Abdullahi Y. Shehu
The aim of any AML/CFT regime is to prevent, detect, interdict and control money laundering and the financing of terrorism. The global framework for this is adumbrated and elaborated in the Financial Action Task Force (FATF) 40 Recommendations on Money Laundering, and the Financing Terrorism and Proliferation (2012). In brief, the Recommendations set out measures, including AML/CFT policies and coordination; criminalization; prevention; transparency; as well as powers of competent authorities and international cooperation, for the prevention and control of these phenomena.
The forty recommendations the acceptable international standards against money laundering, terrorist and proliferation financing and are enforced globally. The enforcement of these measures is monitored through the FATF network process of peer review known as ‘mutual evaluation’. Countries that are not members of the FATF or its Regional Style Body are targeted based on perceived deficiencies and risks from their jurisdictions and engaged by the FTF for the purpose of enforcing compliance with the standards.
The FATF Standards, even though referred as recommendations have become powerful tools for combating transnational organized crime and their enforcement has become a major policy issue in all jurisdictions. Indeed, the spirit and letter of the standards have proven over the years to promote sanity and best practices and protect the international financial system. Thus, any country enforcing the standards does so in its own interests and not necessarily satisfying foreign obligations.
The Nigerian AML/CFT Regime
Although Nigeria is not a member of the FATF, it is a founding and active member of the ECOWAS Inter-Governmental Action Group against Money Laundering (GIABA), which is a FATF Style Regional Body responsible for the promotion and enforcement of the FATF standards in West Africa. Accordingly, Nigeria has committed to the full implementation of the international standards against money laundering, terrorist and proliferation financing.
Nigeria’s AML/CFT was the first to evolve in West Africa, and indeed the whole Africa, because the Nigerian Money Laundering Decree No. 3 of 1995, even though it criminalized only drug money laundering, was the first piece of legislation against money laundering in Africa. Nigeria was the first country in West Africa to establish a specialized agency (the EFCC) for money laundering enforcement; the first to establish a Financial Intelligence Unit (FIU); and most importantly, it was Nigeria’s leadership, in collaboration with the UNODC and the ECOWAS that led to the establishment of the regional body (GIABA). Unfortunately, however, and despite being the first to put in place the initial structures for AML, Nigeria missed the opportunity to become the first African country to attain a FATF membership, mainly because Nigeria’s efforts were not properly coordinated and sustained.
By the FATF fundamental and technical criteria, Nigeria is no doubt a strategic country obviously because of the prevalence of corruption and money laundering, but mainly because of its GDP, the size of its banking and financial system, its integration with the international financial system, as well as its geographical and political influence in Africa. As a result of none response (in fact nonchalant attitude) of Nigeria to engage, the FATF was left with no alternative than to blacklist Nigeria among countries considered to be non-cooperative countries and territories (NCCTs) in 2001. Subjecting Nigeria to this process meant that Nigeria was perceived as a risky jurisdiction for business and all financial transactions with Nigerian banks were subjected to extra ordinary scrutiny – and embarrassment. But this did not stop the laundering of proceeds of corrupt enrichment from Nigeria in other jurisdictions anyway. I am not going into the details of the responsibilities of other jurisdictions here as it is not the aim of this article.
It took Nigeria six years of engagement to be removed from the NCCTs process in June 2006. One of the conditions for Nigeria’s removal from the black list was for Nigeria’s AML/CFT system to be evaluated by GIABA to ascertain its level of compliance with acceptable international standards. The first comprehensive mutual evaluation of the AML/CFT regime was carried out in 2008 and the report showed significant deficiencies, particularly in strategic areas like insufficient criminalization of the offences of money laundering and terrorist financing, lack of effective regulation and supervision of the financial system, inadequate records keeping of financial transactions, insufficient measures for the enforcement of United Nations Resolutions 1267 and 1373 with respect to financing of terrorism, and lack of mutual legal assistance law to facilitate effective international cooperation, among others.
These deficiencies again, made Nigeria to be subjected to the FATF review under its International Cooperation Review Group (ICRG) process in 2010. By subjecting Nigeria to the two FATF processes of global enforcement is not suggestive of Nigeria’s strategic importance; but rather notoriety for non compliance, which is not good for the image and integrity of the country. Nigeria suffered the consequences and also had to invest both in human and material resources to get out of this process in 2013. As an active participant in all these processes, I feel very bad for my country and all this is blamed on lack of synergy and coordination of Nigeria’s efforts. There are too many stakeholders in the AML/CFT arena, and yet leadership remains a huge challenge.
Within the framework of the GIABA processes, the ministers of Finance, Justice and interior in each country are responsible for AML/CFT, but the obvious responsibility going by the FATF standards lies with the minister of finance. I was told the Minister of Justice has this responsibility in Nigeria, and yet sixty percent of AML/CFT obligations lay within the financial sector. Furthermore, the key strategic technical deficiencies, notably, the lack of a mutual legal assistance, asset recovery and management laws, as well as harmonization of the money laundering and terrorism prevention laws are the responsibilities of the minister of Justice.
Vulnerabilities and Risks in the AML/CFT Regime
The main thrust of AML/CFT is the identification and mitigation of risks. That is why the international standards place emphasis on risk assessment, which Nigeria has recently done but the report is yet to be released. Without pre-empting the outcome of the risk assessment, I know for certain that since 2013 after Nigeria was removed from the FATF ICRG Process, the following fundamental weaknesses remain in its AML/CFT regime:
• Absence of compressive mutual legal assistance legislation.
• Lack of Proceeds of Crime Law.
• Lack of harmonization of the various amendments made to the Money Laundering (Prohibition) and the Prevention of Terrorism Acts 2013 to make them consistent with acceptable international standards.
• Ineffective coordination of the overall AML/CFT regime.
• Controversy surrounding the status and location of the Nigeria Financial intelligence Unit (NFIU).
• Lack of credible records of statistics on the achievements in AML/CFT.
• Obvious or visible patterns of money laundering through various methods, including massive outflow of cash, real estate and the prevalence of corruption.
• Poor records of dealing with ‘high profile’ corruption cases, most of which remain inclusive.
• Weak beneficial ownership and legal arrangements, among others.
It should be noted that these weaknesses are within the technical compliance requirements; meaning that there is more to be done to achieve effectiveness as a pre-requisite for the next round of evaluation under the revised FATF Standards.
Rather than for Nigeria to focus on addressing the strategic deficiencies in its AML/CFT, which would automatically give it credit and recognition to become a member of the FATF if that is Nigeria’s ultimate objective; there is a misplaced priority on Nigerian officials’ participation in FATF Plenary meetings to “observe and learn” nothing that is not already known on AML/CFT. How can that change the system back home other than draining resources? It is disappointing, to say the least, that many countries, most of which are less endowed started the process after Nigeria, but due to their commitment and prioritization of actions, they have surpassed Nigeria in many aspects. This is why my own contribution is not a critique per se, but a call for rescue to address the weaknesses in the Nigerian system.
Nigeria’s Membership of the FATF
Becoming a member of the FATF is desirable for Nigeria, but it is not a priority. What is a priority and important for Nigeria is to review its AML/CFT architecture and address the specific technical deficiencies that would provide the building blocks for a solid regime. Without those building blocks being in place, little can be achieved in terms of effectiveness, talk more of aspiring to become a member of the FATF. In any case, Nigeria can play a leading role within the regional AML/CFT framework that can earn it the respect of the international community and by so doing, becoming a member of the FATF will be much easier. In fact, the FATF will be the one courting Nigeria rather than Nigeria struggling to become a part of it.
At any rate the criteria for attaining FATF membership are clear and these include the technical requirements that a country must achieve nothing below the rating of largely compliant on the core recommendation 3, which has do with criminalization of money laundering; recommendation 5, which has do with criminalization of terrorist financing; recommendation 10, which deals with customer due diligence; recommendation 11, on records keeping; and recommendation 20, on reporting of suspicious transactions. Can the current status of the NFIU achieve this requirement?
The Status and Location of the NFIU
Practitioners in the AML/CFT cycle have always asked and would be eager to know my view with respect to the seemingly controversial status and location of the NFIU. I have come to realize that the problem with the NFIU is not with its operational independence as most people would claim, but with a misplaced notion of who is in charge of what and a misperception of public office as a personal and life time vocation. Perhaps the most credible arguments in the controversy for a review of status and location of the NFIU are that: (1) the EFCC being a law enforcement agency cannot at the same time be the FIU of Nigeria as contained in section 1 (2) of the EFCC Establishment Act; and (2) the NFIU has not been administered professionally to make it truly a centralized authority for all law enforcement agencies to derive financial intelligence from it, rather, it is perceived as the property of the EFCC.
Indeed, we must acknowledge the foresight and good leadership of the EFCC in establishing and strengthening the NFIU, but since we must conform to acceptable standards, what is required is either to enact a standalone law establishing the FIU according to the Egmont standard, or amend the EFCC Act to say the FIU is located within the EFCC as it has to be located somewhere anyway.
There is no proof that the FIU can be better in any other location other than where it is at the moment. After, all what is in a location? It is instructive to note that what is required is the operational autonomy and financial independence of the FIU and its ability to serve all law enforcement agencies. That can be achieved through either of the two alternatives contemplated here. This seems to be a hard nut to crack, but it must be done somehow if the system must work very well.
Conclusion and the Way Forward
Anti-money laundering and counter financing of terrorism is an important element of the fight against corruption, which is one of the main thrusts of the government of Nigeria. Yet, since 2013, no significant input has been added to the AML/CFT framework. As Nigeria seeks to strengthen democracy by reinforcing rule of law, there is no alternative to strengthening the mechanisms for accountability, including a robust ML/CFT regime. These issues are neither academic, nor are they political, in spite of the legislative processes; they are purely technical issues, which require technical expertise to address.
With South Africa as a member of the FATF and with Egypt nearer to attaining membership, the regional balance that FATF sought for may have been achieved to some extent. However, it would still be a fact that sub-saharan African is not represented and it would be a disappointment if any other country will overtake Nigeria and become a member of the FATF. The second round of the evaluations have already commenced and if the Nigerian system remains as it is with the strategic deficiencies mentioned earlier on, Nigeria’s leadership and influence in AML/CFT will diminish regrettably. Time is of the essence and a word is enough for the wise.
––Abdullahi Shehu is a Professor of Criminology and former Director General of the ECOWAS Inter-Governmental Action Group against Money Laundering (GIABA).