Illicit financial flows and tax evasion in Kenya : the role of financial institutions and regulatory enforcement

Peter, Mauti Igesha (2026) Illicit financial flows and tax evasion in Kenya : the role of financial institutions and regulatory enforcement. GRADUS, 13 (1). ISSN 2064-8014

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Abstract

Illicit financial flows (IFFs) continue to undermine Kenya’s domestic revenue mobilisation, with the banking sector functioning as a central channel for tax evasion, money laundering, and related financial crimes. Although Kenya has enacted multiple legal and regulatory instruments to curb these practices, persistent revenue leakages indicate enduring weaknesses in enforcement and institutional coordination. This study applies doctrinal legal analysis and a qualitative review of regulatory practices, supported by selected case studies, to evaluate the adequacy of Kenya’s legal and institutional frameworks for controlling tax-related IFFs in the banking sector. The findings show that while Kenya maintains a relatively comprehensive formal legal architecture, implementation deficits substantially limit its effectiveness. Major constraints include fragmented inter-agency collaboration, limited analytical and investigative capacity within the Kenya Revenue Authority (KRA), leadership and governance shortcomings, and inadequate technological expertise. Collectively, these weaknesses create regulatory blind spots that are exploited by profit-driven actors and sophisticated taxpayers to facilitate tax evasion through the banking system. The study highlights the importance of strengthening KRA’s financial intelligence and investigative capabilities and institutionalising mandatory, technology-enabled information-sharing mechanisms among tax, financial, and law-enforcement authorities to improve early detection, coordination, and deterrence of tax-related IFFs.

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