Kenya’s Virtual Asset Service Providers (VASP) Act of 2025 has brought cryptocurrency platforms, exchanges, and wallet providers into the national anti-money laundering (AML) and counter-financing of terrorism (CFT) framework. Under this law, VASPs are now classified as reporting institutions under the Proceeds of Crime and Anti-Money Laundering Act (POCAMLA). This means they must put in place robust systems to identify, monitor, and report suspicious transactions, ensuring compliance with global standards set by the Financial Action Task Force (FATF).
Detecting Suspicious Activity
VASPs detect suspicious activity primarily through blockchain analytics, which allow them to trace cryptocurrency transactions across blockchains. Tools like Chainalysis, Elliptic, and TRM Labs help VASPs identify high-risk transactions. For example, these tools can detect funds coming from dark web markets, sanctioned entities, or addresses linked to illegal activity. They group cryptocurrency addresses, score them based on risk, and flag connections to mixers that obscure the origin of funds.
The VASP Act requires providers to use these technologies alongside traditional know-your-customer (KYC) processes. This means verifying users not only through documents like ID or passports but also by checking blockchain activity. This is important because Kenya faces medium-high risks of money laundering in virtual assets, especially through peer-to-peer trading and unregulated exchanges, as shown in the 2024 National Risk Assessment.
Transaction Monitoring
Transaction monitoring is another key step in spotting suspicious activity. VASPs use automated systems to track deposits, withdrawals, and transfers in real-time. These systems look for unusual patterns, such as very large transactions, rapid transfers across multiple accounts, or transactions involving high-risk countries.
The “Travel Rule” also applies. It requires VASPs to share the originator and beneficiary details for transactions above certain limits, such as KES 100,000. AI-powered tools like Merkle Science help predict risks by analyzing transaction speed, frequency, and location to catch potential fraud or scams, including pump-and-dump schemes that often spread through social media in Kenya.
Rule-Based and AI Systems
Most VASPs use rule-based systems to flag suspicious activity. These systems rely on algorithms that trigger alerts for large transactions, unusual patterns, or activity that does not match a user’s profile. For example, a low-income user suddenly handling large sums of money. Machine learning is also used to improve these rules over time, reducing false alarms.
Internal compliance programs, as required by the VASP Act, include risk assessments and staff training. Compliance officers manually review flagged transactions to confirm whether they are truly suspicious.
Reporting to Authorities
Once suspicious activity is detected, VASPs must report it to the Financial Reporting Centre (FRC), Kenya’s Financial Intelligence Unit. Suspicious Transaction Reports (STRs) are filed through the goAML portal within 24–48 hours. The report includes details of the transaction, parties involved, and reasons for suspicion. VASPs must not tip off the user, and they are required to freeze assets if directed.
Failure to report can lead to fines of up to KES 20 million or revocation of the provider’s license. The FRC analyzes these reports and shares intelligence with law enforcement agencies like the Directorate of Criminal Investigations.
Strengthening Kenya’s AML Framework
The VASP Act of 2025 has strengthened Kenya’s AML and CFT framework. VASPs are now also subject to audits by the Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA). By combining blockchain analytics, transaction monitoring, AI-powered risk assessment, and strict reporting requirements, VASPs in Kenya are better positioned to detect and report suspicious activity, making the virtual asset sector safer and more compliant with international standards.
Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.