Money Laundering Through Cryptocurrency in Kenya

July 10, 2025

Cryptocurrency is no longer a passing trend – it’s here to stay.

Kenya must be ready to welcome this digital innovation, along with the baggage it brings, with both openness and accountability.

Kenya shouldn’t just embrace cryptocurrency for its benefits – it must also confront the skeletons it hides in its closet. One of the most dangerous? Money laundering.

Across Africa, cryptocurrency adoption is on the rise, with a projected penetration rate of 4.05%.

Young Africans – Kenyans included – are increasingly drawn to crypto for its speed, privacy, and ease of use.

However, as cryptocurrency use expands, so too do the risks.

One of the most pressing concerns is the steady rise of money laundering through cryptocurrency in Kenya.

In this article, we break down how money laundering through cryptocurrency in Kenya happens in real life.

From a local case study to Kenya’s regulatory response, we also highlight practical steps businesses can take to detect and prevent crypto-related laundering risks.

Sounds exciting? Let’s dive right into it.

Key Takeways

Money laundering through cryptocurrency in Kenya is on the rise due to the anonymity, decentralization, and cross-border nature of digital assets.
A real-life Kenyan bank case shows how stolen funds were laundered via crypto using placement, layering, and integration techniques.
Kenya has enacted the Anti-Money Laundering and Combating of Terrorism Financing Laws (Amendment) Bill, 2025, boosting regulatory oversight over crypto and other high-risk sectors.
Despite progress, major gaps remain – including the lack of crypto regulation, poor enforcement, and under-resourced financial crime units.
Financial institutions must adopt proactive tools like 3-D Secure Authentication and strong AML protocols to stay ahead of crypto-enabled laundering threats.

Introduction

First things first, let’s define the following key terms:

i) Cryptocurrency:

This is a virtual digital currency secured through cryptography. Cryptocurrency exists only in digital form and is not governed by any financial institution or the government.
Users store their crypto assets in digital wallets with unique virtual addresses that make it secure to send and receive funds.

ii) Money Laundering:

This involves “cleaning” illegal money to appear legitimate.
It refers to taking money obtained from illegal transactions – such as theft or drug trafficking – and concealing its origin through complex paper trails before finally releasing it into legitimate accounts.

It’s easy to see why Cryptocurrency is proving to be the much-needed butter to money laundering’s bread.

Cryptocurrency’s untraceable and anonymous nature makes it a convenient vehicle.

Case Study – Kenyan Bank Falls Victim to a Money Laundering Scheme Using Cryptocurrency

According to a report filed by the Kenya Financial Intelligence Unit (FRC) in July 2025, a Kenyan bank lost about $4 million (approximately Ksh 517 million) through a Cryptocurrency-Centered theft.

Here’s a little backstory:

The bank had contracted three IT experts to upgrade its security system by installing a 3-D secure integration system for cardholders.
This security feature used OTP (One-Time-Pin) authentication to verify user transactions.
However, the contractors intentionally downgraded the system to 2-D security, eliminating the need for OTP and relying only on card details.
They then diverted about $4 million (Ksh 517 Million) from customer wallets to one of the contractor’s bank accounts.
The stolen funds were used to buy cryptocurrency tether (USDT), and the digital assets were then transferred to a common virtual address, erasing the money trail.

The process followed the classic money laundering steps: Placement, Layering, and Integration.

So, How Does Money Laundering Using Cryptocurrency Work?

Money laundering involves disguising illegal money as legitimate income.

Cryptocurrency has become the new frontier for this illicit activity.

Why Is Cryptocurrency Favorable for Money Launderers?

i) Its Decentralized Nature:

Cryptocurrency is everywhere and nowhere.
It operates outside the bounds of traditional banking systems – neither regulated by any financial institution nor overseen by any government.
This lack of central oversight gives criminals an ideal environment to conduct anonymous financial transactions.

ii) Anonymity:

While cryptocurrency transactions are recorded on public blockchains, the identities behind those transactions often remain pseudonymous.
This makes tracing the origin or destination of funds extremely difficult – an attractive feature for individuals looking to launder money discreetly.

iii) Global Reach:

Cryptocurrency is inherently borderless. Digital assets can be transferred instantly across jurisdictions with minimal cost and no need for traditional intermediaries.
This allows money launderers to easily move illicit funds across borders, bypassing regulatory scrutiny.

As a result of these features, bad actors – like the three IT merchants in the Kenyan case study – can effortlessly obscure the source of illicit funds and integrate them into the formal financial system.

This makes money laundering through cryptocurrency in Kenya a growing threat.

The Three Stages of Money Laundering

Money Laundering involves the following three-tiered approach:

i) Placement

This is the first stage where illegally acquired money is introduced into the cryptocurrency ecosystem.
It typically involves using dirty cash to purchase cryptocurrency or transferring illicit funds directly into digital wallets.
In the Kenyan case study, this is exactly what happened – the stolen money was funneled into various crypto wallets.

ii) Layering

Layering involves executing a series of complex crypto transactions to obscure the money trail and make tracing nearly impossible.

Common tactics include:

Chain-Hopping: Converting one cryptocurrency into another repeatedly to disrupt tracking.
Mixers and Tumblers: Splitting funds into small amounts, processing them through different wallets, and merging them again – often used in the Kenyan case.
Privacy Coins: Using coins like Monero or Zcash, which offer built-in anonymity features, further complicating traceability

iii) Integration

This final phase involves reintroducing the now “cleaned“ funds into the legitimate financial system.
This can be done by converting crypto back into fiat currency (like Kenyan Shillings, U.S. Dollars, or British Pounds) through crypto exchanges, or by purchasing high-value assets such as real estate.

These three stages – “Placement, Layering, and Integration” form the backbone of how money laundering through cryptocurrency in Kenya is being executed today.

What Can Financial Institutions Do?

As the threat of money laundering through cryptocurrency in Kenya intensifies, financial institutions and businesses must take a proactive role in safeguarding their systems.

Implementing 3-D Secure Authentication

One of the most effective methods of securing digital transactions and preventing unauthorized access is the use of 3-D Secure Authentication.

3-D Secure is a multi-layer security protocol that adds an extra authentication step during online transactions.
Unlike traditional 2-D authentication – which requires only card information – 3-D Secure requires an OTP (One-Time-Pin), biometric prompt, or password.

Benefits of 3-D Secure Authentication:

Protects customers from unauthorized transactions
Adds friction that deters cybercriminals and fraudsters
Strengthens compliance with emerging AML guidelines
Builds consumer trust in online financial platforms

By implementing 3-D Secure, institutions can fortify their defenses and reduce the chances of falling victim to cryptocurrency-enabled money laundering schemes.

Kenya’s Efforts to Combat Money Laundering

Kenya has taken several notable steps to address the growing threat of money laundering, particularly in light of increasing cryptocurrency use.

1. Enactment of the Anti-Money Laundering and Combating of Terrorism Financing Laws (Amendment Bill), 2025

On July 8, 2025, President William Ruto signed into law this landmark bill. It strengthens Kenya’s financial regulatory environment and aligns with FATF standards.

Key provisions include:

Mandatory disclosure of beneficial owners
Stricter customer due diligence (CDD)
Penalties including up to 14 years in prison
Empowered Financial Reporting Centre (FRC)
Regulation of informal financial channels, including crypto

2. Enhanced Oversight of High-Risk Sectors

Real estate, mining, betting, and cryptocurrency trading are now under stricter supervision.

Professionals in these sectors must:

Report suspicious transactions
Maintain ownership registers
Adhere to KYC protocols

3. Strengthening the Financial Reporting Centre (FRC)

The Financial Reporting Sector (FRC) which was established in 2012 has been further strengthened with:

Powers to receive and analyse suspicious transaction reports (STRs)
Mandates to coordinate with local and global agencies
Legal authority to sanction non-compliant entities

4. Legal Ramifications for Money Laundering Offences

Offenders now face:

Severe fines and jail terms of up to 14 years
Confiscation of assets derived from criminal activity
Revocation of business licences
Prosecution under enhanced anti-money laundering laws

Gaps Existent in Combating Money Laundering in Kenya

Despite these legislative reforms, Kenya continues to face systemic gaps – particularly in addressing money laundering through cryptocurrency in Kenya.

In 2025, a report by the European Union flagged Kenya as high-risk for money laundering and terrorism financing. The EU cited Kenya’s lack of enforceable and comprehensive AML/CFT frameworks, especially around digital assets.

Key gaps include:

1. Lack of Cryptocurrency Regulation

Kenya has not yet enacted laws regulating virtual assets, exchanges, or peer-to-peer crypto platforms.
This vacuum makes it easy for bad actors to conduct anonymous transactions outside the scope of regulators.

2. Poor Enforcement of Beneficial Ownership Disclosure

While laws exist, compliance remains weak.
Complex corporate structures and nominee directorships are still used to obscure fund sources.

3. Limited Oversight of Informal Financial Channels

Systems like hawala, mobile money agents, and informal savings groups (chamas) continue to operate with minimal supervision, often becoming unintentional enablers of money laundering.

4. Underregulation of DNFBPs (Designated Non-Financial Businesses and Professions)

Although lawyers, real estate brokers, and accountants are legally obligated to report suspicious activity, oversight is limited, and enforcement remains poor.

5. Inadequate Cross-Border Cooperation

Kenya faces logistical and regulatory barriers in tracing crypto-fueled laundering across jurisdictions, limiting the recovery of stolen funds.

6. Resource Constraints in Enforcement Agencies

Agencies such as the Financial Reporting Centre (FRC), Asset Recovery Agency (ARA), and Directorate of Criminal Investigations (DCI) remain underfunded, hindering in-depth crypto investigations.

7. Delayed Implementation of FATF Recommendations

Kenya has committed to FATF reforms but has lagged in enacting specific digital asset-related compliance measures, leaving its financial system vulnerable to cryptocurrency-linked money laundering.

What Can Kenyan Financial Institutions Do?

As the threat of money laundering through cryptocurrency in Kenya intensifies, financial institutions and businesses must take a proactive role in safeguarding their systems.

Implementing 3-D Secure Authentication

One of the most effective methods of securing digital transactions and preventing unauthorized access is the use of 3-D Secure Authentication.

What is it?

3-D Secure is a multi-layer security protocol that adds an extra authentication step during online transactions.

Unlike traditional 2-D authentication – which requires only card information – 3-D Secure requires an OTP (One-Time-Pin), biometric prompt, or password.

Benefits of 3-D Secure Authentication:

Protects customers from unauthorized transactions
Adds friction that deters cybercriminals and fraudsters
Strengthens compliance with emerging AML guidelines
Builds consumer trust in online financial platforms

By implementing 3-D Secure, institutions can fortify their defenses and reduce the chances of falling victim to cryptocurrency-enabled money laundering schemes.

Conclusion

Cryptocurrency is here to stay, and so is Money Laundering.

Although Kenya is making progress, systemic gaps still exist – especially in tackling money laundering through cryptocurrency in Kenya.

Financial institutions and professionals must work collaboratively, adopt robust digital security measures like 3-D authentication, and remain updated on AML best practices.

Only through proactive effort can we stop the growing threat of crypto-enabled money laundering in Kenya.

CTA

Is Your Business Ready for the Cryptocurrency Evolution?

As crypto adoption grows, so do regulatory risks. From money laundering exposure to compliance blind spots, unregulated crypto transactions can leave your business vulnerable.

At Bubi Alexander & Co., we help you understand the risks, close compliance gaps, and future-proof your operations in a fast-changing financial environment.

Stay compliant. Stay ahead.

Reach Out to Our Advisory Team

Call: +254 710 951 698 / +254 728 961 637

Prefer Email? info@bubi-alexander.com/ alex@bubi-alexander.com/ daniel@bubi-alexander.com

Disclaimer

This article is meant for informational purposes only and does not constitute professional advice.

For specific queries regarding cryptocurrency or money laundering, consult a qualified professional or contact Bubi Alexander & Co. for assistance.

Sources