Nigeria

For a long period in the past, Nigeria has been perceived as the centre of criminal financial activity for the entire continent. Individuals and criminal organizations took a dvantage of the country’s location, weak laws, systemic corruption, lack of enforcement, and poor economic conditions to strengthen their ability to perpetrate all manner of financial crimes at home and abroad. Nigerian criminal organizations are adept at devising new ways of subverting international and domestic law enforcement efforts and evading detection. The establishment of the Economic and Financial Crimes Commission (EFCC), along with the Independent Corrupt Practices Commission and the improvements in training qualified prosecutors for Nigerian courts, yielded some successes in 2005 and 2006. In addition to narcotics-related money laundering, advance fee fraud is a lucrative financial crime that generates hundreds of millions of illicit dollars annually for criminals.

However, the gradual reform process initiated by the Obasanjo Government from 1999 to 2007 is expected to accelerate under the new Government. The new President, who was sworn in on May 29, 2007, has declared his intention to intensify efforts to resolve some of the thorny issues facing the Government, including the Niger delta conflict and the reduction of poverty in the country, as well as anti-corruption efforts including AML/CFT.

Nigeria has demonstrated a strong commitment to AML/CFT both within the country as well as in the region. The country has the most elaborate legal framework against corruption, economic and financial crimes in the region. In 1995, the first Anti Money Laundering Act (AML Act) was approved and enacted.However, since the only predicate offence for ML at that point was drug trafficking, the Money Laundering (Prohibition) Act of 2004 (MLP Act) replaced the AML Act and corrected this anomaly. Money laundering is thus now considered a criminal offence in Nigeria, regardless of the source of funds.

In 2000, the Government introduced the Independent Corrupt Practices (and Other Related Offences) Commission Act with a view to dealing with matters of corruption and bribery. The EFCC was established in 2003 through the EFCC (Establishment) Act 2004 as amended to lead the fight against money laundering and terrorist financing. This body has had a profound impact on Nigerian society and has gone a long way to restore faith among the public. Section 15 of the EFCC Act criminalizes TF and empowers the EFCC as the enforcement agency for TF offences. Presently pending before the National Assembly is an Anti Terrorism Act, which should become law this year.

Also relevant are a number of circulars, guidelines and manuals issued by several bodies responsible for monitoring AML/CFT issues. Among the main publications are: CBN (Central Bank of Nigeria) Circulars (October 6, 2003 and December 3, 2003) to banks and other financial institutions containing a list of terrorist groups and organizations; (2004) BSD/DO/CIR/V.I/01/24 and (2005) BSD/08/2005 to banks concerning the Money Laundering Prohibition Act 2004 (MLPA); Rules 99 and 100 (amended) of SEC Rules and Regulations; the NAICOM KYC Guidelines concerning the MLPA; the CBN KYC Manual; and the KYC Policy Manual for Bureaux de Change.

Nigeria is signatory to several international conventions relating to ML as shown in Table 1 below and Table 2 in Chapter 3. It also recognizes Security Council Resolutions 1267 (1999) and 1373 (2001) on ML, as well as adhering to the FATF 40+9 Recommendations.

In 2005, the EFCC established the Nigerian Financial Intelligence Unit (NFIU).The NFIU draws its powers from the Money Laundering (Prohibition) Act of 2004 and the Economic and Financial Crimes Commission Act of 2004. It is the central agency for the collection, analysis and dissemination of information on ML and TF. All financial institutions and designated non-financial institutions are required by law to furnish the NFIU with details of their financial transactions. The NFIU has power to receive suspicious transaction reports made by both kinds of institutions, as well as reports involving the transfer to or from a foreign country of funds or securities exceeding $10,000 in value.

Several high-profile arrests and prosecutions, leading to the destitution and conviction of some prominent officials, have given the EFCC a very high profile. Since its inception in 2003, it has obtained over 150 convictions and contributed to provoking a slow but steady change in the general attitude towards corruption. It has also recovered illicit assets worth over US$5 billion. The average citizen has now seen that nobody is above the law, that there are senior officials who are determined to clean up the system, and that citizens may again have confidence in the country’s future.

Overseas partners invested firmly in the EFCC and it has since thrived in its crusade to reduce corruption and ML/FT in the country to the extent that, over the past four years, mentalities have begun to change and officials believe that Nigeria can regain its position as a respected and responsible partner in the concert of nations.

The EFCC’s sustainability now seems assured. It has the capacity to investigate financial crimes throughout the country. It can and does prosecute these in court. It has its own training facility to provide and upgrade skills needed by staff in order to fulfill its mandate. A number of courts have been specially selected and judges have been trained in hearing specific AML/CFT and fraud cases. The EFCC has also raised awareness through its successes and through campaigns aimed at sensitizing the public, although much more remains to be done.

There is a “Fix Nigeria” initiative which aims to inform citizens of the costs of corruption and make it their own fight by empowering them to voluntarily participate in the effort. Everyone has a role to play. At the regional level, Nigeria played a leading role in the establishment and funding of GIABA, including the nomination of the current Director General. The EFCC has the potential of a model law enforcement agency in West Africa. Due to further progress in collecting, analyzing and sharing data on AML/CFT, Nigeria was admitted to the Egmont Group in May 2007, and finally removed from the FATF monitoring list in June 2007. These gains constitute full recognition of Nigeria’s efforts and progress in the fight against all economic and financial crimes.

However, since Nigeria still has a heavily cash-based economy, the DNFI sector remains highly vulnerable to corrupt practices; this situation is at present being addressed through specific mechanisms aimed at ensuring accountability among all professions and operational entities. Thus the strategy of raising awareness, promulgating tougher laws, revamping the financial infrastructure and obtaining convictions for non-compliance or illegal activity has produced remarkable results in a very short time. The idea is to “explain and seduce,” according to the EFCC. And the strategy to step up the risk by increasing the chances of being caught seems to be bearing fruit.

The Nigerian Financial Intelligence Unit (NFIU) is the principal repository and source of financial intelligence in Nigeria and is the direct counterpart of GIABA. It is housed in its own premises but remains under the official umbrella of the EFCC, as per the EFCC Act of 2004. The NFIU responds to and fully meets the FATF requirements regarding AML/CFT provisions and recommendations. It is equipped to access and collate field intelligence from various sources, to monitor and analyze the data, to verify and share the results, to cross-check with the sources, and to produce the required proof in order to prepare serious evidence for prosecutions.

All suspicious transaction reports are sent to the NFIU, where they are uploaded into the system. There is very close ongoing collaboration with the financial institutions in Nigeria to ensure that reporting obligations are respected, that economic and financial information is shared, and that due diligence obligations are also respected. There is an exchange of intelligence with foreign entities on request, and between various FIUs through the signing of Memorandums of Understanding (MOU). However, this could be greatly improved by better electronic interface and database connectivity.

In each federal ministry in Nigeria, there is a special unit (called Anti Corruption and Transparency Unit – ACTU) to help control the problem internally. In the Federal Ministry of Commerce and Industry, in addition to the ACTU, a specialized unit has been set up, with the support of NFIU, to tackle the entire DNFBP sector, which to a large extent falls under the responsibility of this Ministry. The Special Control Unit on Money Laundering (SCUML) was established in September 2005 to monitor, supervise, regulate, and report on the activities of these DNFBPs across the country with respect to AML/CFT. These institutions are defined in section 24 of the MLP Act 2004 as dealers in jewellery, luxury cars and goods, estate agents and valuars, chartered/professional accountants, audit firms, tax consultants, clearing and settlement companies, legal practitioners, supermarkets, casinos, hotels, precious stones and metals dealers, trust company service providers, NGOs, charities, and even churches. All this is not to say that there are no challenges, including the shortage of manpower and other resources given the size and population of Nigeria.

One of the environmental challenges is the cash-based economy, which represents at least 75% of the Nigerian market. According to a CBN publication, as of December 2004, total currency in circulation stood at Naira 545.8 billion, of which 84% was outside the formal financial sector. Other challenges relate to the novelty of the AML/CFT culture, the informality of the sector (mostly unorganized and without self-regulatory bodies), widespread illiteracy, poor record-keeping and public resistance to cooperation – not to mention outright non-compliance!

Money laundering has become less prevalent in the formal economy, but remains a continuous threat in the DNFI sector. More control must necessarily be exerted in that area. Despite the challenges it is facing, SCUML has been able to achieve a lot in the last eight months. The stockpile of hard copy Cash Transaction Reports has been converted into useable soft e-copies and uploaded. There has been a three-week training/induction programme for the foundation staff on AML/CFT and ICT. Registration of DNFIs has increased markedly. A risk-based assessment of DNFIs has been developed, in direct relation to their vulnerability. Door-to-door sensitization has begun in Abuja. And there have been preliminary negotiations for the inauguration of a DNFI Advisory Council, to bring all players in the parallel market on side. The goodwill of all operators is crucial to its success and to eliminating ML/FT. SCUML has also received strong support from the UK Department for International Development, which has rapidly provided needed support for specific activities. This is highly commendable.

Further to its statutory responsibility, the Nigeria Customs Service (NCS) is complementing and strengthening the national efforts in combating ML and FT. The NCS has developed internal mechanisms and techniques to address the threat of ML and to counter FT, based on the enabling legislation, the FATF 40+9 Recommendations and on best practice. With regard to AML/CFT, the role of the NCS is to administer and manage currency declarations, to control commercial fraud and trade-based ML, and to control smuggling and other related economic and financial crimes.

In order to support the AML/CFT regime provided by the EFCC, the NCS established its AML/CFT Unit in July 2005 at the major gateways for effective enforcement of the laws. The Service now receives declarations from 13 Area Commands across the country (international airports and major border stations). All reports generated from the entry or exit points are promptly reported to the NFIU and the Central Bank. All applications will soon be on-line and in real time. The Service has also developed software for use in its own database for rapid data collation, management of currency and bearer-negotiable instruments and other information. Thus reports are generated on passenger destination, declared amounts, source and purpose of funds, etc. Declarations are made on prescribed forms, designed and produced by the NCS.

The CBN is the chief regulator of financial institutions in Nigeria and possesses a detailed knowledge of the system. The supervisory role of the Bank is guided by various laws and regulations which are spelt out in the following documents: Banks and OFI Act 1991; ML Prohibition Act 2004; Monetary Policy Circulars; the Guidance Note 1995; the KYC Directive 2001; the KYC Manual 2002; Account Opening requirements; and others. At present the CBN has under its supervisory purview a wide array of financial institutions: 25 banks, 536 microfinance community banks, 90 mortgage institutions, 110 finance companies, 434 bureaux de change, and six development finance institutions. 130. The National Insurance Commission (NAICOM) is enforcing AML/CFT provisions and has issued very comprehensive KYC guidelines (which have been reviewed twice) and guidance to its operators. For example, personal history statements are required and individuals must appear in person when conducting a transaction. It has also reviewed its inspection manual to emphasize AML issues. Further, it carries out on-site inspections, after which sanctions can be imposed on offenders depending on the inspection reports. In 2006, 52 companies were inspected; 19 failed to comply with various AML provisions, and four were fined. All suspicious transaction reports are filed directly with NFIU.

The capital market is presently worth some Naira 7 trillion (US$55 billion) and there is an average of Naira 4 million in transactions daily. The Securities and Exchange Commission (SEC) is the regulatory and supervisory authority for the capital market by virtue of the Investments and Securities Act 1999. It issues KYC Guidelines regularly to its operators, tailored to the country’s needs. It also has an AML/CFT monitoring unit under its investigation and enforcement arm. It undertakes joint inspection exercises together with the NFIU (there have been over 70 to date), and has seconded staff to the NFIU. It now employs a risk-based approach, given the number of operators in the market, thus categorizing these according to their potential for ML. It has further mandated that no transaction above Naira 50,000 (US$375) in cash may be handled by its operators; all other transactions are to be handled with non-cash instruments, generally cheques, which leave a paper trail.The AML regime seems to be working quite well.

In Nigeria, the private sector is also involved in some form of self-regulation. For example, the Nigerian Institute of Estate Surveyors and Valuars seeks to ensure compliance with the professional code of conduct, mainly through a Professional Practice Committee, which can intervene with its non-compliant members and with intruders. The Association of Bureaux de Change of Nigeria (ABCON) has been recognized as a Self Regulatory Organization since 1999. Bureaux de change are allowed to undertake spot transactions as well as remittances up to a maximum of US$4,000 per individual and $5,000 per organization. In order to conduct transactions, persons must provide an ID card, driver’s license or valid passport. Other acceptable ID can be considered, at the discretion of the changer. Bureaux de change are now licensed by the CBN, once certain requirements are met – minimum share capital of Naira 10 million (US$800,000), mandatory deposit of Naira 1 million, background checks on directors, and affiliation with other financial institutions. ABCON issues its own KYC manuals to its operators and conducts regular and mandatory training.

Nigeria has progressed immensely over the last five years. The image of the country is getting better as a result of concerted efforts to reform the national bodies responsible for AML/CFT, and to attack the drug traffickers, advance fee fraud offenders and money launderers. This is bearing fruit. The public needs to regain confidence in the financial institutions, law enforcement agencies, and those who govern them. This will take time but is already happening in many quarters. If the key players receive the firm support they need in the coming years, additional significant progress will be achieved with regard to the ongoing AML/CFT effort in Nigeria.