Economic crime is a prevalent issue in Eastern Africa, with a higher incidence than the global average. These crimes, such as fraud, procurement fraud, and Environmental, social, and corporate governance (ESG) fraud, have significant economic impacts. The most common types of economic crime are fraud, procurement fraud, and ESG fraud, which involves misrepresenting environmental, social, and governance factors to attract investors and customers. The economic impact of economic crime in Eastern Africa is significant, with losses per incident ranging from $50,000 to $1 million. As the real estate market in Eastern Africa grows, the risk of fraudulent activities increases, threatening investments and trust. To address these challenges and promote a more secure and prosperous region, a robust identity verification system is crucial.
The Global Cybersecurity Index (GCI) is a reliable benchmark for measuring countries’ commitment to cybersecurity on a global scale. The GCI assesses each country’s cybersecurity engagement across five key pillars: legal measures, technical measures, organizational measures, capacity development, and cooperation. Kenya ranks 51st out of 182 countries on the United Nations (UN) International Telecommunications Union’s (ITU’s) Cybersecurity Commitment Index, which indicates that it has a relatively strong cybersecurity posture but still has room for improvement. One area where Kenya could improve is identity verification.
The Current State of Identity Verification in Kenya
Kenya has made strides in combating economic crimes, especially in money laundering and terrorism financing, through the establishment of agencies such as the Asset Recovery Agency (ARA) and the Financial Reporting Centre (FRC). However, identity verification processes can still be enhanced to strengthen trust and security in real estate transactions.
Identity verification in Kenya involves verifying an individual’s information against official records. This is an essential step in various contexts, including government programs, financial transactions, and access to services. Financial institutions in Kenya must adhere to Know Your Customer (KYC) regulations, which require them to verify the identities of their customers before offering services.
The Integrated Population Registration System (IPRS) is a comprehensive computerized database managed by the National Registration Bureau (NRB) under the Ministry of Interior and Coordination of the National Government. It collects and stores demographic data, personal identification details, biometric data, and other relevant information about Kenyan citizens and residents. The IPRS provides a unique identification number to each individual, facilitating various government programs and services, such as voter registration, census taking, social services provision, and identity verification.
The Role of Identity Verification in Real Estate Transactions
The real estate market is susceptible to fraudulent activities due to high transaction values and its complex nature. Identity verification plays a critical role in preventing fraud by confirming the authenticity of all parties involved. This ensures that the property seller is the rightful owner, the buyer is legitimate and financially capable, and the funds used are legal. Additionally, identity verification guards against identity theft, forgery, and impersonation, building trust and confidence among buyers and sellers.
To strengthen identity verification in real estate transactions, advanced technologies such as biometric KYC, liveness checks, face deduplication, and anti-money laundering (AML) checks can be implemented. Biometric KYC utilizes fingerprints or facial recognition to verify individuals securely. Liveness checks ensure live interactions, preventing the use of static images or recordings for impersonation. Face deduplication reduces the risk of synthetic fraud, and AML checks verify the source of funds to prevent money laundering.
In addition to technology-driven measures, document verification solutions can be employed. By scrutinizing government-issued documents and conducting liveness checks for live interactions, businesses can add an extra layer of protection against synthetic fraud. Verifying the identities of buyers, sellers, and other stakeholders significantly reduces the risk of fraudulent activities.
Case in point:
The recent cyberattack on the eCitizen portal is a poignant example of the vulnerability of government websites and the significance of a reliable identity verification system. Compromised identity data can be exploited for fraudulent transactions, causing substantial financial losses to innocent parties. Implementing a robust identity verification system can safeguard the future of the Kenyan real estate market.
The Cabinet approved the Anti-Money Laundering and Combating of Terrorism Financing Laws (Amendment) Bill 2023 (the Bill) recently, which would increase the cash-reporting threshold by 50% from $10,000 (Sh1.4 million) to $15,000. The Bill, which is expected to be debated in Parliament, aims to enhance the efficiency of businesses and individuals by raising the limit for the cash-reporting requirement. The current threshold is the minimum set by the Financial Action Task Force (FATF), and the proposed increase would bring Kenya into line with international standards.
The proposal to increase Kenya’s cash disclosure threshold has raised concerns about its potential impact on money laundering activities. The cash disclosure threshold serves as a crucial tool for law enforcement in identifying and tracking suspicious financial activity related to money laundering. By requiring individuals and businesses to report cash transactions above a certain threshold, it provides valuable information for investigating potential illegal activities.
However, increasing the cash disclosure threshold may pose challenges to law enforcement efforts. With a higher threshold, it becomes more difficult for authorities to detect smaller but significant transactions that could be part of money laundering schemes. This could potentially create opportunities for criminals to exploit the system and evade detection.
It is essential to carefully consider the specific language of the proposed legislation and examine relevant case law to assess the potential implications of the increased cash disclosure threshold. Additionally, the effectiveness of the law in combating money laundering would depend on the resources available to law enforcement agencies to investigate and prosecute such cases
Identity verification plays a pivotal role in building trust and confidence in Kenya’s real estate market. By strengthening the Integrated Population Registration System (IPRS) and promoting the use of digital identity verification solutions, the government can enhance efficiency and compliance with KYC regulations. This, in turn, will foster a more secure and trustworthy real estate market, safeguarding investments and mitigating fraud risks. It is essential to continuously improve identity verification practices to ensure a prosperous and resilient Eastern Africa.
The goal of this write-up is to foster an open exchange of ideas and perspectives related to the topic. It is intended to encourage dialogue and invite comments from readers. The information presented should not be construed as legal advice or a definitive position on the matter, and individuals should seek professional legal counsel for specific situations or concerns.