ILLICIT FINANCIAL FLOWS AND ECONOMIC GROWTH IN KENYA

Abstract

The overall objective1of this study was1to1establish the1effect1of1illicit financial flows on economic1growth1in Kenya. Specific objectives were to examine the1effect of trade misinvoicing on economic1growth1in1Kenya, to assess the effect of money laundering on economic1growth1in1Kenya and to examine the effect of accounting fraud on economic growth1in1Kenya. The Kenyan1economy1is losing1billions1of1shillings1annually1in illicit financial1outflows,1crucial1resources1which1could1be1used1to invest1in1struggling sectors such1as1healthcare,1education,1and1infrastructure. The1monies1are lost through tax evasion by1individuals1and1companies,1illegal1profit expatriation by multinational firms, organized criminal1syndicates1and1also1corruption1related1activities1in1the public1sector. From the empirical literature, it is evident that there is minimal literature on economic crimes in Kenya. Further, the studies were conducted in different countries. This study aimed to fill the contextual and conceptual gaps. The study1adopted1a1descriptive survey research design. The1study used mainly secondary1data. The data was obtained for the period between 2013 and 2018 on GDP and crime rate reported obtained from Kenya National Bureau of Statistics (KNBS) published reports. Collected data1 was1 analyzed1 using descriptive statistics frequencies,1mean,1standard1deviation and percentage. A correlational analysis was also conducted1to1determine1the1relationship1between1the1impendent and dependent variables. The study also carried out1a1regression1analysis1to1determine1the1level of association of the study variables. The study found that trade misiovoicing had a negative significant influence on economic growth in Kenya; money laundering had a negative significant influence on economic growth in Kenya and accounting fraud had a negative influence on economic growth suggesting that accounting fraud had a negative significant influence on economic growth in Kenya. The study recommends the introduction of electronic systems for invoicing to reduce n errors and also with the ability to detect any fraudulent activities. The government should adopt electronic systems with the ability of detecting and preventing money laundering. There is need to develop policies to curb against the practice of money laundering. The study further recommends the government auditors to conduct thorough audit on financial records of organizations to ensure they do not practice fraud.

Key Words: Accounting fraud, Economic Crimes, Economic Growth, Money laundering, Trade misinvoicing.