Tightening the Noose around Money Laundering

With fears about the malevolent effects of money laundering rising globally, the Nigerian government is tightening its policy against the crime. Obinna Chima reports

Since the outbreak of terrorist incidents in Nigeria, like the Boko Haram insurgency, killings by herdsmen, and other violent tendencies, the federal government has tried to make strict financial rules aimed at cutting funding for the extremist groups. This is as the number and types of terrorist groups as well as their tactics have continued to change globally, and they continue to refine their means of raising, moving, and using funds for their nefarious activities.

 Finance

Terrorist organisations rely on numerous sources of income and they use a range of methods to move funds, often internationally, to avoid trace. They also raise funds through inherently criminal means (for example, drug trafficking) and through legitimate activities (for example, collection of donations).

In most countries, terrorist financing is said to have occurred when a person directly or indirectly, unlawfully and willingly, provides or collects funds with the intention that they are to be used, in full or in part, to carry out terrorism. It also involves carrying out a transaction knowing or having reasonable grounds to suspect, that the funds or property involved are owned or controlled by terrorists or terrorist organisations, or the transaction is linked to, or likely to finance terrorist acts.

Terrorist organisations require funds to carry out specific terrorist attacks and undertake pre-operational surveillance. This includes travel to and from the target location, the use of vehicles and other machinery and purchase of a range of arms, from light assault weapons to improvised explosive devices (IEDs).

Threat

Corrupt officials, tax cheats, and the financial backers of terrorism tend to have one thing in common: they often exploit vulnerabilities in financial systems to facilitate their crimes, according to the International Monetary Fund (IMF). IMF’s Managing Director Christine Lagarde stressed recently that money laundering and terrorist financing could threaten a country’s economic and financial stability while funding violent and illegal acts.

“That is why many governments have stepped up the fight against such practices, helped by international institutions, such as the IMF,” Lagarde said.

Tightening the Noose

Against the background of the malicious tendencies associated with money laundering, the Central Bank of Nigeria (CBN) recently rolled out a new set of penalties for organisations that flout its Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) rules. The new rules stipulate heavy fines on banks, their directors and other key officials for 48 money laundering infractions.

The new anti-money laundering regime is an improvement on the former regime, which only stipulates fines against financial institutions for money laundering infractions. The former rules were also perceived as obsolete.

The CBN said the measures in AML/CFT are designed to prevent the misuse of the financial system. They call for the detection, reporting, and confiscation of suspicious financial flows and for sanctioning of criminals. The new policy was also developed to ensure Nigeria’s compliance with the Financial Action Task Force (FATF) recommendation 35.

According to the CBN, banks and board members or chief compliance officers would all be sanctioned for 31 out of the 48 money laundering infractions listed in the new regime. For each of the 31 infractions, the new regime stipulates fines ranging from N500,000 to N1.2 million on board members or chief compliance officers or the internal auditor, and fines ranging from N1 million to N20 million on the offending bank.

The new sanction regime was communicated to banks and other financial institutions by the Director, Financial Policy and Regulations Department of the apex bank, Kevin N. Amugo, through a circular titled: “CBN Anti-Money Laundering and Combating the Financing of Terrorism (administrative sanctions) regulations, 2018.”

Part of the circular stated, “Banks and other financial institutions are by this circular, informed of the attached ‘CBN AML/CFT Administrative Sanctions Regime’ the application of which comes into effect as at the date of the Gazette. Kindly ensure compliance.”

Some of the infractions and penalties stipulated under the new regime include failure to approve the AML/CFT policies and procedures, which attracts minimum penalties as follows: N1 million on each member of the board and N20 million on the Deposit Money Banks (DMB).

Others include failure to review/update the AML/CFT policies and procedures at least every three years, with minimum penalty as follows: N750,000 on the executive compliance officer in the first instance, and N750,000 for each year that the contravention continues. Another N500,000 is imposed on the chief compliance officer in the first instance and N500,000 for each year that the contravention continues. Also, a N5 million penalty would be levied on the bank in the first instance and N1 million for each year that the contravention continues.

Similarly, failure to communicate the AML/CFT programme of the organisation to the employees would attract a minimum penalty of N750,000 on the executive compliance officer, N500,000 on the chief compliance officer, and N10 million on the DMB.

In the same vein, failure of the board or its committee to supervise and ensure the effective implementation of the AML/CFT programme attracts minimum penalties as follows: N500,000 on each member of the board and N10 million on the DMB.

The circular stated, “Failure of the officer to generate periodic reports on AML/CFT issues to the board or its relevant committee, a minimum penalty as follows: N750,000 on the executive compliance officer, N500,000 on the chief compliance officer and N5 million on the bank.

“Failure to classify ML/TF risks in the bank, failure to put in place guidelines for risk assessment and profiling of customers in institutions’ AML/CFT board approved programme, and failure to carryout risk assessment and profiling of each account, a minimum of N1 million on the chief compliance officer of the bank, a minimum penalty of N3 million on the bank for failure to put in place guidelines for risk assessment and profiling of customers in AML/CFT programme.

“A minimum of N100,000 per account for failure to carryout risk assessment and profiling of account.”

Collaboration

Despite the new move against money laundering, Director General, Inter-governmental Action Group against Money Laundering in West Africa (GIABA), Mr. Adamu Coulibaly, says money laundering and terrorist financing are not a new phenomenon in West Africa. Coulibaly believes there is need for increased collaboration among countries in the sub-region in order to effectively combat money laundering and its associated effects.

According to him, “This is the reason why states in West Africa have a duty to act together in order to combat these threats. This has to be done not only as part of protecting the world economies, including Africa’s, against criminal infiltration, but also to enhance the rule of law, deepen regional integration and maintain regional peace and security.”

Coulibaly points out that money laundering and financing of terrorism undermine sustainable development by eroding social and human capital, threatening social and political stability, causing an artificial rise in the cost of business, and driving away investment.

On her part, Lagarde described combating of terrorism financing as a top policy priority, saying as terrorism becomes more pervasive in societies, there should be collective responsibility to choke off the financial flows—both large and small—that enable terrorists to inflict unspeakable suffering on individuals, families, and communities.

Combating the financing of terrorism increasingly requires harnessing the power of financial technology, she said.

She explained, “Of course, fintech is a double-edged sword. It can be used to promote and fund terrorism, including through the anonymity of virtual currencies. But it can also be a powerful tool to strengthen our defences against the financing of terrorism.

“We can use fintech to identify terrorist financial flows, including in the case of very small transactions. Machine learning and other artificial intelligence tools can help identify patterns of activity that would otherwise be very difficult to detect.”

Experts are agreed on the need for greater cooperation between financial institutions, governments, and all critical stakeholders in the effort to combat the menace of financial sponsorship of terrorist organisations by blocking their money laundering channels. They believe financial institutions must support the law enforcement agencies in the fight against terrorism by proving the required information.

Many believe the bulk of the responsibility in the fight against money laundering and terrorist financing lies with the banks. Money deposit banks are, thus, expected to be committed to applying enhanced and appropriate due diligence in relation to their customers engaged in sectors and activities which have been identified by competent authorities as being widely used for the financing of terrorism. This would include the adoption of specific policies and procedures on acceptance of business from customers engaged in such sectors or activities, and increased monitoring of the activities of customers who meet the relevant acceptance criteria.

The stricter rules CBN has rolled out for the banks are in line with the general thinking that they have a greater role to play in the bid to rid society of terrorist financing. All eyes will now be on the CBN to see how well it can enforce the rules.