THE GREY LIST AND AML/CFT MEASURES IN NIGERIA

Authors: Adebayo Soares., MSc, EDACD, CECFE, CCCI, CFE, ACIArb(UK). Enobong Essien, CFE

Introduction

The Financial Action Task Force (FATF) has placed Nigeria under increased monitoring (grey list) since February 23, 2023. Nigerians and the international community have exerted significant pressure on the Nigerian government to increase its efforts to exit the grey list. The Financial Action Task Force (FATF) is a non-governmental organization that is both independent and international. Its primary objective is to provide recommendations that are designed to prevent the proliferation of weapons of mass destruction, terrorist financing, and money laundering.  Their objective is to also purify the global financial system to prevent it from being exploited by criminals to launder criminal proceeds. 

In this regard, the Economic and Financial Crimes Commission (EFCC) has put in a significant amount of effort, primarily in partnership with the Nigerian Financial Intelligence Unit (NFIU), to address our anti-money laundering and combatting the financing of terrorism (AML/CFT) deficiencies and ensure that we meet the standards and recommendations set forth by the FATF. Nevertheless, the task is made more challenging by the fact that money laundering is not limited to financial crime. 

The Money Laundering (Prevention and Prohibition) Act (MLPPA) 2022 has addressed a wide range of issues in Nigeria, including the criminalization of money laundering and related predicate offenses, as well as the establishment of preventive measures to combat money laundering. However, there are some operational issues with its enforcement. 

A cursory look at the Act suggests that the Nigerian government will take a non-holistic and non-multi-agency approach to combating money laundering and exiting the FATF grey list. For example, the mention of the Economic and Financial Crimes Commission (EFCC), referred to as the ''commission'' in most parts of the Act, implies that the fight against money laundering in Nigeria is primarily left to the EFCC. Notably, other agencies rarely mentioned in the Act, both law enforcement and regulatory, include the Nigeria Financial Intelligence Unit (NFIU), Nigeria Customs Service (NCS), Central Bank (CBN), Securities and Exchange Commission (SEC), and National Insurance Commission (NAICOM). 

The criminal justice system is distinguished by the presence of numerous parties, such as law enforcement and anti-corruption agencies dealing with various crimes, prosecuting authorities, the judiciary, and corrections, implying the existence of collaboration in the pursuit of justice. From intelligence gathering to investigation, asset recovery, prosecution, conviction, and correction, each party plays a distinct role. This is why it is critical that all criminal justice agencies collaborate in the fight against money laundering and terrorist financing. 

The purpose and objective of this article are to evaluate certain provisions of Nigeria's legal framework for money laundering and the Nigerian government's approach to addressing money laundering and terrorist financing to remove them from the grey list.

The objectives of Nigeria’s Money Laundering (Prevention and Prohibition) Act 2022

a)     provide for an effective and comprehensive legal and institutional framework for the prevention, prohibition, detection, prosecution and punishment of money laundering and other related offences in Nigeria;

b)     strengthen the existing system for combating money laundering and related offences;

c)      make adequate provisions to prohibit money laundering;

d)     expand the scope of money laundering offences, provide appropriate penalties; and

e)      establish the Special Control Unit Against Money Laundering under the Economic and Financial Crimes Commission for effective implementation of the money laundering provisions of the Act relating to the designated non-financial businesses and professions.

The challenges

Despite the fact that the Act's objectives are effectively articulated, there is no explicit provision that delineates the agencies that are accountable for combating money laundering under the Act. The term "competent authority" is referenced eight times in the Act, specifically in Sections 9, 15, 24, 25, and 30. It is defined in the interpretation section as follows:

“Competent authority” means any agency or institution concerned with combating money laundering and terrorist financing under this Act or under any other law or regulation;

There are many rules for interpreting legislation; sometimes, the express mention of one thing implies the exclusion of all others. Unfortunately, this is the reality in practice. The Economic and Financial Crimes Commission is mentioned ten (10) times in the Act, most notably in sections 1, 6, 7, 15, 16, 17, 18, and 30, which include the short title and explanatory memorandum. It also creates the Special Control Unit Against Money Laundering (SCUML) within the Economic and Financial Crimes Commission. The draftsmen here have either created legal challenges for other law enforcement and regulatory agencies that are critical to the fight against money laundering, left them out entirely, or given the impression that they are not statutorily required to contribute to combating money laundering in Nigeria.

For instance, a defendant who is being prosecuted by the National Drug Law Enforcement Agency (NDLEA) for laundering proceeds of drug trafficking may contest the NDLEA's authority to prosecute money laundering, as they are not explicitly mentioned in the Money Laundering (Prevention and Prohibition) Act 2022 to prosecute such offenses. They may argue that the EFCC is the appropriate government agency. It is important to mention that the EFCC is authorized to prosecute Money Laundering under Section 7(2) of the EFCC Establishment Act 2004, contrary to other law enforcement and anti-corruption agencies, which lack a specific provision. When the legislature enacted the Money Laundering (Prevention and Prohibition) Act 2022, it should have rectified this legal loophole by explicitly listing all enforcement agencies in the Act, thereby establishing their statutory responsibility to address money laundering in a comprehensive sense. 

Second, the fight against money laundering and terrorist financing in Nigeria is hampered because section 6(c) of the EFCC Establishment Act 2004 assigns the EFCC the responsibility of coordinating all economic and financial crime laws and enforcement functions conferred on any other person or authority. While it is agreed that there should be a coordinating authority to effectively implement Nigeria's anti-money laundering measures, it is important to note that money laundering is not limited to economic or financial crimes. Section 18(6) of the MLPA 2022 lists the predicate offenses that can lead to money laundering as follows:

a)     Participation in an organised criminal group;

b)     Racketeering, terrorism, terrorist financing;

c)      Trafficking in persons, smuggling of migrants, sexual exploitation, sexual exploitation of children;

d)     Illicit trafficking in narcotic drugs and psychotropic substances;

e)      Illicit arms trafficking, illicit trafficking in stolen goods;

f)       Corruption, bribery, fraud, currency counterfeiting;

g)     Counterfeiting and piracy of products, environmental crimes;

h)     Murder, grievous bodily injury;

i)       Kidnapping, hostage taking, robbery or theft;

j)       Smuggling (including in relation to customs and excise duties and taxes), tax crimes (related to direct taxes and indirect taxes);

k)     Extortion, forgery, piracy;

l)       Insider trading and market manipulation

Based on the extensive list above, money laundering is an offence that should be seriously investigated and prosecuted by the Nigeria Police Force (NPF), the National Agency for the Prohibition of Trafficking in Persons (NAPTIP), the National Drug Law Enforcement Agency (NDLEA), the Department of State Services (DSS), the Securities and Exchange Commission (SEC), the Independent Corrupt Practices Commission (ICPC), and the Nigerian Security and Civil Defence Corps (NSCDC). This is because each of the offences listed above provides an opportunity for financial gain, which can be laundered. 

Nigeria’s approach to exit the grey list

The Nigerian government's current strategy to combat money laundering and exit the grey list is only exemplified by the EFCC in terms of meeting some of FATF's action plans for Nigeria. This is a sign that the strategy is not effective. The FATF mandates that Nigeria execute the following action plan by:

a)     Completing its residual ML/TF risk assessment and updating its national AML/CFT strategy to ensure alignment with other national strategies relevant to high-risk predicate offences;

b)     Enhancing formal and informal international cooperation in line with ML/TF risks;

c)      Improving AML/CFT risk-based supervision of Financial Institutions and Designated Non-Financial Businesses and Professions and enhancing implementation of preventive measures for high-risk sectors;

d)     Ensuring that competent authorities have timely access to accurate and up-to-date beneficial ownership information on legal persons and applying sanctions for breaches of beneficial ownership obligations;

e)      Demonstrating an increase in the dissemination of financial intelligence by the FIU and its use by Law Enforcement Agencies;

f)       Demonstrating a sustained increase in ML investigations and prosecutions in line with ML risks;

g)     Proactively detecting violations of currency declaration obligations and apply appropriate sanctions and maintaining comprehensive data on frozen, seized, confiscated, and disposed assets;

h)     Demonstrating sustained increase in investigations and prosecutions of different types of Terrorism Financing activities in line with risk and enhancing interagency cooperation on Terrorism Financing investigations; and

i)       Conducting risk-based and targeted outreach to Non-Profit Organizations (NPO) at risk of TF abuse and implementing risk-based monitoring for the subset of Non-Profit Organizations at risk of TF abuse without disrupting or discouraging legitimate NPO activities.

Action plans 2, 6, and 8 are most relevant to this discussion because they involve Nigeria's anti-corruption and law enforcement agencies working together. As previously stated, the predicate offences preceding money laundering, as listed in Section 18(6) of the MLPA 2022, are not limited to economic or financial crimes, but also include offences investigated and prosecuted by various law enforcement agencies in Nigeria. 

Regarding action plans 6 and 8, as active law enforcement prosecutors for many years, the authors can confirm that prosecutors from other law enforcement agencies typically prosecute offenders within the scope of their statutory authority for predicate offenses and rarely include money laundering charges against Defendants. This indicates that these agencies are either unaware of their statutory responsibility to combat money laundering by investigating and prosecuting offenders in money laundering cases, or that anti-money laundering coordination is ineffective. 

Unlike other Nigerian law enforcement agencies, the EFCC regularly investigates and prosecutes offenders for not only predicate economic or financial crimes, but also money laundering offences. It is important to note that all categories of offenders, including those listed in Section 18(6) of the MLPPA 2022, launder the proceeds of their crime after committing the predicate offence. For example, regardless of the predicate offence, under section 18(2) of the MLPPA, 2022, a person commits the offence of money laundering if they do any of the following:  

a)     conceals 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, intentionally, knowingly or reasonably ought to have known that such fund or property is, or forms part of the proceeds of an unlawful act.

In respect of action plan 2, Nigerian anti-corruption and law enforcement agencies do not have a boastful record in initiating and dealing with formal and informal international cooperation in line with money laundering and terrorist financing. For example, in cases of extradition, not much is known of the number of offenders extradited by Nigerian anti-corruption and law enforcement agencies either for the predicate offences listed in the MLPPA 2022 or for money laundering offences itself.  Although, some news sources show that there has been some extradition in recent years by the EFCC and the Federal Ministry of Justice, particularly to the United States of America, same cannot be found of other Nigerian anti-corruption and law enforcement agencies who should equally be tackling money laundering and terrorist financing in the country.

For example, when the NDLEA were required to extradite a former Nigerian Senator and recently, a suspended Nigerian police officer to the United States of America in connection with drug related charges and wire fraud conspiracy respectively, both processes were frustrated by contradictory evidence  presented by the Nigerian government in the former, and a poor prosecutorial strategy employed by the Nigerian Government in the latter.

Given the enormous task that the Nigerian government faces in FATF action plans 2, 6, and 8, relying solely on the EFCC to produce the expected outcome is overwhelming, and it demonstrates the Nigerian government's poor strategy for meeting FATF requirements and exiting the grey List.

Recommendations

The following are some recommendations for a successful and long-term AML/CFT strategy for improved case reporting and exiting the grey list.

Coordination

The office of the National Security Agency (ONSA) and the Attorney General of the Federation (AGF) should collaborate to coordinate Nigeria's anti-money laundering strategy to comply with FATF's action plans for Nigeria's exit from the grey list. Since the ONSA and the AGF are the coordinating authorities for all security and law enforcement agencies with intelligence, investigation, and prosecution responsibilities, this should encompass the coordination and enforcement of the MLPPA 2022.  

Prosecution

All Nigerian anti-corruption and law enforcement agencies with the statutory authority to investigate and prosecute the offences listed in Section 18(6) of the MLPA 2022 should begin an effective investigation and prosecution of money laundering in cases where the proceeds of the predicate offences were laundered. This should also include initiating extradition proceedings and, if necessary, filing requests for mutual legal assistance.  

Specialization and Training

Effective money laundering investigation and prosecution necessitate specialization, which can only be accomplished through high-quality training. Regular training on money laundering and terrorist financing should be provided to investigators and prosecutors in law enforcement and prosecuting agencies, as well as judges, in accordance with their respective responsibilities within the criminal justice system. 

Collaboration

Every competent authority in charge of investigating and prosecuting money laundering offences should work together to ensure increased monitoring and reporting of counter-money laundering achievements. If all agencies report an increase in money laundering convictions, the international community's perception of AML/CFT will improve.  

Compliance

Globally, there has been a transition from reactive to proactive approaches to combating money laundering. Regulatory and supervisory agencies, including the CBN, SEC, NAICOM, and SCUML, as well as intelligence and law enforcement agencies, including the EFCC, NFIU, Police, NDLEA, DSS and others should establish a collaborative framework to ensure that financial institutions and designated non-financial businesses and professions adhere to their obligations under the MLPPA, 2022.

Update in Legislation and autonomy of SCUML

The Nigeria Financial Intelligence Unit (NFIU), which was previously a unit of the EFCC but became independent following the passage of the NFIU Act in 2018, oversees analysing suspicious transaction reports (STR) and currency transaction reports (CTR) from banks and financial institutions. On the other hand, the Special Control Unit against Money Laundering (SCUML), which was established under Section 17 of the MLPPA 2022 and is now a Department of the EFCC, performs the same functions as Designated Non-Financial Businesses and Professions (DNFBPs), including monitoring and supervising those businesses. 

DNFBPs are other financial institutions and defined in Section 131 of the Banks and Other Financial Institutions Act (BOFIA) 2020 as any individual, body, association, or group of persons, whether corporate or unincorporated, other than the banks licensed under the Act, who carry on the business of a discount house, bureau de change, finance company, money brokerage, authorized buying of foreign exchange, international money transfer services, mortgage refinance company. DNFBPs include  

a)     automotive dealers,

b)     businesses involved in the hospitality industry,

c)      casinos,

d)     clearing and settlement companies,

e)      consultants and consulting companies,

f)       dealers in jewelleries,

g)     dealers in mechanised farming equipment, farming equipment and machineries,

h)     dealers in precious metals and precious stones,

i)       dealers in real estate, estate developers, estate agents and brokers

j)       high value dealers,

k)     hotels,

l)       licensed professional accountants

m)   mortgage brokers,

n)     practitioners of mechanised farming,

o)     supermarkets,

p)     tax consultants,

q)     trust and company service providers,

r)      pools betting, or

s)      such other businesses and professions as may be designated by the Minister responsible for Trade and Investment.

A combined assessment of sections 6, 11, and 17 of the MLPPA, 2022 regarding the SCUML revealed that the Department was established to prevent criminals from using DNFBPs for money laundering and terrorist financing activities due to the cash-based transactions conducted by those businesses, as well as the money laundering and terrorist financing risks that come with them. For example, the SCUML are empowered by the MLPPA, 2022 to do the following:

a)     Register and certify DNFBPs;

b)     Monitor, supervise and conduct spot checks to ensure compliance with the MLPPA 2022,

c)      Receive cash-based transaction reports and suspicious transaction reports from DNFBPs to forward same to law enforcement agencies for investigation; and

d)     Sensitize DNFBPs on their responsibilities under the Act, establish and maintain a comprehensive database of all DNFBPs.

In the course of their responsibilities, the NFIU will typically disseminate intelligence pertaining to money laundering-related drug trafficking offenses to the NDLEA, which is the appropriate agency for drug-related offenses. Since the NFIU's intelligence responsibility is restricted to STR's and CTR's received from financial institutions, their responsibilities do not include the monitoring, supervision, and receipt of STR's and CTR's from DNFBPs.  

Similarly, when the Special Control Unit Against Money Laundering (SCUML) generates intelligence about a money laundering offence involving a DNFBP, it should be shared with the appropriate agency. However, because SCUML is an EFCC-controlled department, their responsibility and focus are limited to gathering intelligence on money laundering related to economic or financial crimes, whereas DNFBPs are frequently used for money laundering and terrorist financing by all types of criminals. 

Consequently, it is advised that the MLPA 2022 be amended, and a law be enacted to establish SCUML as an organization that is autonomous from the EFCC. This will allow SCUML to effectively fulfil its sole responsibility as an anti-money laundering agency, as is the case in other jurisdictions where anti-money laundering agencies are independent and autonomous.  

Conclusion

Money laundering is a complex, cross-border crime that can only be effectively combated through global cooperation. Given its cross-border nature, every country, including Nigeria, must establish an effective legal and institutional framework, including a collaborative strategy among its national agencies tackling money laundering and predicate offences, to achieve a successful outcome. By developing and implementing effective and collaborative strategies, Nigeria can not only exit and remain off the grey list, but also demonstrate its seriousness in combating money laundering and terrorist financing to Nigerians and the international community.