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COMBATING MONEY LAUNDERING IN NIGERIA MOVING BEYOND THE FINANCIAL

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COMBATING MONEY LAUNDERING IN NIGERIA MOVING BEYOND THE FINANCIAL Powered By Docstoc
					COMBATING MONEY LAUNDERING IN
  NIGERIA: MOVING BEYOND THE
    FINANCIAL INSTITUTIONS


                   PRESENTED BY
                    N. S. WOKOMA
    HEAD, SPECIAL CONTROL UNIT AGAINST MONEY
               LAUNDERING (SCUML)
                        AT THE
 2ND ANTI-MONEY LAUNDERING AND COMBATING THE
  FINANCING OF TERRORISM (AML/CFT) COMPLIANCE
       STAKEHOLDERS SUMMIT 8 - 9 APRIL, 2008
                              OUTLINE
   INTRODUCTION
   DEFINITION OF CONCEPTS
       Who are the DNFIs?
       DNFI Regulatory Authorities (SCUML)
       Nigerian Financial Intelligence Unit (NFIU)
       Other Stakeholders
   AML/CFT COMPLIANCE: MOVING BEYOND THE FINANCIAL
    INSTITUTIONS
   DNFIs AS THE NEXT LEVEL OF AML/CFT COMPLIANCE
   THE ISSUES
       Majority of Currency in Circulation is Outside the FIs
       Implications of a Cash Economy for the Sector
       Informality of the Sector
       Displacement
       Business Operations of DNFIs
       Cost of Non-Comprehensive Compliance
   CONCLUSION
            INTRODUCTION
   The last four years of the war against money
    laundering in Nigeria targeted the financial
    institutions and achieved commendable results.
    However, as opportunities are fast closing in on
    the criminals within the financial sector, recent
    surveys reveal that the criminals are shifting
    patronage towards the Designated Non-
    Financial Institutions (DNFIs) in a geometric
    progression.
DEFINITION OF CONCEPTS
   Who are the DNFIs?
       The MLPA, 2004 defines DNFIs to include
        dealers in Jewelry, Cars and Luxury Goods,
        Chartered Accountants and Audit Firms, Tax
        Consultants, Clearing and Settlement
        Companies, Legal Practitioners, Supermarkets,
        Hotels and Casinos or such other businesses as
        the Federal Ministry of Commerce and Industry
        (FMC&I) may from time to time designate.
DEFINITION OF CONCEPTS (contd)

   DNFI Regulatory Authorities (SCUML)
       Section 5 of the MLPA 2004, empowers the FMC&I
        to supervise, monitor and regulate the operations of
        the DNFIs against money laundering and terrorist
        financing. Pursuant to the achievement of this
        objective, SCUML was established in September
        2005 by a Federal Executive Council Decision No.
        286 as a specialized Unit within the FMC&I to
        implement the Ministry’s aspect of the MLPA 2004.
DEFINITION OF CONCEPTS (contd)

   Nigerian Financial Intelligence Unit
    (NFIU)
       NFIU is the prime agency that ensures compliance
        with all the AML/CFT laws in the country. The Unit
        serves as the country’s central agency for receiving
        and analyzing financial data and dissemination of
        financial intelligence to competent authorities. It is
        however important to mention that the EFCC is
        empowered by law to enforce the provisions of the
        MLPA, 2004.
DEFINITION OF CONCEPTS (contd)

   Other core stakeholders
       In the administration of AML/CFT regime in
        Nigeria include Central Bank of Nigeria (CBN),
        National Insurance Commission (NAICOM),
        Nigeria Customs Service (NCS), Federal Inland
        Revenue Service (FIRS), National Drug Law
        Enforcement Agency (NDLEA), Independent
        Corrupt Practices and Other Related Offences
        Commission (ICPC) and the security and intelligence
        services.
      AML/CFT COMPLIANCE: MOVING
           BEYOND THE FINANCIAL
                  INSTITUTIONS
   Nigeria has a comprehensive AML/CFT legal
    framework that prohibits the laundering of the
    proceeds of crime. This is embodied in the
    ML(P)A, 2004 and other relevant laws and
    regulations
      AML/CFT COMPLIANCE: MOVING
            BEYOND THE FINANCIAL
              INSTITUTIONS (contd)
   From the Money Laundering Decree 1995,
    which limited predicate offences to drug related
    crimes, the evolution of the Act has seen
    significant improvements.
   The 2002 version enhanced the scope of the Act
    by extending the predicate offences.
     AML/CFT COMPLIANCE: MOVING
        BEYOND THE FINANCIAL
         INSTITUTIONS (contd)
   The subsequent amendment in 2003 provided for a
    broader interpretation of financial institution and the
    scope of supervision of regulatory authorities on money
    laundering activities and further improved the customer
    identification procedures and removed the threshold
    requirement of suspicious transaction report (STR).
   In 2004, the DNFIs assumed a central role in the fight
    against money laundering.
     DNFIs AS THE NEXT LEVEL OF
       AML/CFT COMPLIANCE
   The criminal is always intent on exploiting the weak
    link in the regulatory framework in order to stay a step
    ahead of the regulatory authorities and evade detection,
    prosecution and conviction. The business activities of
    the DNFIs and the attendant vulnerability of the sector
    as well as the delay in the regulation of the sector
    against ML/TF, have combined to make the sector
    attractive to the criminal for the purpose of money
    laundering. This is more so against the backdrop of the
    peculiarities of the Nigerian economy.
                     THE ISSUES
   Majority of Currency in Circulation is Outside the
    FIs
       Except more recent statistics state otherwise, only less
        than twenty per cent of the currency in circulation in
        Nigeria pass through the financial institutions. By
        implication, the overwhelming majority of the currency
        in circulation in the country is directed at cash-intensive
        businesses, of which the DNFI sector is a major player.
        Thus, limiting the fight against money laundering to the
        financial institutions is to restrict the theatre of the
        battle.
             THE ISSUES (contd)
   Implications of a Cash Economy for the Sector
       Intensive cash transaction thrives within the DNFI sector
        more than any other sector of the economy. Nigeria is
        essentially a cash economy. This means that a high
        proportion of the financial transactions, be they hidden,
        open, legal or illegal, is conducted in physical cash. Money
        trail is relatively much more difficult in a cash transaction
        than in automated financial transactions. This situation is
        quite attractive to the criminal as he attempts to hide the
        proceeds of his crime from detection. With the
        preponderance of cash transaction within the DNFI sector,
        the criminal will continue to hide under the cloak of the
        DNFIs to launder criminal proceeds except an effective AML
        compliance regime is directed at the sector.
            THE ISSUES (contd)
   Informality of the Sector
       Where cash transactions hold sway, there is a
        predisposition to informality. The DNFI sector is
        largely informal and majority of its sub-sectors lack
        self regulatory bodies and have no ethical code of
        conduct for that matter. There is general poor record
        keeping as transactions are sometimes not receipted
        nor documented. Nothing can be more attractive to
        the criminal than the opportunities offered by the
        informality of the sector.
             THE ISSUES (contd)
   Displacement
       As the AML/CFT implementation continues to
        concentrate focus on the FIs, opportunities are
        closing in fast on the criminals within the sector. The
        natural inclination of the criminal is to identify the
        next weak link that will provide a hiding place. The
        mouthwatering incentives offered by the DNFI
        sector are irresistible. Current research results
        indicate that money launderers are shifting patronage
        from the FIs to the DNFIs in a geometric
        progression.
                THE ISSUES (contd)
   Business Operations of DNFIs
       The very nature of DNFI business operations make them vulnerable to
        money laundering. Of particular note is the anonymity the DNFIs
        provide their clients. The professions are particularly vulnerable to money
        laundering because of the gate keeping role they could play as they engage
        in the following activities on behalf of their clients:
            acting for clients in the buying and selling of property.
            carrying out financial transactions on behalf of a client.
            creating corporate vehicles (entities and trusts), establishing trust
             arrangements and providing financial advice in complex transactions.
            giving tax advice.
            introducing clients to other professionals.
            money launderers can also use lawyers’ client accounts for layering and
             concealing of funds, thereby exploiting the secrecy offered by the legal
             privilege and obtaining a veneer of respectability by engaging the services of a
             lawyer.
               THE ISSUES (contd)
   Cost of Non-Comprehensive Compliance
       Beyond the general risk for non-compliance – regulatory,
        legal, reputational, operational and credit risks – the cost of
        non-comprehensive application of AML/CFT in all its
        ramifications could be quite damaging. This may include:
            Creation of a loophole in the country’s implementation of AML/CFT
             regime, which could be exploited by the criminals
            Diminish the full realization of the benefits accruing from the gains
             made in the financial sector
            Stigmatization of the professions at the global arena – integrity
             questions
            Creation of disaffection and discouragement among complying
             entities
            Perpetration of sanctuary for the criminals, thereby letting them have
             field day
             CONCLUSION
There is no doubt that the DNFIs are critical to the
attainment of a holistic AML/CFT regime. The
inherent vulnerability of the sector and the peculiarity
of the Nigerian economy make the sector attractive to
money launderers. In particular, the anonymity the
professions provide is an irresistible incentive. It is
therefore our collective responsibility to move the fight
against money laundering to the DNFI sector the same
manner that we have collectively undertaken same task
with commendable results within the financial sector.

				
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