REPUBLIC OF KENYA

PARLIAMENT OF KENYA

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THE 45th CPA AFRICAN REGION CONFERENCE

Arusha, Tanzania
16th 27th July 2014

-----------------------------------------------------------THEME: UTILISING COMMONWEALTH PARLIAMENTS TO COMBAT THE

CHALLENGES TO SOCIO-ECONOMIC DEVELOPMENT IN AFRICA

THE ROLE OF PARLIAMENTS IN CURBING ILLICIT FLOWS OF FINANCIAL

AND NATURAL RESOURCES IN AFRICA
1.0

INTRODUCTION

1. Understanding Illicit Flows of Financial and Natural Resources in Africa

The illicit flows is defined as unrecorded private financial outflows involving capital that
is illegally earned, transferred, or utilized, generally used by residents to accumulate
foreign assets in contravention of applicable capital controls and regulatory frameworks.
Thus, it says, even if the funds earned are legitimate, such as the profits of a legitimate
business, their transfer abroad in violation of exchange control regulations or corporate
tax laws would render the capital illicit.
A report published in December 2013 by Global Financial Integrity, a non-profit, research
and advocacy organization located in Washington, D.C., revealed that close to USD 500
billion illicitly flowed out of Africa over a 10-year period running from 2002 through to
2011. The report states that adjusted for inflation, illicit financial flows out of developing
countries increased by an average of more than 10 percent per year over the decade and
that some USD 946.7 billion in illicit outflows left the developing world in 2011, up from
USD 832.4 billion in 2010.
Illicit financial flow is not a recent phenomenon. It reached an alarming level in South
American countries in the wake of the financial crisis they found themselves in following
the end of the Second World War. Now it is the turn of African countries to suffer the
same fate that their Latin American countries did decades ago. Illicit financial flow has
assumed astounding proportions over the past decade owing to the failure to take a
concerted action to address the problem decisively. Africa in particular has faced the
brunt of the problem.
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Aside from denting the capacity of poor nations to become financially self-reliant and
thereby perpetuate their dependence on foreign, illicit flow worsens poverty as well as
harm the national and public interests by draining foreign exchange, diminishing the
revenue for government coffers and dampening the appetite for foreign investment.
Moreover, it can lead to political fallout as it is one of the leading causes behind an
inequitable resource allocation between citizens, a fact which is liable to disenfranchise
the vast majority of the public.
Many developing countries natural resource extraction accounts for a significant
proportion of GDP and often for the bulk of foreign exchange earnings and foreign
investment. In this context, Africa has some of the worlds largest mineral reserves which
should be used to eradicate poverty. Paradoxically, countries with rich natural resources
often fare worse than other countries (the resource curse phenomenon) and the
control, exploitation, trade and taxation of minerals in some cases contribute to armed
conflicts (the conflict minerals problem).
Mining and Sustainable Development: Non-sustainable mining can have huge negative
environmental and social impacts, especially in Africa. It stressed that extractive
industries should contribute to development through linkages to the local economy and
participation in efforts to develop local industries that use processed or non-processed
materials as inputs or can benefit from the presence of the extractive companies in other
ways. The resolution urged the need to adopt regional and international approaches to
curbing the illegal exploitation of natural resources.
2.0

THE ROLE PARLIAMENTS

Parliaments, in the Commonwealth and elsewhere therefore ought to play a

frontline role to curb illicit flows of financial and natural resources by:

Support further institutional development and capacity building within host

governments;
Prioritise assistance for the development of legislation and taxation policy so as to
maximise the local and national benefits of extractive industries development,
resulting in the creation of local employment, living wages for employees and
their families;
Strengthen the principle of ownership so that local communities should participate
in the planning and development of natural resources projects;
Recognise and secure the traditional rights and cultures of indigenous people in
extractive industry development;
Ensure that victims of breaches of social or environmental legislation by
multinational companies have effective access to justice;
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Implement fundamental labour standards as set out in ilo conventions to ensure

decent and safe work for all mine workers;
Combat child labour in mining;
Ban mineral exploration and exploitation in national parks and world heritage
sites;
Seek agreements on climate financing, technology transfer and capacity building
and to upgrade its assistance to developing countries for CO2 emission reduction;
Strengthen the need for strong European legislation on disclosure of non-financial
information by certain large companies, including the obligation for companies
to conduct risk-based due diligence, taking into account their whole supply
chain.

Illicit capital flows from Africa are linked to the secrecy around mining contracts and tax
regimes. Therefore, the fight against tax evasion and tax havens should remain a top
priority.
Parliament should consider ways of concessions that can be granted to mining companies
and the problems this can cause, including expropriation, deprivation of peoples
livelihoods and problems concerning user rights and land rights.
Therefore there is need to break the Link between Armed Conflict and Mineral
Exploitation: Parliament should note that the exploitation of high-value natural
resources, including oil, gas, minerals and timber, is a major source of conflicts around
the world. It embraced the Africa Mining Vision according to which an environmentally
and socially responsible, transparent and inclusive mining sector is essential for
addressing the adverse impacts of the mining sector and avoiding conflicts induced by
mineral exploitation.
2. Parliaments should consider legislations that:
Create a legally binding obligation for all upstream companies operating in the
EU that use and trade natural resources sourced from conflict-affected and highrisk areas and all downstream companies that act as the first placer on the
European market to undertake supply chain due diligence to identify and mitigate
the risk of conflict financing and human rights abuse;
Are based on the relevant international instruments;
Apply to all segments of the supply chain and to all natural resources, without
exception, produced in any conflict-affected or high-risk area;
Are founded on a risk-based approach, requiring companies to assess actual and
potential adverse impacts arising from their operations, and to mitigate the
identified risks;
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Define requirements for company risk assessments and for a management

framework;
Include a sanctions mechanism for cases of noncompliance with the risk-based
supply chain due diligence obligation.

3. The Role of Parliament in Addressing the Illicit Financial Flows and Natural
Resources in Kenya
a) The passage of the Constitution with its numerous provisions on integrity and
accountability
The Constitution outlaws public servants from holding bank accounts abroad. This
has been further strengthened by the enactment of the Leadership and integrity Act,
2012 which is to effect the Chapter six of the Constitution on leadership and integrity.
Since this can be circumvented, Parliament needs to pass the requisite legislation to
provide for strengthened beneficial ownership requirements and other critical
strengthening regulations
b) Reform measures that the Government can take ranging from tax reforms, trade
reforms, customs reforms and procurement etc. Some of the reforms are ongoing
in the Country to stream line tax administration with measures being placed to
streamline institutions and seal loopholes likely to encourage such illicit flows.
For example the creation of a national authority for the regulation and management of
Public Procurement, The Public Procurement Oversight Authority (PPOA) through
the Public Procurement and Disposal Act, 2005 - policy measure to address bribes and
kickbacks in Government contracts to ensure transparency and accountability in the
contracting process.
c) Passing of laws to curb mechanisms of illicit money flows; Kenya has taken
significant steps toward improving its Anti-Money Laundering regime including
enactment of the Proceeds of Crime and Anti-Money Laundering (Amendment) Act
as an amendment to the Act of 2009. The Act addresses deficiencies in the
criminalization of money laundering and freezing of assets and the issuance of revised
AML guidelines by the Central Bank.
d) The County however needs to make significant progress in implementing its action
plan particularly as relates to supervisory programmes for financial sector,
operationalise the Financial Intelligent Unit among others.
e) Build capacity through budgetary allocation: Law enforcement authorities (e.g.,
the economic crime enforcement unit within the CID, the Ethics Anti-Corruption
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Commission (EACC) etc) need to be empowered through the Budget appropriation so

as to have capacity to investigate and prosecute economic crimes like tax evasion,
money laundering and corruption. Capacity will also ensure that technical support to
audit multinational companies in Transfer Pricing is sufficient. Parliament should
advocate for increased allocations to make capacity for such enforcement agencies a
reality.
f) Political goodwill and commitment is required to combat economic and financial
crimes in Kenya. Political goodwill will ensure the implementation of the requisite
pieces of legislation put in place.
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