Money Laundering In Nigeria

Money laundering is defined as the process of concealing the existence, illegal source, or application of income derived from criminal or illegitimate activity, and the subsequent disguising of the source of that income to make it appear legitimate (Association of Certified Anti-Money Laundering Specialists - ACAMS). Laundered money is like water, it seeks the path of least resistance (ACAMS).  Initially, money laundering was associated with drug trafficking and organized crime, however, it has been expanded to include extortion, terrorism, official bribery and corruption, arms smuggling, white collar crime and many other crimes. Every one of us understands how business is done in Nigeria. Even at the lowest level, for you to see Oga, you must bribe the gateman or receptionist to be able to see Oga. In this article, I will not concern myself with the little guy but the main players who have brought Nigeria to its current pathetic position developmentally.

When it became obvious that money laundering was having a negative effect on the economies of the world, the Group of Seven industrialized nations met in 1989 in Paris and formed the Financial Action Task Force (FATF). Currently, Nigeria is the only country in world which is still on the list of non-cooperative countries and territories (NCCT). The most notable negative effect of being in this list is that financial institutions around the world are warned to take extra due diligence in dealing with any country in the list and the cost of doing business with such a country is astronomical. In other words, there are financial, reputational, and legal risks associated with doing business with a country on the list. (Nigeria was removed from the list on June 23 2006)

The purpose of FATF was to develop a common approach to fight money laundering. In 1990, FATF established and issued its Forty Recommendations that set out a frame work for anti-money laundering efforts in the public and private sectors and designed a process for universal application. The recommendations were revised in 1996 and in 2003 to provide a comprehensive set of counter-measures against money laundering covering the criminal justice system, law enforcement, the financial system and its regulation, and international cooperation. The Recommendations of 2003 now apply also to Terrorist financing. The Terrorist financing part was issued in the aftermath of the 9/11 terrorist attacks in the USA.

The greatest beneficiaries of the post 9/11 terrorist attacks are Africans. Africans are the beneficiaries because their leaders who are very eager to deposit laundered money in the western financial institutions being forced to declare the source of their ill-gotten fortunes, and are finding it difficult to launder these funds to gain respectability. Before the 9/11 terrorist attacks, the banks and other financial institutions looked the other way when African corrupt government officials dumped their ill-gotten wealth in western financial institutions because of the economic beneficial effects those deposits have on their economies. Once at Federal Deposit Insurance Corporation (FDIC) anti-money laundering conference (pre 9/11), I asked why we were concerned only with how money left the U.S. and not how money come in. The response at that time was we didn't care much about money coming in to the U.S., however, that attitude changed immediately after 9/11. Now the U.S. and the other western countries are not only concerned with money coming into their countries but also money leaving the U.S. and other the western financial institutions. This is a self-interest or preservation on the part of the U.S. and other western countries, and it is not done with altruism, rather it is the fear that African leaders are too corrupt and they can be very susceptible and can easily be used by terrorists to launder money. This fear has led to the development of a comprehensive list worldwide of politically exposed persons (PEPs) and financially exposed persons (FEPs). PEPs and FEPs include not only the family members but close friends and acquaintances of public officials. Major financial institutions in the west and financial centers of the world maintain this list and financial regulatory agencies in the U.S. are required to review deposits to make sure that financial institutions are doing their due diligence when it comes to opening new accounts. Financial institutions are discouraged from opening accounts for PEPs and FEPs. Since the private banking section of the financial institutions are more vulnerable to the activities of PEPs and FEPs, they are especially required to perform extra due diligence and apply the know-your-customer procedures. Financial institutions are currently being held to a very high standard and many financial institutions have been fined for taking the anti-money laundering policies and procedures very lightly.

One of the most important of the 40 Recommendations of FATF is for countries of the world to establish financial intelligent units (FIUs). The FIUs are required to keep records of currency transaction reports and suspicious activity reports filed by financial institutions. They are required to cooperate with law enforcement agencies to track money launderers and Terrorists financing activities. The FIUs are also required to cooperate with each other and that is why the Nigerian economic and financial crimes commission (EFCC) is cooperating with the British unit on tracking Nigerian officials that are laundering money. The recent arrest of the governor of Bayelsa is as a result of the cooperation of the FIUs. The problem I have with EFCC is the allegation that it is being teleguided by the presidency and that it is turning into a big stick to witch hunt the enemies of the president. The Nigerian factor is creeping into the activities of EFCC. If the EFCC is allowed to operate like its counterparts in the other parts of the world, corruption will begin to abate.

As a result of the cooperation between the EFCC and other financial institutions around the world, there has been a dramatic drop in the number of foreign trips undertaking by Nigerian officials especially the governors. In many laundering articles and journals, Abacha occupies a dubious position with Marcos of the Philippines and similar money launderers from around the world. Nigeria features prominently because Nigeria is considered the most corrupt country in the world. Bangladesh is now considered the most but in terms of financial impact on the populace, Nigeria is still the most corrupt. I just came back from a Bangladesh non-bank financial institution in New York. This is a company that transmits money to Bangladesh. I could see why the country is one of the most corrupt. This article is not about Bangladesh but Nigeria.

The impact of money laundering on the Nigerian economy is incalculable. For each $1 million dollars taking out of the Nigerian economy, thousands of jobs are lost and many hospitals are left without medicine, many schools are left without text books and the list goes on. On the flip side, the $1 million dollars deposited in a western financial institution, thousands of jobs would be created, hospitals would be filled with medicine, many schools will be filled with text books and the list goes on. As a result of the positive impact the laundered money had on the economies of the west, the western governments and financial institutions looked the other way until the events of 9/11.

In this brief article, I have tried to explain what is money laundering, the development of FATF, FIUs, PEPs and FEPs and its potential positive impact on African economies especially the Nigerian economy. In subsequent articles, I will delve into the types of money laundering engaged by Nigerian officials and what we can do to stop or at least minimize money laundering by Nigerian officials.

Amadiebube Robert Mbama MBA, CPA, CAMS

MBAMA & Associates LLC