THE ANTI-MONEY LAUNDERING, TERRORISM FINANCING POLICE
- And the new regime stopping states from messing with local govt funds
By Babajide Komolafe
On Monday, May 6, Nigeria took a step further to polish its anti-money laundering reputation before the global community when the Nigeria Financial Intelligence Unit (NFIU) issued ‘Guidelines to Reduce Vulnerabilities Created by Cash Withdrawals from LG Funds throughout Nigeria’.
Money laundering is the process by which criminals disguise the original ownership and control of the proceeds of crime by making such proceeds appear to have derived from a legitimate source.
The process includes transfers through banks accounts or legitimate business.
Money laundering is a crime because it is tantamount to helping criminals enjoy proceeds of crime and thus giving them the motivation to persist in criminal activities.
In other words, money laundering encourages criminal activities.
Thus efforts to checkmate crime must include strong measures to curb money laundering and penalise individuals, organisations and states that facilitate it.
NFIU and the Egmont Group
NFIU is the Nigerian arm of the global Financial Intelligence Units (FIUs) known as the Egmont Group.
The Egmont Group is a body of 159 FIUs which provides a platform for the secure exchange of expertise and financial intelligence to combat Money Laundering and Terrorist Financing (ML/TF).
Like other FIUs in the Egmont Group, it is the responsibility of the NFIU to develop standards and procedures for the receipt, analysis and dissemination of financial intelligence to law enforcement agencies.
The unit is also required to perform onsite and off-site examination of financial institutions, enhance compliance with the legal and regulatory regimes on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) in Nigeria as well as respond to the global trends by collaborating with other FIUs worldwide.
In line with these responsibilities, the NFIU issued the ‘Guidelines to Reduce Vulnerabilities Created by Cash Withdrawals from LG Funds throughout Nigeria’.
Effective June 1, the new regime seeks to limit cash withdrawal from local government accounts and also ensure allocation and disbursement of local government funds are through the specified account of each local government and not from any other account, especially the controversial States Joint Local Government Accounts.
The aim of the regime is basically to convince the international community, especially global-anti money laundering agencies, that Nigeria is serious about addressing identified deficiencies in its anti-money laundering framework.
The overriding purpose is to avoid another blacklist by the either the Egmont Group or its sister body, the Financial Action Task Force (FATF), which was created by the Group of Seven Industrialised Nations (G-7) in 1989 to form FATF in their bid to tackle the rising trend of money laundering across the globe.
Among other things, FATF was charged to study money laundering trends, monitor legislative, financial and law enforcement activities taken at the national and international level, report on compliance, and issue recommendations and standards to combat money laundering.
In 2001, following terrorist attacks on the World Trade Centre in the U.S on September 11, 2001, the scope of FATF was expanded to include terrorism financing.
The FATF executes its mandates through its Forty Recommendations first introduced in1986 and revised in 2003, and the Nine Special Recommendations on Terrorism Financing.
Among other things, the ‘Forty Plus Nine’ recommendations, which have since become the international standard for anti-money laundering measures and combating the financing of terrorism and terrorist acts, require states to establish a financial intelligence unit to receive and disseminate suspicious transaction reports.
In addition to the recommendations, FATF, on an annual basis, issues a list of countries regarded as uncooperative with other countries in the fight against money laundering.
Countries on this list, commonly referred to as FATF Blacklist, are called Non-Cooperative Countries or Territories (NCCTs).
Anti-money laundering efforts
Like in several countries, efforts to checkmate money laundering in Nigeria have been largely influenced by the activities of the FATF.
This started in June 2002 when the global body included Nigeria in its list of NCCTs.
According to the FATF June 2002 report, which gave a damning assessment of Nigeria anti-money laundering measures, “Nigeria demonstrated an obvious unwillingness or inability to co-operate with the FATF in the review of its system.
“The Nigerian system to fight against money laundering has a significant number of deficiencies which include a discretionary licensing procedure to operate a financial institution, the absence of customer identification under very high threshold ($100, 000) for certain transactions, the lack of the obligation to report suspicious transactions if the financial institution decides to carry out the transaction.
“The scope of the application of the decree on money laundering is unclear, because it generally refers to financial institutions, and it does not seem to be applied to insurance companies and stock brokerage firms.
“Since June 2001, Nigeria has taken no actions to address the deficiencies in its anti-money laundering regime and continued to fail to adequately engage with the FATF in this process.”
The implication of this blacklisting is reflected in the FATF warning to member countries. “The FATF calls on its members to update their advisories requesting that their financial institutions give special attention to businesses and transactions with persons, including companies and financial institutions, in those countries or territories identified in the report as being non-cooperative”, the group said.
Nigeria was, however, removed from the FATF blacklist in 2006 following a series of legislative and financial sector measures to curb money laundering.
These include the Money Laundering (Prohibition) Act of 2004, the Economic and Financial Crimes Commission (Establishment) Act and the establishment of the NFIU.
But in 2012, Nigeria was re-included in the FATF Blacklist.
Though it acknowledged Nigeria’s progress in improving its anti-money laundering regime, FATF averred, “Despite Nigeria’s high-level political commitment to work with the FATF and Inter-Governmental Action Group against Money Laundering in West Africa (GIABA) to address its strategic Anti-Money Laundering/Counter Financing Terrorism (AML/CFT) deficiencies, further engagement with Nigeria is needed to clarify whether these deficiencies have been addressed, including: (1) adequately criminalising money laundering and terrorist financing (Recommendation 1 and Special Recommendation II); and (2) implementing adequate procedures to identify and freeze terrorist assets (Special Recommendation III). The FATF encourages Nigeria to address its remaining deficiencies and continue the process of implementing its action plan.”
The following year, 2013, the FATF removed Nigeria from its blacklist, saying: “Nigeria has taken steps towards improving its AML/CFT regime, including by enacting AML/CFT legislation and commencing supervision across all sectors.
“However, despite Nigeria’s high-level political commitment to work with the FATF and GIABA to address its strategic AML/CFT deficiencies, further engagement with Nigeria is needed to clarify whether these deficiencies have been addressed.
“The FATF encourages Nigeria to address its remaining deficiencies and continue the process of implementing its action plan.”
Nigeria’s anti-money laundering reputation took another hit in July 2017, when the Egmont Group suspended the membership of NFIU.
“The Heads of FIUs made a decision, by consensus, to suspend the membership status of the NFIU, Nigeria, following repeated failures on the part of the FIU to address concerns regarding the protection of confidential information, specifically related to the status of Suspicious Transaction Report (STR) details and information derived from international exchanges, as well as concerns on the legal basis and clarity of the NFIU’s independence from the Economic and Financial Crimes Commission (EFCC)”, the group said at the end of its plenary in July 2017.
This decision was, however, rescinded, and the membership of NFIU restored the following year, specifically September 2018, after the Group, “concluded that legislative changes in Nigeria addressed the issues that led to its suspension in 2017.”
However, less than six months after this development, on February 14, 2019, Nigeria received another money laundering bashing from the European Commission, when it added Nigeria, Saudi Arabia, Panama and other jurisdictions to a blacklist of nations seen as posing a threat because of lax controls on terrorism financing and money laundering.
Criteria used to blacklist countries include weak sanctions against money laundering and terrorism financing, insufficient cooperation with the EU on the matter and lack of transparency about the beneficial owners of companies and trusts.
One of the implications of the above is that the NFIU is a product of global measures against money laundering and the activities and operations of the unit vis-a-vis anti-money laundering measures are closely watched and also influenced by FATF and the Egmount Group.
Further failure of NFIU to act on the recommendations of such global bodies will likely attract one form of sanction or the other from the international community.
The FATF conducts period mutual evaluations of its members’ levels of implementation of the FATF Recommendations on an ongoing basis. These are peer reviews, where members from different countries assess another country.
Mutual evaluations are strict and a country is only deemed compliant if it can prove this to the other members.
In other words, the onus is on the assessed country to demonstrate that it has an effective framework to protect the financial system from abuse.
Nigeria is slated for the second round of the FATF mutual evaluation, which is scheduled for September and October.
The evaluation should have been done two years ago but Nigeria asked for an extension of time to enable it to meet the requirements.
Nigeria’s performance in this regard is critical to its quest full membership of the FATF, up from its present observer status.
Nigeria’s performance in this regard falls on the NFIU.
The unit has to up its game with new and bold measures to address any observed deficiency in the nation’s anti-money laundry architect with stringent measures as represented by the ‘Guidelines to Reduce Vulnerabilities Created by Cash Withdrawals from LG Funds throughout Nigeria’.