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INTRODUCTION
Central Bank of Nigeria (CBN) as the Regulator of the Deposit Money Banks (DMBs) and the financial system of Nigeria, is responsible to do the following;
1. Ensure monetary and price stability.
2. Issue legal tender currency in Nigeria.
3. Maintain external reserves to safeguard the international value of the legal tender currency.
4. Promote a sound financial system in Nigeria
5. Act as Banker and provide economic and financial advice to the Federal Government.
See the Central Bank of Nigeria Act 2007 (as amended)
It is pertinent to state that the major focus here, are on the CBN’s duties to promote monetary stability and sound financial environment as relates to Money Laundering and Terrorism Financing.
Furthermore, Money Laundering and Terrorism Financing has become a very huge problem in Nigerian Financial System and the CBN knowing that they have a vital role to play in fight against Money Laundering and Terrorism Financing has released its “Anti- Money Laundering/Combating the Financing of Terrorism (AML/CFT) Policy and procedure Manual” in accordance with the applicable laws, which will serve as a guide to the Deposit Money Banks in their day to day business, in order to fight the crime of Money Laundering and Terrorism Financing.
MONEY LAUNDERING AND TERRORISM FINANCING
(i) Money Laundering;
Money Laundering is simply the act of directly or indirectly concealing or disguising any fund or property that is derived from the proceeds of an unlawful activity, or a process by which “dirty” money is made to look legitimate or “clean” so that the funds may be used freely without trace of its illicit source.
Section 1 and 2(1) of the Money Laundering (Prohibition) Act 2011 (as amended), provides that;
1. No person or body Corporate shall except in a transaction through a financial institution, make or accept cash payment of a sum exceeding,
a. N 5,000,000.00 or its equivalent in the case of an individual or,
b. N10,000,000.00 or its equivalent in the case of a body corporate
2. (1) A transfer to or from a foreign country of funds or securities by a person or body corporate including a Money Service Business of a sum exceeding US $ 10,000 or its equivalent shall be reported to the Central Bank of Nigeria, Securities and Exchange Commission in writing within 7days from the date of the transaction.
Having stated what Money Laundering means, it is important to note that the offence of Money Laundering attracts punishment and it is provided under Section 15 of the Money Laundering (Prohibition) Act 2011 (as amended) which are as follows;
15(1) Money Laundering is prohibited in Nigeria
(2) Any person or body Corporate, in or outside Nigeria, who directly or indirectly;
a. conceal or disguises the origin of,
b. converts or transfers,
c. removes from the jurisdiction or
d. acquires, uses, retains or takes possession or control of any fund or property, knowingly or reasonably ought to have known that such fund or property is, or forms part of the proceeds, of an unlawful act commits an offence of money laundering under this Act.
(3) A person who contravenes the provisions of subsection (2) of this section is liable on conviction to a term of not less than 14 years imprisonment.
(4) A body Corporate who contravenes the provision of subsection (2) of this section is liable on conviction to-
(a) a fine of not less than 100% of the funds and properties acquired as a result of the offence committed and
(b) withdrawal of license
(c) where the body corporate persists in the Commission of the offence for which it was convicted in the first instance, the Regulators may withdraw or revoke the certificate or license of the body Corporate.
Flowing from the above, the Deposit Money Banks being a body Corporate that engages in banking business is expected to be cautious of the Money they receive from customers, so as not to be in possession of proceeds of crime which is an offence that attracts punishment.
Money Laundering involves three (3) stages which are as follows;
(1) Placement : This is the stage where the funds from the illicit activities are physically placed into the economy. It may include the co-mingling of funds from legitimate sources and illegitimate sources. Example- deposit of funds into bank accounts.
(2) Layering : This involves the creation of complex transactions in order to distance the funds from the original sources and also to obliterate the audit trail. Example- wire transfers, letter of credit, purchase of financial instruments, and transfer to offshore accounts.
(3) Integration : It is the stage at which the money is integrated into the legitimate economic and financial system and is assimilated with all the other assets in the system. At this stage, it is exceedingly difficult to distinguish legal and illegal wealth. Example- Inflow from offshore for investments, funds from sale of real estate.
(ii) Terrorism Financing
Terrorism financing includes both legitimate and illegitimate money characterized by concealment of the origin or intended criminal use of the
funds. The techniques used to launder money are essentially the same as that used to disguise the origin of and use, for terrorism financing.
Terrorism Financing also involves three (3) stages which are as follows;
(1) Sourcing (Raise) : This stage involves raising of funds by terrorists through donations, self-funding and criminal activities such as proceeds of drug trafficking, extortion, cheque fraud, Credit Card fraud, Legitimate business, use charitable organizations sham charities.
(2) Moving (transfer) : This involves use of charities and non-profit organizations, Cash Couriers, use of gold to move value, wire transfers to move money across borders and the formal financial sector.
(3) Execution (Use) : In this stage, funds are required to promote a militant ideology, pay operatives and their families, arrange for travel, train new members, forge documents, pay bribes, acquire Weapons and stage attack.
Before delving into the expectations of Central Bank of Nigeria from Deposit Money Banks vis-à-vis the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) Policy and Procedure Manual, it is necessary to state the objective of the said Manual/Regulation.
The objective is simply to set out Policies and Procedures that will guide employees and the Bank to conduct business in accordance with the applicable Anti-Money Laundering (AML) laws and regulations and also establish procedures and minimum standards to protect the Banks from being used as a channel to launder money, finance terrorism and other forms of financial crimes.
Expectations of the Central Bank of Nigeria from Deposit Money Banks vis-à-vis the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) Policy and Procedure Manual.
We are going to consider the highlights of the six (6) key expectations of CBN from the Money Deposit Banks, which are as follows;
1. Customer identification and due diligence : The Deposit Money Banks are required to identify and verify the identity of its Customers and their beneficial owners. The Banks are not to consummate a business relationship until all relevant parties to the relationship have been identified and the nature of the business they intend to conduct ascertained.
Once an on-going business relationship is established, any inconsistent activity shall be examined by the banks to determine whether or not there is an element of Money Laundering/Terrorism Financing.
Also, Deposit Money Banks shall put in place Customer Due Diligence Procedure and Due Diligence shall be conducted for all customers in the following instances;
i. When banking relationships are established;
ii. Where there is a suspicion of money laundering or terrorist financing.
iii. When the Bank has doubts about the validity or adequacy of previously obtained Customer identification.
See section 3 of the Money Laundering (Prohibition) Act 2011 (as amended) and Paragraph 18.0 & 19.0 of the Central Bank of Nigeria’s Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) Policy and procedure Manual.
2. Customer Acceptance Policy : The Banks are expected to only accept Customers after due verification of the Customers’ identities, addresses and/or place of business, after ascertaining their source of income/funds and after considering the level of risks they pose to the Bank, based on the kind of business under consideration.
Deposit Money Banks are to apply appropriate level of due diligence depending on Customer’s risk profiles and shall not open any form of account for anonymous or fictitious Customers.
See section 11 of the Money Laundering (Prohibition) Act 2011 (as amended) and Paragraph 17.0 of the Central Bank of Nigeria’s Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) Policy and procedure Manual.
3. Risk Assessment : In order to safeguard the Banks from being used to launder proceeds of crime or finance terrorism, CBN expects the Deposit Money Deposit Banks to conduct risk assessment along the line with their Customers, products, geographic locations and delivery channels.
The Banks are to ensure that identified lower and higher risk are properly mitigated by the application of appropriate controls as provided in the CBN AML/CFT Manual, such as verification of Customer identification, Know Your Customer (KYC) Policies. The Bank shall also adopt risk-based approaches that are commensurate with the specific risks of money laundering and terrorist financing.
In case of higher money laundering risk, it demands stronger controls than that of the individuals or Countries deemed to be of Lower risk.
In assessing risk, the Deposit Money Banks are also obliged to consider the following;
a. High Risk products and Services : The Banks should be mindful of all their Banking products that are being used to convert cash to a monetary instrument and electronic products that permit rapid value movement (wire transfers, FX transactions followed by payment into an account in another jurisdiction) can be abused by Criminals.
For trade transactions, Export letters of Credit have been ranked as high risk because of the possibility of presentation of false shipping document when no goods are actually shipped. Also another factor in this ranking is the possibility of over-inflated invoicing for low value of worthless merchandise.
b. Correspondent Banking Relationships: The Banks shall be cautious of all the transactions conducted through Correspondent Banking relationships and shall be managed in accordance with a risk based approach; and Know Your Correspondent Procedures shall be established to ascertain whether or not the Correspondent Bank or the Counter-Party is itself regulated for money laundering prevention and where regulated, the Correspondent shall verify the identity of its customers in accordance with Financial Action Task Force (FATF) standards and where this is not the case, additional due diligence shall be required to ascertain and assess the Correspondent’s internal Policy on money laundering prevention and KYC procedures.
c. High Risk Geographic Locations
The Banks are to be cautious when doing business with third parties located in geographic locations with a history of supporting terrorism, bases for drug production/distribution, suffering from civil unrest/war. These includes jurisdiction that have been identified as high risk Countries by standard setting institutions such as FATF; Countries on designated sanction Lists such as the United Nations Consolidated Lists and US office of Foreign Asset Control (OFAC) List.
Paragraph 14.0, 15.0 and 16.0 of the Central Bank of Nigeria’s Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) Policy and procedure Manual.
4. Record Keeping : The Banks are required to maintain Customer’s records of identification, account files and business Correspondence for as long as the relationships subsists and at least five (5) years following the termination of an account or business relationship.
See section 7 of the Money Laundering (Prohibition) Act 2011 (as amended) and Paragraph 28.0 of the Central Bank of Nigeria’s Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) Policy and procedure Manual.
5.Account Monitoring : Deposit Money Banks are expected to have on record the nature of business their Customers are doing, when opening an account for them because it is the initial yardstick by which staff will measure whether the account is being conducted in line with the expectations or whether suspicious transactions are being passed through. It is the early period of a new Customer relationship that represents the greatest vulnerability and warrants close attention.
Banks shall accept every opportunity to update information on customers in order to maintain a high standard of monitoring. Also banks are to ensure that documentation is reviewed on a regular basis and is automatically updated when events such as change of address or change of signatories occurs.
The Banks, as an additional safeguard, shall deploy appropriate software/technology that will generate report for suspicious transactions.
See Paragraph 29.0 of the Central Bank of Nigeria’s Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) Policy and procedure Manual.
6. Training : The Deposit Money Bank shall maintain the highest operating standards to ensure that its products and Services are not used for the purpose of Money Laundering, Terrorism Financing or other crimes through investments in training their employees and update them on all new developments including information on current Money Laundering ML/FT techniques, Money Laundering red flag, KYC requirements, Customer transaction monitoring and suspicious transaction reporting, new changes in the Global Anti-Money Laundering world and local regulations.
See section 9 of the Money Laundering (Prohibition) Act 2011 (as amended) and Paragraph 32.0 of the Central Bank of Nigeria’s Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) Policy and procedure Manual.
CONCLUSION
The fight against Money Laundering and Terrorism Financing is a very crucial one and for Nigerian Financial System to be stable, the Deposit Money Banks are urged to comply with these six (6) key expectations of the CBN which are;
1. Customer identification and due diligence.
2. Customer Acceptance Policy.
3. Risk Assessment.
4. Record Keeping.
5. Account Monitoring.
6. Training.
The Banks are also enjoined to comply with other applicable provisions of the relevant laws, in order to curb Money Laundering and Terrorism Financing in Nigeria.
REFERENCES
1. Central bank of Nigeria Act, 2007.
2. Money Laundering (Prohibition) Act 2011 (as amended).
3. Central Bank of Nigeria’s Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) Policy and procedure Manual.
4. Terrorism Prevention Act,2012 (as amended).
ABOUT THE AUTHOR
C.E Obielozie is a Legal Practitioner interested in Banking and Commercial Law. He is also an astute human right activist and he is based in Lagos.
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