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Offshore banking and money laundering (2)

By Afe Babalola

LAST week I began an examination of the relationship between offshore banking and money laundering. I stated how money laundering offences have become common place in Nigeria and how restrictions on the physical movement of cash have forced criminally minded persons to come up with different ways to move funds which are the product of illicit activities across borders. Having given an explanation of the concept of offshore banking it is imperative to explain briefly just what is meant by money laundering.

Wikipedia describes money laundering as

Banking hall

“…the process of concealing the origins of money obtained illegally by passing it through a complex sequence of banking transfers or commercial transactions. The overall scheme of this process returns the money to the launderer in an obscure and indirect way.

“One problem of criminal activities is accounting for the proceeds without raising the suspicion of law enforcement agencies. Considerable time and effort may be put into strategies which enable the safe use of those proceeds without raising unwanted suspicion. Implementing such strategies is generally called money laundering. After money has been laundered, it can be used for legitimate purposes. Law enforcement agencies of many jurisdictions have set up sophisticated systems in an effort to detect suspicious transactions or activities, and many have set up international cooperative arrangements to assist each other in these endeavours.

In a number of legal and regulatory systems, the term “money laundering” has become conflated with other forms of financial and business crime, and is sometimes used more generally to include misuse of the financial system (involving things such as securities, digital currencies, credit cards, and traditional currency), including terrorism financing and evasion of international sanctions. Most anti-money laundering laws openly conflate money laundering (which is concerned with source of funds) with terrorism financing (which is concerned with destination of funds) when regulating the financial system.”

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Under Nigerian Law

The Nigerian Money Laundering Prohibition Act 2011 in Section 15 states money laundering offences to be:

Money laundering offences.

  1. (1)  Any person who

(a) converts or transfers resources or properties derived directly from –

(i)  illicit traffic in narcotic drugs and psychotropic substances, or

(ii) participation in an organised criminal group and racketeering, terrorism, terrorist financing, trafficking in human beings and migrants smuggling, tax evasion, sexual exploitation, illicit arms trafficking in stolen and other goods, bribery and corruption, counterfeiting currency, counterfeiting and piracy of products, environmental crimes, murder, grievous bodily injury, kidnapping, illegal restraints and hostage taking, robbery or theft, smuggling, extortion, forgery, piracy, insider trading and market manipulation and any other criminal act specified in this Act or any other legislation in Nigeria relating to money laundering, illegal bunkering, illegal mining, with the aim of either concealing or disguising the illicit origin of the resources or property or aiding any person involved to evade the illegal consequences of his action;

(b) collaborates in concealing or disguising the genuine nature, origin, location, disposition, movement or ownership of the resources, property or right thereto derived directly or indirectly from the acts specified in paragraph (a) of this subsection commits an offence under this section and is liable on conviction to imprisonment for a term not less than five years but not more than 10 years.

(2) A person who commits an offence under subsection (1) of this section, shall be subject to the penalties specified in that subsection notwithstanding that the various acts constituting the offence were committed in different countries or places.

What is clear from the above is that money laundering essentially involves concealment of illicit origin of money in a bid to give it a legitimate coloration. For example a fraudster based in the United States who has made money scamming innocent persons will have the difficulty of moving his money to Nigeria, as wiring or passing it through a financial institution will attract the attention of law enforcement authorities who will be interested in finding out the source of his money.

He may thus “invest” the money in the purchase of exotic cars which he will then ship to Nigeria for sale. That way, the proceeds of sale are in reality the same proceeds of his criminal activities made in the United States but as far as Nigeria is concerned, he would have been able to “wash” or “lauder” the money and given them a legitimate coloration. The Real Estate sector is also considered globally as an attractive means for money laundering especially in jurisdictions with low regulatory activities. This has been particularly true of Nigeria where most illicit funds and proceeds of corruption are always used to acquire property. Thus for example, a public figure who has obtained millions in bribe uses the funds to acquire a property in a posh area from which he then proceeds to receive very high rents.

Alternatively, he may use the property as collateral to obtain loans from a bank and then deliberately default in repayment of the loan. Thus even where the bank exercises its right of sale over the property to offset the loan, the unscrupulous politician would have been able to “legitimise” the corrupt proceeds of his criminal activities. It is to curb such activities and more that most anti money laundering legislations put in place very strict measures not only regarding limits on transactions threshold but also obligations on banks to identify their customers and report suspicious financial activities. However despite these measures, criminals have been very adept at coming up with new means of escaping regulatory limelights. Bloomberg lists some of the now increasingly common methods to be:

Hiding under shell companies

Deliberately opaque “shell” companies, which exist only on paper and have no active business operations, are easy and cheap to set up and effective at obscuring ownership. They’re key to what experts call the “layering phase” of money laundering, in which funds are shoveled around multiple times to make them harder to track. Shell companies are traditionally found in offshore tax havens such as Panama and the Bahamas, but the U.S. states of Delaware and Nevada also permit corporations to be set up in anonymity. The international consortium of journalists that uncovered the Troika Laundromat scheme says it involved at least 75 shell companies that generated a total of $8.8 billion in transactions through made-up deals. There’s been a global push for more transparency, even in the U.K., whose crown dependencies include Jersey, Guernsey and the Isle of Man.

Mixing clean and dirty money

It’s difficult to tell the difference between legitimate business and illicit flows from criminal activity. Launderers sometimes work with real companies that generate lots of cash, merging their funds before they head to the bank. Casinos and other cash-based operations such as restaurants are attractive targets. A common scheme involving casinos is to buy large amounts of chips in cash, gamble just a tiny share, then call the rest winnings and redeem the funds. Even more effective is owning the whole casino. Macau, the world’s biggest gambling hub, has long been beset by money laundering despite repeated attempts by China’s government to rein it in. Canada found last year that casinos in British Columbia for years served unwittingly as laundromats for domestic and international crime. The expansion of online gaming and sports betting, where identities are easy to conceal, provide new opportunities, as do cryptocurrencies.


To avoid raising red flags, money launderers will break down a large amount of money into smaller chunks and have associates known as “smurfs” deposit the funds in different accounts in different places. U.S. banks are required to report to regulatory authorities any transaction of more than $10,000, so launderers often avoid hitting that limit. Banks must continuously track customer transactions to look for red flags, and if they have good reason to suspect something devious, they must alert authorities. Failure to do so can bring stiff fines. Banks often complain that the rules are onerous and the controls needed to “know your customer” are costly. Danske Bank increased the number of employees in compliance after its money-laundering scandal exploded, and now has more than 1,000 people assigned to monitor and prevent financial crime.

To be continued….

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