Federal Republic of Nigeria

Political Situation

Nigeria has remained on a democratic, albeit troubled, trajectory since returning to multiparty rule in 1999. The country continued to face a tense political situation in the past year. This was partly manifested by the escalation of violent insurgent attacks by the radical Islamic group Boko Haram and the consequent breakdown of law and order in some states in northeastern Nigeria. These attacks are part of a radical Islamist insurgency aimed at not only creating a situation of lawlessness, but also overthrowing what is deemed as a corrupt and westernized Nigerian state and imposing an Islamic Sharia system of governance. Significantly, the arrest of a senior Boko Haram commander in the house of a sitting Senator has generated suspicion that certain politicians have co-opted the group and encouraged its escalation of violence for self-serving ends.

Escalation of the Boko Haram insurgency coincided with massive protests and a week-long strike by labor unions provoked by the federal government’s complete and unilateral elimination of costly, but highly popular fuel subsidies on New Year’s Day on 1 January 2012 and the sudden sharp increase in fuel prices. The subsidy crisis thus exacerbated Nigeria’s tense political situation as protestors demanded the president’s resignation and attempts by the Nigerian police to contain the protest resulted in the killing of several demonstrators. Indeed there were concerns that the agitation and animosity generated by the subsidy removal would provide a pretext for Boko Haram to carry out more attacks, and recruit and radicalize more youth, particularly that directly felt the impact of the higher fuel prices.

While the escalation of insurgent attacks by Boko Haram and the apparent breakdown of law and order in certain northeastern states have prompted concerns about Nigeria’s security and regional stability, there are concerns about the country’s emergence as hotspot of terrorism and extremism. Even more important is the apparent thriving of terrorist financing, although terrorist activities do not appear to be costly. Prominent Nigerians, including high-ranking government functionaries and security officials, are alleged to have sponsored attacks by Boko Haram. Furthermore, the group is alleged to have received financial support from a foreign-based Islamic trust fund.

The alleged political involvement in the financing of insurgent activities for self-serving ends could seriously undermine AML/CFT efforts in Nigeria and potentially roll back much of the progress made in recent years.

Furthermore, the State’s complete control over vast oil wealth and its domination of economic life continued to underpin political corruption in Nigeria. Recent disclosures by a House of Representatives inquiry that fuel importers, including some with close links to senior political figures, embezzled nearly $7 billion of oil subsidies between 2009 and 2011 generate considerable controversy in the country. The situation was compounded by allegations that a legislator had tried to secure a $3 million bribe in order to have a company removed from the list of those indicted in the scandal, and the legislator’s eventual admission of having received $620,000.

Economic and Financial Situation

Nigeria remains on a robust economic trajectory, with a projected growth rate of 6.9% and 6.6% in 2012 and 2013 respectively. Following a weak global economy and decreased oil and gas production in preceding years, 2012 growth was driven primarily by increased oil production and exports. Nonetheless, the non-oil sector, particularly a vibrant wholesale and retail sector, as well as agriculture, manufacturing, telecommunications, and construction made considerable contribution to growth. Declines in food prices and implementation of tight monetary policy measures in response to recent banking and financial crises is expected to reduce inflation, albeit slowly, from 10.2% in 2011 to 10.1% and 8.4% in 2012 and 2013 respectively. At the same time, growth in real GDP per capita is expected to increase slightly from 4.1% in 2011 to 4.4% in 2012.

Growth in 2012 appears to have been largely exclusive as it neither translated into employment nor improved the chronically difficult socio-economic conditions facing the vast majority of Nigerians. The poverty rate remained at 70%, while the unemployment rate increased slightly from 21% to 24%. Nearly 38% and 22.4% of Nigerians in the 15-24 and 25-44 age brackets respectively remained jobless. Also, graduate unemployment and underemployment remained widespread. These conditions have created an enabling environment for the recruitment and radicalization of deprived youths for criminal activities.

Nigeria also faces serious development challenges, as expressed by deep income inequalities among the populations. There remains a widely unequal class structure in which members of the ruling and business elites and their associates enjoy high standard of living while the majority of Nigerians, especially the youth, contend with tough living conditions. Furthermore, the vast majority of Nigerian communities, particularly in the rural areas, remains largely isolated from all tiers of government and has little or no access to basic services. Accordingly, this has created a situation in which not only are organized criminal activities and other predicate offences often seen as legitimate means of survival, but also a general acceptance and glorification of illicit wealth.

The Financial sector of Nigeria, the most developed in the region has a lot of potential though still developing. There are 21 deposit money banks that makes up for over 70% of the sector’s total assets valued at 40.3% of GDP in 2010. Remittances inflows in 2011 amounted to USD20.6 billion, which represents about 8.7% of GDP. These calls for close monitoring of remittances inflows as they have AML/ CFT implications.

Prevalence of Predicate Crimes

Nigeria continues to be a major center of organized criminal activity in the West African region. The country’s location along trafficking routes and vast and porous borders continue to make it a major trans-shipment point for cocaine from Latin America and heroin from Southeast and Southwest Asia en route Europe, and to a lesser extent, the United States. Nigerian criminal networks continue to play a major role in the trafficking of narcotics to consumption markets. The National Drug Law Enforcement Agency (NDLEA) seized a total of 227.055 kilos of hard drugs worth an estimated N2.5 billion at the Murtala Mohammed International Airport (MMIA) in the first half of 2012. In the same period, the NDLEA seized another 2,476 kilos of hard drugs in Kogi State. The Murtala Mohammed International Airport (MMIA) in particular remains a major transit point for narcotics. A Nigerian tailor was arrested at the MMIA in June 2012 for attempting to smuggle 2.70 kilos of cocaine with an estimated value of N29 million into the country. In September 2012, two Nigerian men were arrested for attempting to smuggle 2.56 kilos of cocaine to Turkey. Two other Nigerian men were arrested for attempting to smuggle out 4.285 of methamphetamine to India in the same month. Two months later, a UK-based Nigerian student was arrested at the MMIA for attempting to smuggle 1.535 kilos of cocaine to the UK.

Despite these arrests and seizures, however, weak inter-agency cooperation, as evidenced by the lack of joint operations between law enforcement agencies, continue to undermine Nigeria’s ability to apprehend major traffickers or intercept major shipments. Powerful and wealthy international drug trafficking networks continue to out-maneuver an ill-equipped and poorly-funded NDLEA, notwithstanding increases in its capital and personnel expenditures in the last five years. Funding for other law enforcement agencies remains seriously insufficient. Left unaddressed, this could further undermine progress in the medium to long term. Furthermore, there is evidence of not only an increasing use of cannabis, opium, cocaine and amphetamine-type stimulants, but also illicit manufacturing of methamphetamine in Nigeria. The drugs are mainly exported to illicit markets in Southeast Asia.

Oil theft by local groups and criminal networks, commonly referred to as “bunkering”, remains unabated in Nigeria. Illegal makeshift refineries operated by small entrepreneurs have reportedly increased dramatically across the Niger Delta region, further undermining oil production. In August 2012, the Nigerian Maritime Administration and Safety Agency (NIMASA) intercepted a vessel carrying 300 metric tons of stolen oil. This follows the arrest of 150 illegal bunkers by the Nigerian Security and Civil Defense Corps in March 2012. The Joint Task Force also reported interception of two vessels carrying 60,000 tons of stolen diesel worth an estimated N11 billion in Rivers State. According to Royal Dutch Shell, Nigeria’s largest oil producer, between 150,000 and 180,000 barrels are stolen a day. This represents about 6% of the country’s total production. The Nigerian government reported about 400,000 barrels of oil were stolen per day in April 2012, thereby resulting in a 17% decline in official sales during the month. At a daily production of about 2.4 million barrels and an average price of $121 per barrel, this translates to a loss of more than $1 billion for the month alone.The recent arrest of twenty Ghanaians and six Nigerians by the JTF reveals oil bunkering businesses continue to be operated not just by Nigerian but also foreign individuals and criminal networks. While some of the stolen oil is smuggled to regional and international markets, much of it is sold domestically. To be sure, oil thieves have reportedly used proceeds to fund development projects, including building schools, and hospitals, in their communities. Hence, oil thieves accrue considerable political capital and support base by way of endearing themselves to local communities through the provision of basic social services. This enables them to easily launder their ill-gotten wealth through a series of projects in their communities.

Related to oil theft is rampant corruption, particularly bribery and embezzlement, in Nigeria’s public and private sectors. This is evidenced by the aforementioned fuel subsidy scandal. Also, allegations abound that low and high-ranking politicians and military officers collaborate with criminal networks involved in oil bunkering persist. The Economic and Financial Crimes Commission (EFCC) arrested and arraigned before court several suspects, including six companies and eleven individuals, for their alleged involvement in the fuel subsidy fraud. While the aforementioned reduction in fuel subsidies could reduce the level of embezzlement through the subsidy scheme, there are concerns that money saved by the government could also be embezzled. In September 2012, a foreign defense company was fined by a French court for bribing Nigerian officials between 2000 and 2003 to secure a contract to produce national ID cards. This follows a conviction and jailing of a former Nigerian state governor by a British court for embezzling and laundering $77 million of public money. Moreover, allegations of involvement of low and high-ranking politicians and military officers in oil bunkering persist.

Furthermore, fraudulent activities and transactions, particularly advanced fee fraud (419 scam), banking fraud, and forgery of documents for financial gain remain serious concerns in Nigeria. For example, in one case the EFCC arrested and arraigned before court an insurance broker for defrauding his company of over N30 million and a banker for forging customers’ signatures and diverting N20 million to her account. Another banker was arrested and arraigned for diverting nearly N1.2 million. Other arrests and arraignments included a Polish woman for issuing a fake cheque for N9 million, two Nigerian men for attempting to defraud an EFCC staff of N250,000, four Nigerian men involved in a N54 million land scam, three Nigerian men involved in a 66 million Naira scam, and a Nigerian man for currency counterfeiting. Compounding the situation are widespread cybercriminal activities, including romance and marriage scams through which victims, mostly foreigners, are defrauded.

Human trafficking, weapons trafficking, and other predicate crimes have not shown signs of decline in the past year. For instance, a Nigerian diplomat reported that an average of 30 Nigerian girls between ages 10 and 15 are smuggled to Mali daily, and expressed concern that the problem had grown in magnitude and sophistication. There is also suspicion that illegal arms dealers, particularly in the Sahel region, continue to supply heavy weapons to Boko Haram. In July 2012, Nigerian security forces exchanged fire on the border with Chad with two Boko Haram members who attempted to smuggle a consignment of weapons into Maiduguri.

Related to the aforementioned predicate crimes is the problem of cash smuggling out of Nigeria, which remains unabated despite efforts by the enforcement agencies. Airports remain primary transit points for the smuggling of illicit proceeds. This is evidenced by the arrest of a security official of the Federal Airport Authority at the MMIA for illegally possessing and attempting to smuggle $1.4 million in cash. The arrest has prompted concerns that airport officials may be working with money laundering syndicates. Two couriers were arrested at the Aminu Kano International Airport for attempting to smuggle $107,000. This follows another arrest of a Dubai-bound 24-year-old courier at the MMIA for attempting to export more than $7 million in September 2012. Two months later, two Dubai-bound couriers were arrested with nearly $240,000 at the Nnamdi Azikiwe International Airport in Abuja. The EFCC also arrested and arraigned before court a former bank cashier for embezzling and laundering N2.4 million. More significantly, EFCC operatives at the Aminu Kano International Airport arrested the son of a state governor for attempting to smuggle $50,000 in December 2012.

The many cases referred above suggest a robust system of cash declaration as required by the FATF R32. However, the challenges still remain enormous due to the complexities of the country. In summary therefore, tax fraud/ evasion, manifested in many ways remains a major challenge as taxes amount to only 6.1% of the GDP of about US$170 billion. Corruption is the most prevalent predicate offence – public sector corruption. In terms of prevention and control -TI rated Nigeria the least in WA only better than Guinea and Guinea Bissau. Unfortunately, many high profile cases remain inconclusive: PEPS cases especially. The fuel subsidies scam is a recent example of corruption within corruption – revealed theft of about $7 billion between 2009 and 2012. A weak criminal justice system to deal with it – may encourage more. Drug trafficking remains a problem as Nigeria seems to be graduating from a transit to source country. Of course, efforts to deal with this as other crimes must be recognized. For example, the NDLEA seized about 227.055kg in 1^st quarter of 2012 estimated at 2.5 billion naira. Nevertheless, porous borders – airports now main transit shipment points. On oil theft as discussed above, about 150,000 -180, 000 barrels stolen daily (Shell) and it is estimated that Nigeria loses $1 billion monthly due to oil theft (FT). Proceeds go to arms purchases, armed robbery and kidnapping and corruption facilitates a vicious cycle of criminals, political and military elites colluding in oil bunkering.

AML/CFT Situation

Since 2009, based on the MER of Nigeria and the size of its banking sector being in excess of US$ 5 billion, and in compliance with the G8 directive to the FATF to identify ‘high risk jurisdictions’ and engage them to improve their systems, Nigeria was identified as a high-risk ML/TF jurisdiction and placed under review by the FATF for non-compliance with international AML/CFT standards. With the support of the FATF Regional review Group of the ICRG and GIABA, an Action Plan for addressing the deficiencies in Nigeria’s AML/CFT regime was adopted in February 2010 and Nigeria made a political commitment to implement the action plan. As of June 2011, Nigeria had made significant progress in addressing the identified deficiencies in its AML/CFT, including the issuance of regulations to financial institutions by the CBN, and passage of the Money Laundering (Prohibition) Amendment Act (MLPA) 2011 and the Terrorism (Prevention) Amendment Act (TPA 2011, both of which aimed to rectify deficiencies regarding the criminalization of ML/TF. After a review of these Acts, by the FATF Review Group, it was found that Nigeria had not adequately criminalized ML and TF in accordance with the FATF standards, hence Nigeria had to revise the two pieces of legislation and National Assembly passed MLPA towards the end of 2012. The delay in passing the TPA partly kept Nigeria on the FATF Review process throughout 2012.

In addition to the issuance of a Regulation for the implementation of the UNSCRs 1267 and 1373, as well as other regulations to the financial institutions and the supervisory functions of the CBN, the Special Control Unit on Money Laundering (SCUML) and the Nigerian Financial Intelligence Unit (NFIU) also conducted inspections on DNFIs, car dealers, hotel owners, and discount houses, thereby enhancing AML/CFT compliance. In particular, the NFIU received more than 5,000 CTRs and more than 4,000 STRs.The SCUML’s registration of 384 additional DNFIs in the past year has increased the number of DNFIs under AML/ CFT supervision and further deepened AML/CFT within the DNFI sector. Guidelines on reporting and guidance notes on money laundering and terrorism financing, as well as regulations on terrorist asset freezing and circular on cash declaration were developed and issued.

The NFIU introduced an initiative aimed at preventing and reducing cash smuggling within and through Nigeria; and a tiered Know Your Customer procedure was established to promote and deepen financial inclusion. Additionally, several training, sensitization and awareness creation workshops on AML/CFT were provided to various stakeholders, including compliance officers of DNFIs, hotel employees, and non-bank regulators and supervisors. The training workshops included an AML/CFT compliance course, corruption risk assessors training, and symposium on financial crimes.

Furthermore, bank accounts containing various sums in local and foreign currencies, as well as properties, including vehicles owned by several suspected drug traffickers were investigated, frozen or seized by the NDLEA in the past year. The EFCC also prosecuted several cases involving cash smuggling, money laundering, and predicated offences including fraudulent activities.

Nonetheless, considerable challenges remain. Although the principal AML and CFT Acts have been amended, the extent to which they address strategic deficiencies in the context of FATF recommendations remains unclear. Accordingly, Nigeria remains on the list of high risk ML/TF jurisdictions and continues to be under review by the FATF.

Not only do regulatory, supervisory, judiciary and law enforcement personnel still lack the requisite AML/CFT capacity and expertise, but also existing ICT infrastructure remains insufficient. Serious constitutional and legal loopholes remain unaddressed as the Non-Conviction Based Asset Forfeiture Bill is still pending before the National Assembly. The situation is compounded by a painstakingly slow legal process, as evidenced by the slow trial of three former governors on corruption charges²²⁸. In spite of the existence of an elaborate AML/CFT regime in the country, actual implementation of the standards has been very weak. A most critical area of this evolving AML/CFT regime where serious weakness is obvious is the capacity to successfully prosecute and adjudicate cases of ML/TF. High-profile cases of ML/TF are either left pending in courts indefinitely or are prematurely dismissed, owing to poor prosecution and/or judicial compromise and incompetence or both.

Technical Assistance

According to Nigeria’s 2012 country report to GIABA, many regulatory, judiciary and law enforcement personnel still lack sufficient skills and expertise on AML/CFT issues. Law enforcement personnel in particular face severe capacity constraints in detecting, preventing, investigating and prosecuting ML/TF and related crimes. There is a general lack of advanced analytical skills on AML/CFT issues. Law enforcement agencies are also constrained by inadequate and often obsolete ICT infrastructure. Lawmakers and stakeholders in the financial sector remain generally unfamiliar with AML/CFT issues.

Accordingly, Nigeria has identified the need to develop and strengthen the analytical, investigative, and prosecutorial capacities of its specialized law enforcement agencies. It has requested capacity building on advanced analytical skills and risk-based compliance examination; and on asset tracing, seizure and forfeiture for its regulatory, supervisory, and law enforcement personnel. Nigeria has also requested training for lawmakers on AML/CFT issues; and support for enhancing its ICT infrastructure.

Conclusion

Nigeria has made commendable efforts to improve its AML/CFT framework. Nonetheless, it remains on the list of high risk ML/TF jurisdictions and under review for non-compliance with AML/CFT standards. This situation is compounded by the apparent increase in terrorist attacks, as evidenced by the escalation of violent insurgent activities by Boko Haram. At the same time, corruption and weak supervisory, judiciary and law enforcement capacities continue to constrain effective implementation of AML/CFT efforts in the country. More so are high levels of poverty, inequality, unemployment and underemployment, and the existence of many deprived communities in the country, all of which continue to provide an enabling environment for predicate crimes and, by extension, ML/TF.

Combined with the conditions of poor governance and pervasive public sector corruption, the inability to successfully investigate, prosecute, adjudicate and punish offenders would encourage impunity and further embolden criminals to engage in money laundering and terrorist financing. In other words, as long as the rates of prosecution, conviction and confiscation remain very low; as long as cases of ML/TF remain pending in courts; as long as sentencing is not proportionate and dissuasive enough to deter criminals; as long as criminals can conveniently enjoy the proceeds of their crime, all the efforts to combat ML/TF in compliance with international standards will come to naught. The handling of recent high-profile cases of ML/TF by the criminal justice system in Nigeria shows that implementation of international AML/CFT standards faces daunting challenges in the country.

One of the most sensational high-profile cases involved the former Governor of Delta State, Mr. James Ibori. Mr. Ibori was arrested by the Economic and Financial Crimes Commission (EFCC) in December 2007 and charged with 170 counts of corruption and money laundering. After exactly two years of what seemed like a judicial chess game, the ex­ Governor was discharged and acquitted by the court of all 170 charges in December 2009, to the chagrin of the entire nation. Although the EFCC filed a notice of appeal against the court judgment and started a new round of investigations on Ibori in March 2010, the former Governor managed to beat the Nigeria security forces and fled the country in April 2010. Since then, there has been no substantive development with the outcomes of the appeal and the investigations. Fortunately, the same accused person who was discharged and acquitted in Nigeria was found guilty and convicted on the same offences in a UK court. For lack of space, this is just one example of how money laundering cases are being handled in Nigeria. But that is not to say the country has not or is not making substantial efforts, far from that; there are a good number of success stories which are not known to the public. Moreso, the government has continued to re-assure the public of its commitment to combat corruption. GIABA shall continue to support Nigeria and other member states in dealing with all predicate offences to money laundering.