Part A: Law and government
Basic concepts and types of law
Key takeaways
- The Constitution of Kenya, 2010 is the supreme law under article 2: any law inconsistent with it is void to the extent of the inconsistency, so every search, seizure and interview must respect the Bill of Rights.
- Substantive law states the rule and asks whether it was broken; procedural law governs how the rule is enforced and proved, and evidence gathered in breach of procedure can be excluded however clearly it shows the fraud.
- Statutory law is enacted by Parliament, or a county assembly for county matters; it ranks below the Constitution but takes priority over the common law and judicial precedent where they conflict.
- A civil fraud action is brought by the victim for compensation and decided on the balance of probabilities; a criminal action is brought by the state through the Office of the Director of Public Prosecutions for punishment, on proof beyond reasonable doubt.
- One fraud can found a civil claim and a criminal prosecution at the same time, and when the money crosses borders, international law supplies the mutual legal assistance and extradition a Kenyan investigation cannot compel alone.
A forensic examiner works at the point where an organisation's records meet the law: the same fraud that costs a company money may be a civil wrong the company sues over, a crime the state prosecutes, and a regulatory breach a licensing body punishes, and each of those three routes runs on a different body of law with different rules of proof, different remedies and a different pace. This chapter sorts the vocabulary a fraud examiner needs before any of the later diploma papers make sense: the several senses in which the word 'law' is classified, and where a fraud fits within each classification.
Framework for this chapter
The Constitution of Kenya, 2010, article 2 (supremacy of the Constitution); the Judicature Act (Cap 8), which supplies Kenya's sources of law; the distinctions this chapter draws are conceptual, taxonomic, rather than resting on one statute, and each is illustrated with how it bears on a fraud matter specifically.
Constitutional law
Constitutional law governs the structure and powers of government, the relationship between its branches, and the fundamental rights of citizens; the Constitution of Kenya, 2010 is the supreme law of the Republic under article 2, and any other law, statute, regulation or customary practice, that is inconsistent with it is void to the extent of the inconsistency.
For a fraud examiner, constitutional law sets the outer limits within which every investigative power in this diploma's later papers must operate: a search, a seizure of records, an interview, a restriction on a suspect's movement, is valid only insofar as it respects the rights the Bill of Rights (Chapter 4 of the Constitution) guarantees, among them the right to a fair hearing, the presumption of innocence, and protection against arbitrary search of person, home or property. An investigation conducted in disregard of these protections risks having its evidence excluded and its findings challenged, whatever the underlying fraud actually shows.
Statutory law
Statutory law is law enacted by Parliament (or, for county matters, a county assembly) as an Act, written and codified rather than developed case by case; it is subordinate to the Constitution but takes priority over the common law and judicial precedent where the two conflict.
The statutes a fraud examiner encounters most are all statutory law:
- Defining the offences: the Penal Code (Cap 63) and the Anti-Corruption and Economic Crimes Act, 2003.
- Governing how they are proved and prosecuted: the Evidence Act (Cap 80) and the Criminal Procedure Code (Cap 75).
- Tracing and recovering the proceeds: the Proceeds of Crime and Anti-Money Laundering Act, 2009.
CFFE Law Related to Fraud works through the offence-creating statutes, CFFE Principles of Law of Evidence and the Trial Process the evidentiary ones.
Substantive law
Substantive law defines rights, duties and obligations: what conduct is permitted or prohibited, what a claimant or prosecutor must prove, and what remedy or penalty follows. The Penal Code's definition of theft by a person in a position of trust, or the Anti-Corruption and Economic Crimes Act's definition of corruptly benefiting from a contract, are substantive law, the rule itself, answering the question 'is what happened here actually an offence, and which one.'
Procedural law
Procedural law governs the process by which substantive rights are enforced: how a case is filed, how evidence is gathered and presented, how a trial is conducted, how an appeal is brought. A forensic examiner's findings are only as useful as the process behind them was proper: evidence gathered in breach of the Criminal Procedure Code's search and seizure rules, or presented without satisfying the Evidence Act's rules on admissibility, can be excluded regardless of how clearly it proves the underlying fraud, which is why CFFE Principles of Law of Evidence and the Trial Process exists as its own full paper rather than a footnote to the substantive offences in CFFE Law Related to Fraud.
Administrative law
Administrative law governs the powers, procedures and accountability of government agencies, ministries, regulators, licensing bodies, including the principles of fair administrative action (given statutory effect in Kenya by the Fair Administrative Action Act, 2015, itself giving effect to article 47 of the Constitution) and the grounds on which an administrative decision may be challenged by judicial review.
It matters to a fraud examiner wherever an investigation touches a regulated entity, a bank whose licence the Central Bank of Kenya could suspend, a public officer whose conduct the Ethics and Anti-Corruption Commission or the Public Service Commission could discipline, since the regulator's own decision, to investigate, to suspend a licence, to discipline an officer, is itself an exercise of administrative power that must follow fair process or risk being quashed.
Common law
Common law, in this taxonomic sense, is law developed by courts through judicial decisions (precedent) rather than solely through legislation; it is the tradition Kenya inherited from England and continues to apply alongside its own statutes, developed further in the chapter on the common law system. Much of the law of tort (a civil wrong, such as deceit, the tort a defrauded party sues on) and significant parts of the law of contract remain common law, statute having codified only some of it, so a fraud examiner supporting civil recovery needs to know that the cause of action may rest on judge-made principle rather than a section number.
Civil law
Civil law, in this sense (distinct from the comparative civil-law legal tradition the final chapter examines), governs disputes between private parties, over contract, tort, property or a debt, as against criminal law's concern with offences against the state and society. A civil action is brought by the wronged party (the claimant or plaintiff) against the wrongdoer (the defendant) seeking a remedy, ordinarily damages (monetary compensation) or an injunction, rather than punishment; a defrauded company suing a former employee to recover stolen funds is a civil action.
Civil and criminal actions of fraud
Civil against criminal fraud actions
| Basis | Civil fraud action | Criminal fraud action |
|---|---|---|
| Brought by | The victim (claimant) | The state, through the Office of the Director of Public Prosecutions |
| Purpose | Compensation for the victim's loss | Punishment of the offender and deterrence |
| Standard of proof | Balance of probabilities (more likely than not) | Beyond reasonable doubt (the higher standard) |
| Typical outcome | Damages, an account of profits, or an injunction | A fine, imprisonment, or both, on conviction |
| Who controls the process | The claimant decides whether to sue and may settle at any time | The prosecution is a state decision; a victim cannot simply withdraw a criminal charge |
The same conduct can give rise to both a civil claim and a criminal prosecution at once, since they are not mutually exclusive and serve different purposes: a company can sue a fraudulent former employee for the stolen funds while the state separately prosecutes that employee for theft, and a forensic examiner's findings routinely support both processes at once, though the standard of proof each must meet differs, evidence that satisfies the civil balance of probabilities does not automatically satisfy the criminal beyond-reasonable-doubt standard.
Criminal law
Criminal law defines conduct that is an offence against the state, and by extension society, and prescribes the penalties (a fine, imprisonment, or both) that follow conviction; it is prosecuted by the state, in Kenya through the Office of the Director of Public Prosecutions (established under article 157 of the Constitution), rather than by the victim bringing the case personally, though a victim's complaint is ordinarily what sets the police investigation and eventual prosecution in motion.
Kenya's principal criminal statutes for a fraud examiner are the Penal Code (Cap 63), covering general offences such as theft, obtaining by false pretences and forgery, and the Anti-Corruption and Economic Crimes Act, 2003, covering corruption and economic crime specifically, both developed in CFFE Law Related to Fraud.
International law
International law governs relations between states and, increasingly, cross-border matters directly relevant to fraud examination: mutual legal assistance treaties (allowing one state's investigators to obtain evidence held in another), extradition arrangements for a fugitive suspect, and international anti-corruption and anti-money-laundering instruments such as the Financial Action Task Force (FATF) recommendations, which shape Kenya's own Proceeds of Crime and Anti-Money Laundering Act, 2009 and its Financial Reporting Centre (CFFE Fraud and Corruption Schemes develops the FATF framework fully).
A fraud that moves money across borders, common in large-scale corruption and trade-based schemes, routinely needs this international layer, since Kenyan courts and investigators cannot compel a foreign bank or a foreign suspect directly.
Republic v Mohammed & another [2018] KESC 51 (KLR)
Confirmed the beyond-reasonable-doubt standard the prosecution must meet in a criminal trial, and the presumption of innocence the accused enjoys until that standard is met, the constitutional baseline every criminal fraud prosecution in this diploma proceeds against.
The cases in this chapter are genuine, reported Kenyan authorities; none is invented for illustration.
Worked scenario: one fraud, three legal routes (not a decided case)
Wanjiku, an accountant at Mwangi's Bakery Limited, diverts KES 2,000,000 of supplier payments to a personal account over two years by creating fictitious supplier invoices.
Substantive criminal law: the Penal Code's theft and forgery provisions define what she did as an offence; the state, through the DPP, may prosecute her, and if convicted she faces imprisonment, a fine, or both, on the criminal standard of proof beyond reasonable doubt.
Substantive civil law: the bakery has a civil cause of action against her (and, potentially, against a bank that processed the payments negligently) to recover the KES 2,000,000, decided on the lower balance-of-probabilities standard, and it may sue regardless of whether a criminal prosecution is brought or succeeds.
Procedural law: whichever route is taken, how the forensic examiner gathered the evidence, whether Wanjiku's interview followed proper procedure, whether the seized computer records were obtained lawfully, governs whether that evidence can actually be used in either the civil or the criminal proceeding.
Substantive against procedural is the recurring exam pivot
The distinction between substantive and procedural law recurs constantly across this diploma: substantive law is 'what is the rule and was it broken', procedural law is 'how do we enforce or prove it'. A case study naming a specific court rule, a filing requirement, a chain-of-custody step, is testing procedural law even where the underlying issue is a substantive fraud offence; read the question for which of the two it is actually asking about before answering.
Self-check
(a) Distinguish substantive law from procedural law, with one fraud-related example of each. (4 marks)
(b) A company discovers an employee has been stealing from it. Explain the two legal routes open to the company and how the standard of proof differs between them. (6 marks)
(c) Explain why constitutional law matters to a fraud examiner conducting an investigation, giving one example of a right that could be engaged. (4 marks)
(d) State one reason international law is relevant to a fraud that moves money across borders. (2 marks)
Show worked answer
(a) Substantive law defines rights, duties and what conduct is prohibited (for example, the Penal Code defining theft); procedural law governs how those rules are enforced (for example, the Criminal Procedure Code's rules on how a search is conducted or a case filed) (4 marks).
(b) A civil action, brought by the company itself seeking compensation (damages) for its loss, decided on the balance of probabilities; and a criminal prosecution, brought by the state through the DPP seeking punishment of the employee, decided on the higher standard of proof beyond reasonable doubt. The two may proceed together, since they are not mutually exclusive (6 marks).
(c) The Constitution is the supreme law and sets limits on investigative power: an investigation that breaches a constitutional right (for example, an unlawful search of the suspect's home, breaching the protection against arbitrary search) risks having its evidence excluded and its findings challenged, regardless of what the fraud shows (4 marks).
(d) Kenyan courts and investigators cannot directly compel a foreign bank or a suspect located abroad; international instruments such as mutual legal assistance treaties and extradition arrangements are needed to obtain evidence or a suspect from another jurisdiction (2 marks).