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Offshore banking and money laundering (1)

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By Afe Babalola

FOR several years, and particularly over the past couple of months, one word which has gained notoriety in Nigeria’s criminal lexicon is “Money Laundering”. Since the start of the concerted effort to rid Nigeria of corruption and financial crimes, hardly has a charge been filed by law enforcement agencies without a count alleging money laundering against the criminal defendant.

The media, print and electronic, also appear to have caught the bug as coverage of money laundering allegations and litigation now enjoy prime of place in news reporting. But just what is money laundering? What exactly does it entail and what is its role in the scheme of things and what risks do money laundering activities pose for the economic welfare of the country? These questions are important for a variety of reasons.

Banking hall

Since the return to civil rule after decades of military dictatorship, all administrations have rightly made the eradication of corruption and the recovery of looted funds a cardinal objective. However and most regrettably, two decades after, little success has been recorded with regards to repatriation of looted funds while allegations of corruption remain rife. With regards to the former, it emerged a few days ago that more funds traced to the late Head of State General Sani Abacha had been discovered by the British authorities. Reporting the incident on June 6, CNN stated as follows:

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“Authorities in Jersey say they have seized more than $267 million from the family and associates of the late Nigerian military dictator Sani Abacha. According to Jersey’s Civil Asset Recovery Fund, the laundered funds recovered from confiscated assets, belonging to the son of the late dictator, Mohammed Abacha, were “derived from corruption” during the military leader’s rule in Nigeria. The money was found in a Channel Islands account held by shell company, Doraville Properties Corporation.                    It had been frozen by a federal court in Washington in 2014 at the request of prosecutors pursuing criminal proceedings against Mohammed Abacha and his associates. The stolen funds have now been recovered and paid into a special recovery fund after a five-year legal battle. The fund will be shared between the Nigerian government, Jersey and the US government, according to Jersey authorities overseeing the case. Robert MacRae, Jersey’s attorney general, said in a statement that freezing the assets demonstrated Jersey’s “commitment to tackling international financial crime and money laundering.”

Prior to this time, seizures amounting to several millions of dollars had been discovered and seized. The Swiss government alone has reportedly recovered around $700 million of Abacha-related assets to date. Out of an estimated loot of $2 billion to $5 billion, the following have been reportedly recovered:

  1. $750 million cash in different currencies recovered by the administration of General Abdulsalam Abubakar in 1998.
  2. $64 million returned by the Swiss government in 2000.

III. $1.2 billion recovered through a deal between the administration of Chief Olusegun Obasanjo and the family in 2002.

  1. $160 million repatriated from Jersey, British Isles in 2003
  2. $88 million returned by the Swiss government in 2003 VI. $461 million returned by the Swiss government in 2005.

VII. $44 million returned by the Swiss

government in 2006

VIII. $227 million returned from Liechtenstein in2014

  1. $321 million with interest of $1.5 million returned by the Swiss government in December 2017.

Given these enormous figures, a question that is bound to agitate most minds is how these monies returned to the government of Nigeria were transferred to the localities or jurisdictions in which they were found. This is due to the fact that the physical movement of money across international boundaries is highly restricted. Anyone familiar with foreign travel will know that in most cases, the amount of cash anyone can carry on their person at any given time when arriving at the entry port of another country, without having to declare the presence of the money is often limited to $10,000 or its equivalent. Any  sum above that amount has to be declared to Customs who will then conduct enquiries into not only the reason for travelling with the amount of cash cash but also the source of the funds. Generally the purpose of these regulations is part of a strategy to combat money laundering, counter the financing of terrorism,and combat other transnational crime. It may also be useful in stopping the flight of capital to another jurisdiction.

Offshore accounts

How then do those intent on corruptly amassing funds in foreign countries go about it? The answer is multifaceted but one which directly comes to mind is the ability to open and operate offshore accounts. In simple terms, an offshore account is one operated by an individual or corporate body in a country or jurisdiction other than the one in which the individual or corporate body resides or is domiciled. The reasons for operating offshore accounts can range from a need for privacy to tax evasion to even criminal activity.

Explaining the concept of offshore banking and offshore accounts, Wikipedia states as follows:

“An account held in a foreign offshore bank, is often described as an offshore account. Typically, an individual or company will maintain an offshore account for the financial and legal advantages it provides, including:

  • Greater privacy (see also bank secrecy, a principle born with the 1934 Swiss Banking Act)
  • Little or no taxation (i.e., tax havens)
  • Easy access to deposits (at least in terms of regulation)
  • Protection against local, political, or financial instability.

While the term originates from the Channel Islands being “offshore” from the United Kingdom, and while most offshore banks are located in island nations to this day, the term is used figuratively to refer to any bank used for these advantages, regardless of location. Thus, some banks in landlocked Andorra, Luxembourg, and Switzerland may be described as “offshore banks”.

Offshore banking has often been associated with the underground economy and organised crime,tax evasion and money laundering; however, legally, offshore banking does not prevent assets from being subject to personal income tax on interest.

Except for certain people who meet fairly complex requirements (such as perpetual travelers), the personal income tax laws of many countries (e.g., France, Malaysia, and the United States) make no distinction between interest earned in local banks and that earned abroad.

Persons subject to US income tax, for example, are required to declare, on penalty of perjury, any foreign bank accounts – which may or may not be numbered bank accounts – they may have. Although offshore banks may decide not to report income to other tax authorities and have no legal obligation to do so, as they are protected by bank secrecy, this does not make the non-declaration of the income by the taxpayer or the evasion of the tax on that income legal.

Following the 9/11 attacks, there have been many calls to increase regulation on international finance, in particular concerning offshore banks, tax havens, and clearing houses such as Clearstream, based in Luxembourg, which are possible crossroads for major illegal money flows.

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