Strengthening Anti-Money Laundering/ Countering Terrorist Financing (AML/ CTF) & Curbing Illicit Financial Flows (IFF) in Nigeria and the West Africa Region: Alh. Shuaibu Idris, MNI, FIoD, Chairman IoDCCG

Africa loses almost 4% of continental GDP annually to illicit capital flights. More, the proliferation of illicit financial flows enables terrorist activity and insecurity across the continent. Recent studies have identified industry professionals in specific sectors as “gatekeepers” or in some cases “enablers”. The EFCC for example, disclosed that 90 percent of money laundering in Nigeria passes through the Real Estate Sector, making it the second most vulnerable after Bureau De Changes. Nigeria’s ongoing JPMorgan case seeks to establish that the Financial Service firm was “grossly negligent” in its decision to transfer funds paid by oil giants Shell and Eni into an escrow account owned by Malabu, and even is the letter of the relevant AML laws may have been complied with, the firm failed in its ethical gatekeeping responsibility.

The growing level of Illicit capital flight, money laundering (ML) and terrorist financing (TF), and corruption are a serious consequence of the systemic shortcomings of these professionals which now threatens national security, economic and political stability in the West African region.

It is therefore a collective priority of the private sector, civil society and government to address systemic challenges and gaps undermining the efforts to curb IFF and ML/TF including lack of transparency, weak accountability mechanisms, under capacity, resource mismatch, and others that can be identified through dialogue and strategic engagements.

The Institute of Directors’ Centre for Corporate Governance (IOD CCG), with support from the Centre for International Private Enterprise convened a roundtable discussion to engage the private sector gatekeepers and enablers in building consensus and fostering collaboration in solving AML and CFT. Below are the discussions that ensued and the recommendations.

Huge gap exists between conversations regarding AML/CTF efforts and actual work on the ground. Stakeholders must then enrich talk in action. Corruption is systemic and requires connivance between actors across the public sector and the private sector. TF is enabled by the facility of private financial institutions. Stronger AML/CTF by financial institutions, particularly banks, can therefore help in making progress against TF/ML. Statutory reports to the regulators such as NFIU are commonly lip service. It is not enough to tick the boxes. A lot must still be done to combat ML/TF and their consequential implications for social, economic, and political stability.

Remarks by Mr. Nerus Ekezie, CEO IoDCCG

AML/CTF engagements have usually been short of participation of core actors in the financial institutions and real estate sector. The Roundtable draws the attention of these stakeholders. DNFBPs have a low level of understanding their AML/CTF obligations, according to the Mutual Evaluation Report for Nigeria (GIABA). Therefore, this is the need to focus attention on FIs and REs. At the end of the workshop, it is expected that there will be improved coordination between the private sector and regulators and stronger compliance.

FIs and RE industries are the most vulnerable to the ML/TF risks.

Lead paper presentation: Mariano Federici, Senior Managing Director, K2Integity

There is no effective way of combating corruption without private public partnership. PPPs allow for coordination, information sharing, assessment of risks, and sharing operational intelligence to enable investigations by the law enforcement. Resulting from a lack of partnership, a key problem is the level of understanding of the role risks exposure of the private sector and public sector.

Strategic coordination includes the exchange strategic and operational information.Incorporation of the private sector into the efforts against organised crimes has caused progress. Initially, information flow is linearly from the private sector to the public sector. At present, the flow is both ways. Institutionalized engagements with the key players can generate a kind of private sector that will be effective against ML/TF. Leadership and trust is fundamental to PPP.  

One of the challenges is the lack of trust. This can affect the opportunity to work effectively together. The way to go is strategic partnership. Other challenges include the security and protection of information. Parties have to be sure the information they share at intelligence level is protected. Another challenge is the knowledge gap as well as low level of expertise. There has to be capacity building programmes for the partners. Low level of resources is also a challenge. Only about 10% of suspicious reports filed are investigated and this is a global problem. (Experience from our reporting on the FinCEN Files project suggests a weak regulatory institution in the US and low level of investigating SARs).

PPPs help in enhancing intelligence gathering, level of expertise, compliance, understanding of the expected deliverables.  The positive outcomes in countries where this has worked has been self-evident: quality of information shared goes up, trust grows and crime is curbed.

Without will and cooperation, there is no chance against financial crimes.

Crypto: Tremendous progress for the financial system in terms of moving values across the world but it also raises risks of illicit financial flows. There is a need for a consolidated regulatory regime. To regulate in a smart way, it is important to understand the risks and capabilities, involving PPP, to detect illicit activities and demonstrate that crypto space is not a safe haven to hide illicit wealth.

Innovation vs regulation: Innovation taking place at a terrific pace, making it difficult for the government to catch up. This raises the importance of strategic and operational dialogues at PPP level to enable the government to understand what is going on and formulate responses in a way that does not impede progress and thus have a win-win outcome.

First Panel

About 89 billion USD of African wealth is lost annually to IFFs, undermining the capability to achieve sustainable development, political stability, and peace on the continent.

Professionals in the financial sector through whom proceeds are processed can be both gatekeepers and enablers in ML/TF.

Enabling ML/TF involves actors other than bankers. Predicate offenses happen before the banking process and the regulators should act more effectively on STRs as banks are not investigators.

The judiciary is also critical in the regime.

In AML/CFT, centrality is placed on KYC, which means establishing the identities of customers and sources of their funds. It is a sound way of taking crime out of our system. Effective use of data will determine effectiveness of due diligence. Collaboration is key to yield a KYC repository. Individuals have a role to play and the government should make it mandatory for account holders to submit all relevant information about them. There is a need to digitize and have a central database, comprising NINs, TINs, BVNs, for ease of verifying and validating data. The government should evolve a strong policy and governance structure to regulate, enhance the  fintechs and mitigate ML/TF risk exposure.

New legislation is in the works to criminalise ransom payment as a way of countering TF. However, for this to work, the government has to strengthen its capacity to secure and protect the people.

Local and international data protection regimes pose a challenge for the reporting and data sharing system. More conversations are required to enhance trust that data shared will be misused.

Banks cannot hide under data protection laws to fail to disclose information regarding the subject of AML/CFT.

Organisations should have an internal code of ethics guiding AML/CFT.

Nigeria has a plethora of regulations and laws. The problem is the will to enforce and the state of public education on the effects of ML/TF. There is a need for mass education/reorientation to appreciate the impacts of ML/TF in their lives.

Laws must be practicable and run in consonance with local realities, not just meet global standards.

No collaboration between NCC and CBN/banks. The implication is that investigators reach a dead end when trying to establish the identities of those who have used telephones to commit fraud.

Second Panel

EFCC says over 90% money laundering takes place through the real estate sector.

Reasons the real estate sector is susceptible to ML: it is the strongest way of preserving wealth, whether legitimately or criminally obtained; weak regulations across jurisdictions allow perpetrators to hide wealth in the real estate sector.

122 million accounts in Nigeria by 2021. But money outside the formal banking sector enables ML because the flow leaves no chance of being trailed.

Steps to take against the vulnerability of the real estate sector to ML

1. Self-regulation by professional bodies as the first line of defense against ML. (gatekeeping role)
2. Engagements between the private sector and the public sector are important.

Real estate firms put ML on the back seat due to other challenges they prioritise. Also, there are too few regulated and professionalized real estate firms. Barriers to enter the industry are very low, suggesting a weak regulatory environment.

Non-disclosure of suspicious transactions/ activities must be criminalised.

Priorities and Recommendations

1. There can be no success in curbing AML/ CTF without collaboration between the public and private sectors. Public private partnerships inform risk based decision making to allocate resources efficiently in addressing identified vulnerabilities. Information needs to flow bi-directionally and technology can assist this.
2. Generating trust between the private and public sectors is key.
3. Information sharing must be protected on both sides. Privacy and the presumption of innocence must be protected
4. Knowledge gaps must be filled. Capacity of members of partnership must be built to create a level field. Virtual assets is a critical area where knowledge gaps are rampant
5. Smart regulatory framework for the crypto space is not only important for curbing crime but also increasing trust in the crypto industry with the consequence of increased adoption. Partnering with Blockchain Analytics firms is critical.
6. Scope of public private partnership should be expanded to include non-conventional actors such as the communications sector and the Judiciary
7. KYC is central for due diligence. Beneficial ownership data is critical. A centralized data source is needed. Technology is key in this regard.
8. The digitisation of the financial sector requires new risk management processes. Nigeria needs its own crypto currency regulation. Such a regulation should mandate compliance to AML/CTF rules. Fintech education programs are needed to support this process.
9. Regulations need to be enforced. Bill passed in the Senate criminalizes ransom payment. For this to work, complementary efforts to secure citizens and recover kidnapped persons is key. Laws have to be practicable in the socio-political context to be effective.
10. On privacy, the NDPR is in place but the level of compliance and enforcement is critical
11. Mass public education/ reorientation on the impacts of ML/TF is needed. The media and NOA play an important role in this regard.
12. Banks cannot hide under data protection laws to fail to disclose information regarding the subject of AML/CFT.
13. Organizations should have an internal code of ethics guiding AML/CFT.
14. The Real Estate sector needs robust self regulation, and strong education and awareness as a first line of defense against AML/ CTF. RE companies must understand their gatekeeping responsibility and pay attention to redflags for money laundering activities.
15. There are too few regulated Real Estate companies. The barriers to entry need to be raised to increase professionalism in the sector. This can be done by professional societies and does not require the government.
16. There is a distinction between the residential and commercial real estate sectors as the issues are unique to each sector. More research is needed especially on the commercial side
17. Beneficial ownership of companies buying real estate internationally should be available for proper due diligence
18. Non disclosure suspicious transactions/ activities should carry penalties by law
19. EFCC should instill confidence that people are not guilty until proven innocence to encourage disclosure and self regulation
20. Whistleblower protection is critical if disclosure is to be encouraged. EFCC’s eagle eye application for reporting potentially solves this problem
21. Need to share success stories of what is working in the country and across the region
22. Incentives need to be created for companies to do the right thing. CIPE/ IODCCG are doing this through Ethics First