule is further enforceable on advocates by their regulatory body the Law Society of Kenya as per the provisions of the Code of Ethics and Conduct of Advocates, 2016. Under the LSK Code, the rationale of the rules is as follows;
“99. Rationale for the rule: The protection accorded to communication between the Advocate and client and advice given by the Advocate to the client through the doctrine of professional privilege is a crucial element of public trust and confidence in the administration of justice and the independence of the legal profession. The Advocate cannot render effective professional service to the client unless there is full and unreserved communication between them. The client is entitled to assume that, without his express consent or unless otherwise required by law, matters disclosed to or discussed with the Advocate will be held secret and confidential.”
E. Anti-money laundering for advocates
The Proceeds of Crime and Anti-money Laundering (Amendment) Act, 2022, which was passed to law by the President in January 2022, was the subject of heated debate by the August House in December 2021. Prior to the enactment of the Act, it faced major debate amongst legislators, with some being against the proposals such as the empowerment of the FRC and Assets and Recovery Authority to arbitrarily freeze individual accounts on mere suspicion and inclusion of legal and accounting practitioners as persons due to report to the FRC.
In addressing the above concerns of the members of the house, the Deputy Speaker Hon. Moses Cheboi proceeded to issue a communique to the Assembly on 21st December 2021. Herein the Speaker of the House noted that the Bill (as it then was) was not unconstitutional nor did it violate certain fundamental rights. He further went on to opine that Section 18 of the POCAMLA already provided for the legal principle of the advocate-client confidentiality, the aforesaid reads as follows;
“18. Client advocate relationship
- Notwithstanding the provisions of section 17,nothing in this Act shall affect or be deemed to affect the relationship between an advocate and his client with regard to communication of privileged information between the advocate and the client.
- The provisions of subsection (1) shall only apply in connection with the giving of advice to the client in the course and for purposes of the professional employment of the advocate or in connection and for the purpose of any legal proceedings on behalf of the client
- Notwithstanding any other law, a Judge of the High Court may, on application being made to him in relation to an investigation under this Act, order an advocate to disclose information available to him in respect of any transaction or dealing relating to the matter under investigation.
- Nothing in subsection (3) shall require an advocate to comply with an order under that subsection to the extent that such compliance would be in breach of subsection (2).”
Therefore, as per the provisions of the POCAMLA, recognised the Advocate-client relationship. It is noteworthy that the aforesaid provision recognises the legal concept to such an extent that not even a court order can compel an advocate to disclose information if the said disclosure shall warrant a breach of the concept.
However, we note that the amendments introduced to Section 2 POCAMLA sought to increase the definition of ‘designated non-financial business or professions’ to include ‘advocates, notaries and other independent legal professionals who are sole practitioners, partners or employees within professional firms.’ Previously, the aforesaid only provided for:-
- casinos (including internet casinos)
- real estate agencies;
- dealing in precious metals;
- dealing in precious stones;
- accountants who are sole practitioners, partners or employees within professional firms;
- non-governmental organisations;
- trust and company service providers;
- such other business or profession in which the risk of money laundering exists as the Minister may, on the advice of the Centre, declare;
The Amendment Act further makes changes to Section 48 of POCAMLA on obligations of reporting to shall increase from;
Accountants, advocates, notaries and other independent legal professionals who are sole practitioners, partners or employees within professional firms., when preparing or carrying out transactions for their clients in the following situations —
- buying and selling of real estate;
- managing client money, securities or other assets;
- management of bank, savings or securities accounts;
- organisation of contributions for the creation, operation or management of companies; or
- creation, operation or management of buying and selling of business entities or legal arrangements;”
We note that as a designated non-financial business Advocates shall be deemed as a reporting institution within the meaning in POCAMLA. In addition to the above, we note that as a reporting institution is subject to criminal liability if they fail to comply with the provisions of the Act. Therefore, whilst handling client funds, Advocates will require implementing KYC procedures similar to those undertaken by Banks.
Therefore, it would place a responsibility of disclosure not only to the proprietors of the firm but extend to their staff to disclose to the FRC transactions of clients. This seeks to effectively contradict the provisions of Section 134 & 135 of the Evidence Act and also Section 18 of POCAMLA.
Vide the orders issued on 12th January 2022, in Nairobi High Court Petition No. E005 of 2022 Mwaura Kabata vs Hon Attorney General & Others, Hon. Justice J A Makau, issued conservatory orders stopping the operationalisation of the Section 2(c) (i) and 14(b) (Amendment) Act, 2022. However, we note that the determination of this matter shall set forth the precedents on whether the Advocate client rule shall be upheld as pertains disclosure to 3 parties, moreso, the FRC in respect of client funds held by the Advocates.
We note that advocate-client privilege has been in existence to ensure that representation of clients is undertaken to the highest degree. However, the introduction of the Amendments in POCAMLA seeks to waste away the concept.
The said changes shall erode the confidence of the client to disclose information to the client and further result in weakening the ability to effectively represent a client. Moreso, it places a further duty on clients to investigate certain elements of their clients’ dealings to ensure compliance with the law. This goes beyond the scope of the Advocate-client relationship, as the duty of reporting to the FRC and the threat of criminal liability shall seek to threaten the fundamentals of the relationship.
By placing a threat of criminal liability on an advocate, in contradiction of the Advocate-client confidentiality, the Amendment Act shall not only erode the right to fair trial of clients but also place advocates under the regulation of a body other than the Law Society of Kenya.
This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary as set out in the article should be held without seeking specific legal advice on the subject matter. If you have any query regarding the same, please do not hesitate to contact Kennedy Kithinji Mathiu or Damaris Katumbi Muia vide firstname.lastname@example.org or email@example.com.