New government regulations introduced in February to combat secrecy and corruption in Kenya’s public procurement still have significant loopholes, top policy experts have warned.
The warning, made at a recent conference of Kenyan regulators and transparency experts in Nairobi, came ahead of a major public consultation exercise on the review of the laws on Friday (July 22).
Corruption in public sector contracts for items such as roads, hospitals and medical equipment is estimated to cost the country US$6 billion annually.
A key reason for the failure to crackdown on graft is the difficulty in establishing the identities of beneficial owners – the real people who ultimately control companies.
Wrong-doers often hide behind myriad layers of companies incorporated both in Kenya and even offshore in places such as the British Virgin Isles or Mauritius.
To break open this secret world, in 2019, Kenya’s government introduced a groundbreaking law that forced companies to disclose their “human” owners.
But the information has been only available to government agencies and not to the public. It meant journalists and campaigners were locked out of accessing key intelligence.
With enforcement agencies lacking capacity and often political will, the battle to clean public procurement has been difficult.
Under pressure to conform to global standards, the government updated its 2019 law earlier this year.
Now the plan is that Kenyan companies which are awarded public contracts will have their beneficial ownership details made publicly available.
Despite praising this move, anti-corruption experts argue there are still significant gaps in policy.
At a recent conference organised by the Open Ownership campaign group, Business Registration Service and East African Tax and Governance Network – attended by Finance Uncovered – experts told an audience of transparency policy makers and campaigners new government rules contain:
- No clarity on whether companies that are part of public private partnerships – similar to projects such as the Nairobi Expressway – will see their beneficial ownership details made public.
- Limited requirements on overseas companies and trusts to provide beneficial ownership details to the Business Registration Service (BRS) even though these entities are often used for tax abuse and corruption.
- No mechanism to verify that the beneficial ownership information collected by the BRS is accurate.
Leonard Wanyama, coordinator of East Africa Tax and Governance Network, believes it is vital that beneficial ownership details are made publicly available. He told Finance Uncovered: “Enhancing beneficial ownership standards aims to advance information disclosure about companies to help prevent fraud or corruption, improve service delivery, verify supplier eligibility, enhance accountability, improve policy effectiveness and improve procurement processes.
He added that setting best practices and new standards in procurement would “stop an entrenched culture of waiting for the next scandal in the supply of government goods or services”.
At the heart of Kenya’s biggest corruption scandals are secretive companies.
In recent years, there have been increasing moves by governments around the world to bring about transparency in public contracts.
In 2013 the G8 group of eight leading industrial nations agreed an action plan to counter money laundering and tax evasion.
The plan was consistent with global standards outlined by the Financial Action Task Force (FATF ) – the internationally recognised organisation which sets rules to combat money laundering and terrorism financing. Kenya is committed to abiding by its recommendations.
One FATF principle requires countries to maintain central registries of companies’ beneficial ownership information.
Registries should be “accessible onshore to law enforcement, tax administrations and other relevant authorities, including financial intelligence units and to financial institutions and regulated businesses”.
FATF also recommends that “some basic information should then be publicly accessible”.
Kenya committed to deliver beneficial ownership transparency at the London international anti-corruption summit in a 2016 summit.
In Kenya, the journey began with amending the Companies Act in 2017. This ushered in an official register of beneficial ownership and a demand that companies keep up to date ownership details which they must file to the BRS. The e-register went live in October 2020.
Nearly half of the 600,000 registered Kenyan companies have complied with the current reforms.
Harriet Wachira of Transparency International Kenya told participants there is low awareness of these reforms among the general public and journalists.
"Making use of the disclosed beneficial ownership data is an important cog in improving transparency. It gives a human face to the corporate veils that sometimes hide those who are contracted to provide public services," she said when asked why Kenyans should care about this initiative.
A BRS representative assured delegates that more reforms are underway to include foreign companies and limited liability partnerships and to seal all gaps so that Kenya can comply with the FATF standards.
BRS assistant registrar, Zachariah Mwangi told delegates that “Kenya is committed to complying with FATF standards. And have implemented a lot of system changes to ensure company owners can file BO as smoothly as possible. ”
But until those loopholes are closed and exempted sectors fail under the auspices of Kenya law, campaigners fear the fight to stop corruption in public contracts will not be easy to win.
In addition the government intends to extend declaration of beneficial ownership to limited liability partnerships to avoid them being misused by those who may escape the law .
The public and stakeholders are currently submitting their contributions to an ongoing legal review ahead of a public participation meeting scheduled for Friday, July 22
The virtual meeting organised by the BRS will take place at 9.30am.