Compliance Crackdown or Industry Chaos? Financial Reporting Centre’s Daily Fines Will Put Real Estate Agents in the Hot Seat – But Is This the Right Battle?

Kenya’s Financial Reporting Centre (FRC) has launched a more aggressive crackdown on property agents for non-compliance with anti-money laundering (AML) regulations. According to the Business Daily article, only 112 out of 1,504 targeted real estate agents have registered with the FRC as required by law. The watchdog is soon be imposing daily fines of Sh10,000 for failure to register and comply with reporting requirements under the Proceeds of Crime and Anti-Money Laundering Act, 2009 by no later than 11th November 2025.

Real estate agents must now establish elaborate systems including customer due diligence, beneficial ownership verification, transaction monitoring, and suspicious activity reporting – or face penalties of up to 180 days, which could accumulate to Sh1.94 million per violation.

The Critical Question: Will the FRC actually combat money laundering?
1. The Effectiveness problem – The FRC’s aggressive targeting of real estate agents raises serious questions about whether this approach will genuinely combat money laundering or simply create “compliance theatre” – lots of paperwork with minimal real-world impact.
2. The Balloon Effect – Criminals do not disappear when one avenue closes – they simply shift to other sectors. If real estate becomes scrutinised, money laundering will move more into cryptocurrency and digital assets, luxury goods (cars, jewellery, watches), business acquisitions, and cash-intensive businesses (restaurants, car washes, entertainment venues).
3. Targeting the Wrong Gatekeepers – Real estate agents are actually intermediaries with limited control. They do not handle money directly – they facilitate introductions and negotiations. The actual financial transactions flow through banks, advocates, buyers and sellers.
4. The Weak Link Strategy – Criminals are sophisticated. If estate agents become diligent gatekeepers, launderers will simply:
– Buy properties directly without agents (private sales)
– Use complicit the illegal and undocumented brokers
– Employ nominees and beneficial ownership concealment techniques

Who are the real gatekeepers that FRC should target?
1. The Advocates – Advocates hold client funds in trust accounts and can move large sums with minimal scrutiny. Advocates create legal framework (trusts, companies, partnerships) that secure beneficial ownership. Attorney-client privilege can be misused to hide suspicious activity from investigators. Advocates prepare contracts that can disguise the true nature and value of transactions.
2. Accountants and auditors – They structure transactions and advise on fund movements
3. Motor vehicle dealers – Luxury cars are a classic money laundering vehicle
4. Money remittance services – Cross-border fund transfers
5. Private equity and venture capital – They can absorb large illicit investments

BOTTOM LINE
This crackdown reveals a fundamental flaw in Kenya’s anti-money laundering strategy: it is currently targeting the most visible but least powerful players in property transactions while seemingly giving a free pass to the legal and financial professionals who actually control the money flows. All relevant professionals should be approached with equal measure.

The harsh reality:

• Estate agents will suffer under expensive FRC compliance requirements
• Money launderers will adapt by using lawyers, offshore structures, or alternative assets
• The FRC will claim success based on registration numbers and paperwork but not work on the day to day challenges faced by the estate agent.
• Actual money laundering will continue through less-regulated channels

For estate agents, the message is clear: comply or die. But don’t expect this to actually clean up the industry – expect it to simply shift the dirt somewhere else.

The real question isn’t whether estate agents will comply. It’s whether the FRC has the political will to target the truly powerful enablers of money laundering: the legal and financial establishment with more force and vigour.