Introduction
The periods in which countries tried to make cash from hosting politically depicted persons, shell banks or known terrorists’ cash and no questions asked are gone. There is a dramatic change in many offshore regimes, especially those that publicized the “strictest privacy” slogan which have now finally adhered to the battle aligned with money laundering, terrorist financing plus introducing operational administrations to guarantee this. Additionally, many nations have assumed information exchange and transparency principles in taxation division, based on “harmful tax initiative” for OECD (Oecd.org, 2011).
Conversely, the playing ground is uneven in information sharing on criminal act especially when it come to finances; for instance, some nations share information when asked concerning alleged criminal offence while others require double criminality standard by requiring that evidence of crime be shown to exist for both countries involved in extraditing a criminal. Determining whether a specific jurisdiction offers low or high level of “safeguarding confidentiality” both in civil and criminal matters certain factors must be considered, which includes; dependant or sovereign status, presence of Tax Information Exchange Agreements (TIEAs), and Mutual Legal Assistance Treaties (MLATs) among others (Oecd.org, 2011). For the purpose of this paper TIEAs and MLATs will be discussed and evaluated in context of Kenya’s jurisdiction.
Tax Information Exchange Agreements
A nation may commit itself theoretically to tax information sharing both civil and criminal, though where TIEAs are effective such type of information is efficiently shared among nations. Therefore, discussion on types of TIEAs that exist for various countries and more specifically for Kenya is important. Since investors are usually eager to know what types of TIEA are present between countries and their own country (Oecd.org, 2011).
Generally TIEAs differ widely in practice but in theory there are some set standards put in place by OECD such whether TIEA envelop civil information on taxation plus criminal and the conditions needed to obtain information sharing through TIEA. Many TIEAs offer information sharing upon request and they are also restricted to tax information sharing if related to evasion of tax which is a criminal offence (Oecd.org, 2011).
Kenya is stretching tight the belt on tax avoiding transnational firms that charge the nation billions of shillings in revenue lost; according to Finance Minister, following the latest financial crisis, nations should uphold their revenue base by coordination and tax information sharing to shun transfer pricing and tax evasion. Currently companies are blamed because of benefiting from weak laws and lack of know-how in Kenya, to transfer profits to area with low tax jurisdictions and shun taxes in nations where firms have considerable trading action (Allafrica.com, 2011).
The recent budget proposes to modify the law to let the government enter into TIEAs with other nations; this will facilitate information sharing that tame tax evasion. Since practice of price transfer by firms distorts taxation and trade (Njoroge, 2011); the price transfer is actually abusive if purchase price in nations with tax rate which are high is inflated or gains from sales are temporarily reduced. This result to profit increase in nations with low rate of tax and costs are raised in nations with high rate of tax; this way, the firm decreases its burden of tax in high-tax-country and reserve its gains in low-tax-country. Such activities are responsible for losses amounting to Ksh. 42,000 million annually to some other jurisdictions (Njoroge, 2011).
This move by the country in information sharing with global and regional governments is likely to assist in bridging the big budget deficit; because the initiation of TIEAs in the latest budget will assist in sealing tax evasion dodges. Through this agreement, Kenya revenue Authority can efficiently impose Domestic Tax Laws especially on transnational firms operating in the country plus those employed in cross-border deals with associated foreign companies. Actually Kenya is likely to assume the OECD model which gives the revenue authority mandate to ask for records of tax payers, information on bank accounts plus beneficial ownership. Additionally, the model will let the tax authority to interview individuals in other jurisdiction of tax and undertake tax examination carried by other income authorities (Njoroge, 2011).
Although with the implementation of these measures by partner countries, company restated the requirement to impose Double Tax Agreements, which guards against private firms from paying taxes twice. This treaty will facilitate investment amongst partner countries and the more treaties a country have the more efficient the business operations are (Njoroge, 2011).
Mutual Legal Assistance Treaties
Likewise, with TIEAs it’s significant to search for what mutual arrangements in terms of MLATs and other similar cases are in position for information sharing between nations. It is significant to search for fine print as MLAT sets type of information to be shared and the situation under which this kind of information can be allocated (State.gov, 2006). For instance, it may translate that only information on tax matter can be shared if relevant to criminal issue and the circumstances under which States can share information in case of public interest. In such a situation one should focus on the concerned government policy statements to establish the way in which that type of provision can be interpreted (State.gov, 2006).
Kenya is rapidly becoming one of the most favoured regions for money laundering activities targeted by money launders due to its weak policies on MLATs. The country is used as a transport point for global drug traffickers and these activities continue to rise plus laundering of finances linked to Somali piracy, which is the most significant problem. Apparently, the country’s financial system could be laundering at least $100 million every year not to mention other earnings from narcotic trade that is also flourishing in the region (Thefreelibrary.com, 2010). Goods smuggled into the country are sold in the black market. Many firms in the country are concerned with such importation and exportation of goods. Kenya’s financial system has big sectors and it actually acts as regional trade and financial centre for some African countries as such it is in a strategic position to facilitate black market trade in the region (Thefreelibrary.com, 2010).
Though wire services, banks plus other formal means do funds transfer which further complicates an already existing challenge since they are thriving and involve free informal nets of hawala plus other option payment systems that utilizes cash-based, unaccounted transfers that the Government of Kenya cannot trail. Emigrant, particularly the big Somali refugee populace, mainly utilizes hawala to receive and send payment globally (Thefreelibrary.com, 2010).
Additionally, the country has no offshore centre, no free economic zones and does not criminalize terrorist funding except narcotic cash laundering; section 49 of Narcotic Drugs and Psychotropic Substance Control Act (1994) for instance criminalizes cash laundering linked to cash trafficking plus terrorism-related activities (Docstoc.com, 2010). In 2009, the Parliament approved the Proceeds of Crime and Anti-Money Laundering Law (AML Law); which tackles the offences related to cash laundering and approves tracing, identification, seizure, freezing and elimination of crime proceeds in order to prevent laundering. The crime proceeds are economic benefits derived from any property, resulting from any offenses and legislation offers for civil and criminal restraint, forfeiture and seizure in addition to institution of FIU (Docstoc.com, 2010).
Globally, the law sets up know-your-client needs and the country’s banks retain limited records which should be upheld for transaction of at least $100,000 and global transfer surpassing $50,000; the law also requires the banks to report every cash transaction surpassing $10,000 (Allafrica.com, 2011).
The MLAT law also call for non-financial business comprising of agencies from real estate, accountant, stone and precious metal dealers, and casinos plus financial institutions and professions, to file Suspicious Transaction Reports. Section 45 of AML Law needs institution to supervise all transactions, focus on unusual transactions trend, and report the same (Allafrica.com, 2011).
The Kenyan law in the same way offers for tracing, freezing up and convulsion of assets although it has weak and inefficient legal frameworks that are also bureaucratic. As such, asset convulsions are infrequent, except intercepted narcotics and drugs but allow for asset forfeiture and seizure provisions which are rarely enforced (Docstoc.com, 2010). Kenya’s law are generally weak when it comes to cross-border controls of currency since regulations are infrequently imposed and records are not reserved. The government regulations need that any quantity of money more than $5,000 be revealed at point of exit and entry for the purpose of record keeping, though this provision is hardly ever enforced, plus authorities do not keep record of money smuggling attempts (Allafrica.com, 2011).
Therefore the Kenya law is weak in several ways; first, it does not account for “all crimes approach” to cash laundering offenses since there is no single framework that incorporates all relevant regulations. Secondly, it is impossible to establish the degree to which the offenses comply with global standards and Kenya law does not mention terrorist funding which is not criminalized in the country. Finally, the law does not completely authorize the convulsion of lawful businesses utilized in money laundering (Allafrica.com, 2011).
Indeed, the government did not account for cash laundering and terrorist funding arrests, suits or any convictions from 2007 to 2009 as it lacks investigative skill, institutional capacity and equipment to do an independent investigation. U.S. and Kenya are not partners to bilateral MLAT which offers for information sharing but Kenya has unofficial arrangements with U.S. and U.K. for information exchange linked to terrorist funding, narcotics and any other severe crime investigations plus it has collaborated in such circumstances with U.S. and U.K. (Allafrica.com, 2011).
Conclusion
As we have seen Kenyan regulations in these two respects are still weak; the government must make sure that the AML Law operates efficiently and it should also criminalize terrorist funding and impose stronger laws that allow the authorities to confiscate financial assets from terrorism activities. Additionally, the law enforcement organizations must develop coordination to impose existing regulations to fight tax evasion, money laundering, smuggling and corruption.
Bibliography
Allafrica.com. 2011. Target on foreign firm on tax evasion. Web.
Docstoc.com. 2010. Tax co-operation. Web.
Njoroge, E. 2011. Regional data sharing to curb tax evasion. Web.
Oecd.org. 2011. Tax Information Exchange Agreements (TIEAs). Web.
State.gov. 2006. Treaties and agreements. Web.
Thefreelibrary.com. 2010. Countries/jurisdictions of primary concern. Web.