The Money Laundering Regulation in Nigeria

The phrase money-laundering was not in the Nigerian dictionary, until in the 1980’s which was when it was recognised and efforts were made to deal with the problem by the government. Therefore, there were decrees set by the government of Generals Muhammad Buhari, Ibrahim Babangida and Sani Abacha as heads of state and military president respectively, prohibiting activities related to money-laundering (Exchange Control (Anti Sabotage) Decree No 7 of 1984, National Drug Law Enforcement Agency Decree No 48 of 1989, now Caps No 29 Laws of the federation of Nigeria, 2004; Okogbule, 2007).

1995 decree corrected one of the defects of these laws which limited the activities to Drug traffickers in order to avoid loophole which gave way for the accused person to escape justice when the case is not drug trafficking; (Adekunle, 1999; Okogbule, 2007). It was in this recognition of the defect or inadequacy of the previous Decrees to cover all the aspects of money laundering that gave birth to the enactment of the money-laundering (prohibition) Act, 2003 which covers everything relating to the offence. And after One year of its enactment it was amended through the money-laundering prohibition (Amendment) Act 2004, in order to give the agencies more power to institute an investigation and prosecute offenders (Okogbule, 2007).

However, the amendment was based on two philosophies. Firstly, it was on the need to control the practice of huge financial transactions in Nigeria, since the country is known as a cash society. In the amended Act, it states that no person or corporate body shall make or accept cash payment of sum exceeding N500, 000 or its equivalent in the case of individuals, while in the case of corporate bodies the amount is N2, 000,000, unless the transaction is done through a financial institution, the provision is design to enhance the monitoring capabilities of the regulatory institutions over huge financial transactions and encourage the use of financial institutions (Okogbule, 2007).

However in the second philosophy in the act, it is a directive requiring disclosure of any financial transaction exceeding a certain sum of money.

“Section 2(1) of the Act, state that: A transfer to or from a foreign country funds or security exceeding the sum of $10,000 or its equivalent shall be reported to the central bank of Nigeria”.

And it further said that a report should be made pursuant to the above provision to indicate the nature and amount of transfer, the names and addresses of the sender and receiver of the funds or securities (Okogbule, 2007).

3.1 MONEY LAUNDERING REFULATION IN RELATION TO INSTITUTIONS IN NIGERIA

The money laundering (Prohibition) Act 2004, of Nigeria in section 1 states that no person or corporate body shall, except through transactional institutions, make or accept deposit of a sum exceeding,

A, for an individual the sum of N500, 000 or its equivalent in other currency and

B, the sum of 2,000,000 for a corporate body, that anything above this should be made through the financial institution likewise for the individual costumer.

In section 2 of the prohibition of money laundering act states that any transaction from or to foreign country of funds or securities exceeding the sum of US $10,000 shall be reported to the central bank of Nigeria (in the act refer to Central Bank) or security and exchange commission.

Again in section 2 sub section 1, states that the report should indicate the nature and the amount of the transfer, the names and addresses of the sender and receivers of the funds or securities.

3.2 CUSTOMER DUE DILLIGENCE

However, it is provided in section 5(1) of the Act that before opening an account for or issuing passbook or even entering into any business relationship with a potential customer, the financial institution shall verify the customer’s identity and address.

For individual, he is required to provide proof of his identity by presenting to the financial institution a valid original copy of an official document bearing his names and photograph; Secondly, he is to show proof of his address, by presenting to the financial institution the originals of receipts his/her utilities issued within the last three months by public institution (example, electricity or water bill).

In the case of a body corporate, its proof of identity shall be provided by the presentation of its certificate of incorporation and other valid official documents attesting to the existence of the body corporate. Where a manager, employee, or assignee is delegated by a body corporate to open or operate an account, such a person shall in addition to the requirements specified for private individuals also show proof of a power of attorney granted to him for that purpose.

One important provision in the Act designed to facilitate the detection of money laundering activities is section 6(1). It provides as follows:

When a financial institution is requested to carry out a transaction, whether or not it relates to the laundering of the proceeds of a crime or an act, the financial institution shall seek information from the customer as to the origin and the destination of the funds, the aim of the transaction and the identity of the beneficiary.

In order to make this surveillance function more effective, financial institutions are required within seven days of the transaction to carry out the following actions:

(a) Draw up a written report containing all relevant information about the transaction as well as the identity of the principal and where applicable, those of the beneficiary.

(b) Take appropriate action to prevent the laundering of the proceeds of a crime or an illegal Act.

(c) Send a copy of the report and action taken to the Central Bank, the Commission, the Securities and Exchange Commission, or such other appropriate regulatory authority, as the case may be.

Significantly, any financial institution which fails to comply with the above provisions is guilty of an offence and liable upon conviction to a fine of N1, 000,000 each day for as long as the offence continues.

In order to emphasize the importance of records of transactions, it is provided that these records are to be kept and preserved for at least a period of 10 years, and that the records shall be communicated to the Central Bank, National Drug Law Enforcement Agency (NDLEA), judicial authorities, Customs Officers, and such other persons as the Central Bank may from time to time specify.

However, the mandatory disclosure requirement concerning financial transactions is contained in section 10 of the Act. It is to the effect that a financial institution or casino shall report to the Agency in writing, lodgement or transfer of funds in excess of One million (N1, 000,000) Naira or its equivalent in the case of an individual and Five million (N5, 000,000) Naira or its equivalent in the case of a body corporate. This report is to be submitted within seven days of any single transaction.

And even an ordinary citizen other than a financial institution may voluntarily give information on any transaction, lodgement, or transfer of funds involving the amounts set out above. This ensures that even when a financial institution fails to report as required, information about the transaction still gets to the Agency (See Chukuemerie, 2004, Okogbule, 2007b).

The intent of the provisions is to enable the Agency ascertain the origin of the funds and determine whether to direct a stoppage of the transaction or not. This it can do when acknowledging receipt of such disclosure, report or information received in furtherance of the provisions. If the Agency is unable to ascertain the origin of the funds within a period of 72 hours, it may make a request to the Federal High Court for an order that the funds, accounts, or securities referred to in the report be blocked, and an order made by the Court in pursuance of this provision shall be enforced forthwith.

Section 9(1) of the Act provides that every financial institution shall develop programmes to combat the laundering of proceeds of a crime or other illegal act. These shall include:

(a) The designation of compliance officers at management level at its headquarters and at every branch and local office;

(b) Regular training programmes for its employees;

(c) The centralization of the information collected;

(d) The establishment of an internal audit unit to ensure compliance with and ensure the effectiveness of the measures taken to enforce the provisions of the Act

In order to ensure compliance with this provision, the Governor of the Central Bank of Nigeria is empowered to impose a penalty of not less than one million Naira on any financial institution which fails to comply with the above provisions. And that makes it a very important provision since the threat of immediate sanction which could be suspension of the bank’s operating license can engender compliance with the statutory provision.

3.3 THE MONEY LAUNDERING OFFENCE IN NIGERIA

The actual money laundering offences are provided for in sections 14 – 18 of the Act which also specify the penalties for such offences. Thus, section 14(1) provides as follows:

Any person who

(a) converts or transfers resources or property derived directly or indirectly from illicit traffic c in narcotic drugs or psychotropic substances or any illegal act, with the aim of either concealing or disguising the illicit origin of the resources or property or aiding any person involved in the illicit traffic c in narcotic drugs or psychotropic substances or any other crime or illegal act to evade the legal consequences of his action; or

(b) collaborates in concealing or disguising the genuine nature, origin, location disposition, movement or ownership of the resources, property or rights thereto derived directly or indirectly from illicit traffic c in narcotic drugs or psychotropic substances or any other crime or illegal act, commits an offence under this section and is liable on conviction to imprisonment for a term of not less than 2 years or more than 3 years.

Significantly, a person who commits an offence under this subsection shall also be subject to the same penalty notwithstanding the fact that the various acts constituting the offence were committed in different countries or places. It is not difficult to ascertain the rationale behind this provision since, very often; money laundering entails the perpetration of some of the acts in one country and the others in other countries. This brings to the fore the transnational nature of money laundering which has given rise to international concern for its regulation.

Section 16 of the Act provides that any person who:

(a) Whether by concealment, removal from jurisdiction, transfer to nominees or otherwise retains the proceeds of a crime or an illegal act on behalf of another person knowing or suspecting such other person to be engaged in a criminal conduct or has benefited from a criminal conduct; or

(b) Knowing that any property either in whole or in part directly or indirectly

represents another person’s proceeds of a criminal conduct, acquires or uses that property or has possession of it, commits an offence under this Act and is liable on conviction to imprisonment for a term of not less than 5 years or to a fine equivalent to 5 times the value of the proceeds of the criminal conduct or to both such imprisonment and fine.

It is difficult to fashion the rationale for this marked variation in the punishment specified under this section and that provided for in section 14 of the Act relating to the actual conversion or transfer of funds from such criminal or illegal activities which is stated to be not more than three years. Although it may be said that the opportunity created by a willing receptacle could have emboldened the suspect and thus facilitated the commission of the offence, it is nevertheless incongruous to have such marked disparity in the punishment for both kinds of offences, when the level of moral reprehensibility is more for the actual converter or transferor of such illegal funds than the receiver.

3.4 THE EFFECTIVENESS OF MONEY LAUNDERING REGULATION IN NIGERIA

The government of former president Obasanjo, of Nigeria was able to start the fight against corruption and money laundering, by presenting the bill Money laundering (Prohibition) Act 2004, before the national assembly which was accented by the government and put into use immediately in order to fight the menace in the country.

However, by the year 2006, the EFCC was able to secure the conviction of the former inspector general of police, Mr Tafa Balogun for several offence mostly on money laundering, by showing that ACT that no one is above the law in the country and it shows that it has the political will to tackle the canker worm of money laundering in all its ramifications (Okogbule, 2007, Chukwuemerie, 2006).

Furthermore, within the first two years of creating the Economic and Financial Crimes Commission in Nigeria, they proved effective and were able to “recovered [sic] more than $1.5bn (N203.5bn) of looted funds and arrested more than 200 people” and out of the 200, 50 people were convicted and recovered $37.1M (N5bn) from import malpractices (Malgwi, 2004).

Again the EFCC was able to secure a plea bargain with a former governor of Edo State of Nigeria, Mr Lucky Igbinedion, which in the agreement consented in refunding the sum of N500M stolen funds and forfeit some of his properties. It was not only Igbinedion that got the plea bargain, Mr Nwude, Mr DSP Alamieyeseigha former governor of Bayelsa State of Nigeria, also enjoy the gesture (Alli, 2008).

However, recently the Chairman of the financial crimes commission in Nigeria, admit that they are not fully enforcing the money laundering regulation in the country while hosting stock broking firms in her office. Waziri said the anti-graft agency would start the immediate enforcement of the provisions of the Money Laundering (Prohibition) Act 2004, and prosecute all stock broking firms that default in their obligation to the suspicious transactions reports and currency transaction reports (Akinsunyi, 2009).

“Under Section 23 of the Money Laundering Act, firms carry on the business of investment and securities (this includes stock broking firms) are designated as financial institutions and there is an obligation on them to file with the Nigerian Financial Intelligence Unit all suspicious transactions, and file with the Nigerian Financial Intelligence Unit all currency transactions above N500, 000 for individuals and the N2 million for companies.”

But all that is done by stock broking firms in the country. And up to extent a an investment firm took a loan of N90 Billion from a bank in order to manipulate the market, but that is between Bank and it is customer, but the utilization of the loan is different which is contrary to Section 20 of the BOFIA and the regulations of the Central Bank of Nigeria (CBN) and carries a jail term of between two and three years. It is also a breach of the Investment and Securities Act (see Thisday Newspaper, August, 2009).

However, this bring us to the issue of reporting system adopted by the Financial Action Task Force and was even part of the Nigerian Money Laundering (Prohibition) Act 2004, which is in section 6 sub-section 1(a) that direct financial and non – financial institutions to draw up a written report on any illegal transaction and submit within seven days to the relevant authorities. That means the Act, is not been followed by the Banks and stock broking firms.

3.5 FACTORS FOR AND AGAINST MONEY LAUNDERING REGULATION IN NIGERIA

There is no doubt that with the enactment of the Money Laundering Act 2004 the Nigerian Government has taken a bold step in its efforts to fight against money laundering in the country. However, it is effort and resourcefulness may not bear the required results if the well-known problems of enforcement of law in the country are not adequately addressed in the provisions.

It is a common feature in Nigeria that individuals and institutions prefer to subvert laid down rules rather than comply with them, for example the recent banks audit conducted by the new Central Bank Governor, it shows how reckless the banks are operating, given out a loan of N490 Billion without a collateral, which form part of analysis in given out to loan to any customer by a bank and is used to settle out the debt in case the loan goes bad, but they ignore that and give out the money without following the laid down rules. The assurance being that even when they fail to comply, officials from the regulatory institutions will always compromise their positions. This brings to the fore the popularity of corruption in the country as such officers are often ‘settled’ to overlook noncompliance with statutory provisions (Okogbule, 2007).

In such situation, there is usually an unethical alliance between regulatory officers on the hand and the defaulting financial institutions. Therefore, there will be inadequate or ineffective enforcement of the rules, to the detriment of the country.

However, recently an upright officer (Barrister Abubakar Abba Umar) with the Corporate Affairs Commission (CAC) in Nigeria lost his life in the course of his duty. He was involved in making the organisation a very good place that it suppose to be, because to get a company registered in Nigeria, it might take you two to three months, but his coming within a day after full verification you can get your company registered. While in course of investigation of certificate fraud in the organisation, he was forced to hand over some lawyers involve to EFCC for prosecution (see Leadership newspaper, 2009), seeing all this thing happening nobody will like to give himself up in order to do a good job in fighting money laundering in Nigeria.

According to Andrew (2004, pp 173), he argues that the Act “is faithfully implemented by Economic and Financial Crimes Commission, the Central Bank of Nigeria, the National Drug Law Enforcement Agency and the Minister of Commerce”, this relevant authorities are the ones in positions to see the implementation of the Act to the later. However, if they did not enforce the implementation concurrently together, there is every chance that the Act, will not be effective as it suppose to be in checkmating the money laundering activities in the country.

There is also problem of regular monitoring of the activities of these financial institutions.

Inspectorate and Compliance Officers are known to be lax in their monitoring of the operations of these institutions, due to the fact that they are conniving together to subvert the law regulating the institutions (see Okogbule, 2007).

The bankers are not reporting illegal transaction to the relevant authorities even if they knew where or how the money comes about; all they are after is to have a customer with a large amount to deposit with their bank due to stiff competition in the banking sector of the country. According to Andrew (2004), opined that some “banks might count themselves lucky to have large volume of illicit funds deposit with them” (Andrew, 2004, pp 179) and such banks collide with the money launderers in order to keep the money safe and will even keep it away the regulatory agency, which they are directed to report to on such illegal activities, for example the sum of N7.5 Billion, was found in one account of the former Inspector General of Police in a bank. The banks really don’t report any illegal activities within their businesses, but recently the Central Bank of Nigeria issue a circular directing all the banks to appoint a reporting officer and be reporting any irregular activity within the banks (see Dailytrust Newspaper).

One of the effective regulations is the provision of Section 12, which empowers the commission to tap any telephone line or place it under surveillance, obtain access to computer system, place any bank account under surveillance or obtain communication of any authentic instrument or private contract together with bank, financial and commercial records. All this can be used if the person suspected use account, telephone, computer to perpetrate his/her crimes (Andrew, 2004).