1.0 INTRODUCTION

Money laundering is a global trend, increasing in recognition in recent times.With reference to (Robinson in Steel, 2006), he says money laundering is said to be what it is because it shows how illegal and dirty monies are put through a cycle of transactions and washed, so it could come out as clean/legal money. In other words, ‘the source of illegally obtained funds is obscured through a succession of transfers and deals that those same funds can eventually be made to appear as legitimate income'. According to the Dictionary of Finance and Banking (2008), money laundering is also defined as a process where money is acquired illegally either through theft, drug dealing etc, is cleaned so that it will appear to have come from a legitimate source.

No one is sure of when money laundering began, but several opinions have been raised with respect to it amongst which are that it started several thousand years with Chinese merchants, some 2000 years ago. Silkscreen (1994) and Steel (2006) claimed that it all started from mafia ownership of Laundromats in the United States where they needed to prove the genuine source for their monies, as they earned their cash from extortion, prostitution, gambling and bootleg liquor. With its developments in recent past and over the next four millennia, the principles of money laundering have still not changed, but the mechanisms have.

The legislation of Money laundering varies in different countries, in the UK for example, it is governed by four Acts of primary legislation which are: The Terrorism Act 2000, The Anti-Terrorism Crime and Security Act 2001, The Proceeds of Crime Act 2002 and Serious Organised Crime and Police Act 2005 whilst the secondary legislation is provided in the Money Laundering Regulations 2007. Due to the wide range of how criminals take advantage of the different national authorities and international restrictions, bringing about cooperation between enforcement agencies, financial institutions and competent authorities is very significant. Also, since the activities in money laundering are for economic reasons, it is crucial to put in place provisional measures and confiscation orders so as to bring the criminals to book in a firm way (Ping, 2004).

1.1 HISTORY OF MONEY LAUNDERING IN NIGERIA

According to Silkscreen (1994), the development of money laundering was for trade and that Nigeria as a country is the centre of money laundering in Africa. He stated that the Nigerian system is dominated by criminals who in past years were influenced by international traders who could not operate due to the foreign exchange control measures and the inspection in customs, resulting in traders based in Nigeria operating businesses offshore. Nigeria's historical record of exploitation goes as far back as when her people where used as slaves under British colony and as an independent and a sovereign country experiencing transition from a military dictatorship to a democratic form of government, after over 16 years of military rule.

Johnson (2000), claimed that ‘The Financial Times (FT), in its editorial of September 14........, that although more than 70 percent of Nigeria's population subsisted on less than a dollar a day, the debt burden was “no longer the top priority” because of increasing oil prices. It claimed that the reason for the country's problems was “mismanagement” which was “crippling Nigeria”. The FT drew the conclusion that “Nigerians, not their creditors, are primarily responsible for the plight of their country.' A recent example in a newspaper Thisdayonline (2010) shows how desperate Nigerians could be in looting and siphoning money out of the country. An example given is the wife of the former vice president of Nigeria, Mrs Jennifer Douglas who was reported by the US senate permanent sub-committee for investigation because of the belief that she had taken in $40m funds into the US through wire transfer sent through offshore corporation to US bank accounts. Other instances include the arrest of a Nigerian governor in London Joshua .C. Dariye in 2004, the impeachment of another governor named D.S.P Alamieyeseigha in 2005 and the least, the arrest and conviction of one of its Inspector General of Police Tafa Balogun for the same crime Money Laundering, making this topic a very important one in the financial industry.

With the rate of scams in Nigeria financial sector, the law enforcement decided to come up with legislative act called the Money Laundering (Prohibition) Act passed into law in March 2004. In turn, this was followed by the: Central Bank of Nigeria (CBN) Anti-Money Laundering Compliance Manual, guidelines from Economic and Financial Crimes Commission (EFCC, 2003), Independent Corrupt Practises Commission (ICPC, 2000), setting out take the role of implementation and supervision.

1.2OVERVIEW OF MONEY LAUNDERING IN NIGERIA

Laundering money in Nigeria had worsened in recent times, covering the image of decent and hardworking people in the country. Money launderers go through the process of getting their illicit money through the bank in certain countries with the confidence that the laws in that country protect them and their illicit money to the disadvantage of those in poverty. Okogbule (2007), stated in his article that due to the disgraceful and disreputable image portrayed by money laundering in frustrating legitimate business, corrupting the financial system and socio-political system, has stimulated national and international action to regulate it. Central Bank of Nigeria (CBN) Manual (2009), stated that with the rigorous efforts made globally in checking these crimes, financial institutions are under regulatory pressure to enhance their monitoring and surveillance system with a view to preventing, detecting and responding appropriately to money laundering and terrorist financing. According to Knight (2007), "Banks have long regarded a risk-based approach as being the most proportionate and cost-effective way of tackling this type of crime and we are delighted to see that the government has taken our views on board. This formal recognition is excellent news for everyone involved in the fight against this type of crime." CBN (2009) also added that, financial institutions are bound to face financial and reputational damage if they fail to manage money laundering risk which they are exposed to adequately. Going further to clarify that implementing the provisions made by the manual, would not only minimize the risk faced by financial institutions of being used to launder the proceeds of crime but would also give protection against fraud, reputational and financial risks, advising affected institutions to adopt a risk-based approach in the identification and management of their Anti-Money Laundering risks. Also, the Nigerian government mandates financial institutions that the Anti-Money Laundering laws in their control should not only designate Money Laundering and offences, but should also set down sanctions for non-compliance with laws and regulations on customer due diligence, non-performance of prescribed reports and the reasons for not keeping appropriate records. So it is in their best interest to establish a culture of compliance facilitated by the manual. And failure to deal with money laundering according to the necessary requirement could lead to regulatory risk, reputational risk, litigation risk and operational risk (Kabul, 2006).

1.3 MAIN AIM

The focus of this research is to find out how effective the control measures of money laundering are in banks in Nigeria. The research would centre on the financial institution in Nigeria comparing its risks with that of the UK, and would take questionnaires of five banks in Nigeria in evaluating the effectiveness of risk based approach of Nigerian banks in controlling money laundering in the financial institution by making use of primary research.

The research is to reassess the risk controls of money laundering in Financial Institutions in Nigeria, their effectiveness or laxity and whether it can be improved.

OBJECTIVES

  • Examining the money laundering processes.
  • Reviewing the effect/implication of money laundering in the financial sector.
  • Assessing the regulatory and institutional frameworks in place for Money Laundering in Nigeria compared to the UK.
  • Examining the reporting structures in Financial Institutions in Nigeria with comparison to that of UK.
  • Reviewing the risk control measures in place i.e. Consumer Due Diligence (CDD); Account Monitoring/Suspicious Activity Monitoring; Training; Designated Officers and comparing the control measures in Nigeria with that of the UK.

1.4 IMPORTANCE OF STUDY

Though there has been extensive research on money laundering in the financial industry, the continuing interest in the field indicates the importance of the topic.

Money laundering through banks has significant effects on consumers, government, management, employees. This study would be helpful to banks and financial institutions as it would assist them to appreciate the importance and usefulness of the control measures in the sector and the key role it plays in dealing with money laundering in the organization. Failure of financial institutions to adequately manage money laundering risks could result in the need for compliance with the control measures are exposed to money laundering risks and financial and reputational damage for the organisations.

1.5 STUDY OVERVIEW

The rest of this dissertation is outlined as follows:

Chapter 2 will provide a detailed literature review from previous studies carried out on anti-money laundering in financial institution in Nigeria in comparison with that of the UK in assessing its risk based approach in relation to money laundering.

Chapter 3 gives a detailed study on the regulatory and legislative requirement of money laundering.

Chapter 4 distinguishes and compares the control measures of money laundering from both Nigeria and UK.

Chapter 5 will describe and discuss in details the research design; sample statistics; source of data and methodology which is to use both primary and secondary data using questionnaires, working papers, journals etc and survey research method to acquire data to make up the information; analytical tool making use of chi-square which would be applied to test the effectiveness and efficiency of the control measures of money laundering.

Chapter 6 would analyze the result of study being carried out in order to help achieve the aim and objectives of the study

Chapter 7 would discuss the conclusion of the study.

CHAPTER TWO

LITERATURE REVIEW

Financial institutions over the years have made efforts in detecting and preventing money laundering, but the main attribute of money laundering are its processes in which it is carried out. It has been argued that money laundering does not take a singular act but takes a more complex operation, which is completed in three basic steps. They are: placement, layering and integration (Anon, 2006).

2.1PROCESSES OF MONEY LAUNDERING

2.1.1 Placement

The Placement stage is the first stage in the money laundering cycle. Money laundering activities is usually generated from cash intensive business, huge amount of cash or hard currency and gotten from illegal activities such as sale of drugs, illegal firearms, prostitution or human trafficking (world check, 2009). Monies gotten from this cycle need to be disposed of immediately by the launderer, so they go as far as depositing it back in financial institutions, spending in retail economy, involvement in a business or acquisition of an expensive property/asset or smuggled out of the country. The launderer's intention in this stage is to remove the cash from the place of possession so as to avoid any form of detection from the authorities and to transform it to other form of assets such as travellers' cheques, postal orders etc.

2.1.2 Layering

Here, the launderer makes the effort in hiding or disguising the origin of the funds by creating multifaceted layers of financial transactions designed to cover the audit trail and provide cover up. Since the purpose of layering is to disassociate the illegal monies from the source of the crime, layers upon layers of transactions are created, moving illicit funds between accounts or business, or buying and selling assets on a local and international basis until the original source of the money is untraceable.

2.1.3 Integration

After the completion of the layering stage, illegal funds are taken back into the financial system as payments for services rendered. Making the launderer feel fulfilled by making the funds appear to be legally earned. Illegal funds is returned to the economy and masked as legitimate income.

2.2 EFFECT OF MONEY LAUNDERING

Some of the effects of money laundering as mentioned in Farrugia (2009) are as follows:

2.2.1 INCREASED CRIMINALITY

The rise in criminality is one major effect and a concern in money laundering. The success of money launderers is the distance they create between themselves and the criminal activity producing profit, so that they could enjoy the benefits of their crime without attracting attention and could also go to the extent of reinvesting their profits to finance other crimes. So government, legislative act and other enforcing laws make effort to make the crime not worth committing. To this effect, Nigerians especially the politicians/rulers of the country take risky step in committing outrageous crimes by stealing and moving money out of the country into fictitious account, all in the name of developing the country. Though there is a rule for Political Exposed Persons (either for the politicians or their family) created by CBN, but they tend to go against this rules.

2.2.2 MICROECONOMICS EFFECT

Here, money launderers create and make use of companies that front for them. These companies are not interested in and but pretend to be participating in them. Usually the companies are not doing any serious business. The income generated from the company is not usually from the business but from their criminal activities. Their decisions are not usually based on economic considerations and would offer products at prices below cost price making the front companies have an unjustified competitive advantage. Legitimate businesses lose when competing, as there is no fair competition involved and results in business closures/shut down due to ‘‘crowding out effect'' of private sector business by criminal organisations.

2.2.3 MACROECONOMIC EFFECT

The effects of money laundering on the macroeconomic scene are numerous and could be devastating, The effects amongst others include volatility in exchange rates and interest rates due to unanticipated transfers of funds; fall in asset price due to the disposition of laundered funds; misallocation of resources in relative asset commodity prices arising from money laundering activities; loss of confidence in markets caused by insider trading, fraud and embezzlement etc. When businesses make fewer profits and pay fewer taxes, people become unemployed and dependent on social assistance which is most times difficult to get in developing countries. When criminals go ahead to use financial institution for laundering funds, this creates negative publicity and it's enough to scare banks into striving to keep criminals away from their territory. Also banks have a risk of performing a balancing act between attracting new business and complying with the regulations and legislations. The securities markets (especially derivatives) have gotten the attention of money launderers and are posing an additional risk to financial systems. Other indirect economic effects are higher insurance premiums for those who do not make fraudulent claims and higher costs to businesses therefore generating fewer profits which make it difficult to break even. Reilly (2008) stated that money laundering has the ability to penetrate the global financial system and also alter economic data. According to Quirk (1997) in Reilly et al (2008), ‘money demand can appear to shift from one country to another... resulting in misleading monetary data'. Income distribution also tends to be affected by money laundering because it could be redistributed from high savers to low ones, sound investments to risky ones. Due to these negative effect, policy makers find it difficult to come up with effective responses to economic threats and it causes difficulties in the government efforts to manage economic policy. Prudential risks are prone to affect the soundness of banks and the management of economic policies. The prudential risk might be as a result of the corruption of the bank manager, when he/she begins to accept large sum of money from launders and this brings about non-market behaviour in the financial system. Steel (2006) also stated that financial institutions are regarded as organizations that provide financial services to its clients or members, leaving them at the front position in the battle against money launderers. Financial institutions are not the only target the launderers use in their various schemes but they are accountable for financial dealings and for reporting any suspicious transactions.

2.2.4 SOCIAL EFFECT

The depressing effect of this stage is the transfers of economic power from the right to the wrong. Here, the good citizens and the government are dispossessed from their right, making the criminals take the advantage to blossom in their criminality. Money laundering damages the financial institution which is an important factor to the country's economic growth.

In developing countries like Nigeria where fewer are collected, the governments have to seek further contribution from good citizens, making people suffer more and continue to be subject to poverty. Companies cannot compete with operators financed by illegal funding, workers then become unemployed and the higher rate of unemployment leads to an increase in criminality, discontent and insecurity. The burden on the government would then increase with the need to provide security therefore reallocating resources from more productive enterprise to other areas. This reduces productivity in the real sector of the economy by diverting resources from productive areas to social sectors; crime and corruption which are on the increase would then slow down economic growth and decrease human development.

2.3MONEY LAUNDERING REQUIREMENTS

2.3.1 LEGAL POSITION

There is a list of requirement made by the legislative act, and a couple of statutory obligations have been imposed on all financial institutions against money laundering (Steel, 2006). These include:

  • To set up procedures for verifying the identity of clients
  • To set up record-keeping procedures for evidence of identity and transactions.
  • To set up internal reporting procedures for suspicions including the appointment of a Money Laundering Reporting Officer (MLRO).
  • To train relevant employees in their legal obligations.
  • To train those employees in the procedures for recognising and reporting suspicions of money laundering.

Failure to respect the above stated obligations, the employers will be liable to an offence which is punishable by a maximum of two years imprisonment, a fine or both.

2.3.2 FINANCIAL POSITION

The regulation also expects financial institutions to put in place appropriate systems to prevent money laundering and assist relevant authorities to discourage money laundering activities.

CHAPTER THREE

REGULATORY AND LEGISLATIVE REQUIREMENT OF MONEY LAUNDERING

3.1 UK REGULATORY AND LEGISLATIVE REQUIREMENT

The UK money laundering primary legislative Acts according to (Steel, 2006) is governed by The Terrorism Act 2000, The Anti-Terrorist Crime and Security Act 2001, The Proceeds of Crime Act 2002 and Serious Organised Crime and Police Act 2005. The primary legislation is dispersed by the parliament; the secondary regulation given out by Money Laundering Regulations 2007; and lastly, the stage of instructive guidance notes produced by regulatory authorities and trade associations.

According to Rhodes QC and Palastrand (2004), Money Laundering Regulation (MLR) 2007 replaced Money Laundering Regulation (MLR) 2003 prior regulations with updated provisions. MLR 2007 requires organisation to take on anti-money laundering administrative requirements when taking on regulatory activities, with the aim that it would assist in detection, prosecution and prevention of financial crime. This money laundering regulation noted five important requirements, and they include:

  • The appointment of a nominated officer
  • The training of internal staff
  • The checking of the identity of clients
  • The maintenance of records
  • The establishment of reporting procedures

Failure to comply under this regulation is a criminal offence, and can be prosecuted by the Financial Services Authority (FSA) and the Crown Prosecution Service (CPS). A commentator in Rhodes QC and Palastrand (2004) said that ‘‘Money Laundering Regulations were designed to reduce the opportunity for money laundering, tighten up regulations in the financial sector and promote greater market confidence and consumer protection. Implementation will require higher levels of due diligence and reporting across a wider range of businesses in an attempt to detect and disrupt money laundering and criminal activities''.

Leong (2007) also noted that UK plays an important role in deciding and promoting anti-money laundering and counter terrorist financing. It also stated that the anti-money laundering system in the UK involves criminal law, civil law and the regulatory law. And the three important parties involved in the UK legislative and regulatory structure in fighting money laundering are: the government (who backs the primary legislation, distinguishes criminal offences and makes the Money Laundering Regulations (MLR)); the Financial Service Authority (FSA) which makes regulatory (non-criminal) rules to counter money laundering; and the Joint Money Laundering Steering Group (JMLSG) which issues extensive guidance notes on the meaning and application of the regulations and on good practice. Both the FSA and JMLSG are chaired by British Bankers' Association (BBA).

3.2 NIGERIA REGULATORY AND LEGISLATIVE REQUIREMENT

In Nigeria, money laundering remains significant, despite the country's step in improving its Anti Money Laundering (AML) system. In December 2002 according to the Bankers Academy (2009), Nigeria was placed on the (NCCT) lists and was under the threat of a FATF recommendation for countermeasures. Nigeria authorizes four legislative act of money laundering. They are: the amendment to Money Laundering Act (1995) which broadens the scope of the law to cover the proceeds of all crimes; an amendment to the 1991 Banking and Other Financial Institutions Act (BOFIA) that extends coverage of the law to stock brokerage firms and foreign currency exchange facilities; the Central Bank of Nigeria (CBN) which serves as the banking regulator in Nigeria with the power to approve or revoke bank licenses, power to freeze suspicious accounts and promote monetary stability with a sound financial environment; and lastly the Economic and Financial Crimes Commission (EFCC) Act that coordinates the Anti Money Laundering (AML) investigations, information sharing and making illegal the financing and participation in terrorism. The violation of this Act carries a penalty of up to life imprisonment and based on this legislation, FATF decided not to recommend countermeasures against Nigeria, making Nigeria remain on the NCCT list. According to Article 5(2) of the Vienna convention in (Chibuike, 1998), it is stated there that the Nigerian Money Laundering Decree must carry out the Vienna convention requirement, which requires parties to enact laws to identify, trace, seize, freeze and forfeit all manner of profit derived from or used in money laundering offences. The objectives of Vienna convention includes ensuring that a documented trace is left in all money laundering transactions through banks, and a closer link is formed between banks and the National Drug Law Enforcement Agency (NDLEA), with the aim of preventing and tracking down money launderers i.e. the decree limits the amount of cash transaction in the country to N 500, 000.00 in the case of individuals and N2m in the case of a corporate body. And transactions above the limits should be disclosed to the NDLEA within seven days. Also, any transfer to or from a foreign country of a sum greater than $10,000 or its equivalent should be reported to the Central Bank of Nigeria (CBN).

Other provisions include a requirement for financial institution to verify their customers' identity before opening an account, issuing a passbook, entering into a fiduciary transaction, renting a safe deposit box or establishing business relationship with the customer. It essentially states that banks and other financial institutions must know their customers ‘‘KYC''-Know Your Customer. This requirement states that all records created should comply with the decree and preserved for a period of at least ten years, a procedure for developing money laundering awareness amongst employees of financial institutions.

3.3 REPORTING STRUCTURE OF MONEY LAUNDERING

3.3.1 UK REPORTING STRUCTURE

The Financial Services Authority (FSA) is charged as the principal regulatory agency with the supervision of the markets in which money laundering takes place. Its statutory objectives are covering market confidence, public awareness, consumer protection and the reduction of financial crime. According to Alldridge (2009), ‘the philosophy of the Act is to put in place a unitary authority to replace the previous fragmented regulatory framework that has exited hitherto'. FSA focuses more on the systems and controls inside the business it regulates, and its power is intended to balance those of the existing criminal intelligence and law enforcement bodies. The FSA has powers against regulated persons and specified employees, as well as the power to fine, to make refund or payment orders, to issue public notices and to order individuals to be disqualified from the industry. It has power of investigation including powers of compulsory questioning and the power to oblige regulated persons to charge a report from an external auditor (this power currently applies to banks). The Financial Services and Market Act also gives the FSA powers in relation to money laundering as well as power to bring criminal prosecution under existing regulations. There is an assumption that Money Laundering Steering Group did not provide an adequate framework for effective action against money laundering. And this has made the FSA regard the regulation of laundering as a risk management exercise. The mechanism put in place by the FSA include: Money Laundering Co-ordination Committee, a Financial Crime Policy Unit, Enforcement Team and a Risk Review Unit. The FSA adopted the money laundering Regulations (1997), as the approved regulations for the purpose of the Financial Services and Markets Act 2000 and appoints competent persons to carry out investigation on any person who may be guilty of an offence under the regulations.

3.3.2 NIGERIA REPORTING STRUCTURE

In Nigeria, financial institutions must comply with the law and provide information to CBN, NFIU (Nigeria Financial Intelligent Unit) and other relevant government agencies e.g. NDLEA, EFCC. Under the Central Bank of Nigeria Manual (2009), financial institutions are required to identify and report to CBN and Nigeria Financial Intelligent Unit (NFIU) on the proceeds of crime. Such report covers the following amongst others:

  • Property, regardless of its value; serious offences of participation in organized criminal group and racketeering;
  • All offences punishable by a minimum penalty of six months imprisonment;
  • Conduct that constitutes an offence in the country it is committed which also constitutes an offence in Nigeria;
  • Offence of association with or conspiracy to commit, attempt, aiding and abetting, facilitating and counselling the commission;
  • Conduct which is not an offence in the country it is committed but a predicate offence had it occurred in Nigeria;
  • Other designated categories of offence not covered above.

The EFCC, MLP and CBN Act mentioned that the relevant authorities have been given the power to access information to properly perform their functions in fighting money laundering and terrorism, by sharing information between competent authorities (either domestically or internationally) and the sharing of information between financial institutions when the need arises.

CHAPTER FOUR

CONTROL MEASURES OF MONEY LAUNDERING

Both UK and Nigeria have measures set to control money laundering. In UK, the Money Laundering Regulation (2007) requires financial institutions to adopt a risk based approach as a measure to prevent money laundering and terrorist financing (HM Revenue and Customs, 2008). Also, the Office of Fair Trading (2009) gave an outline of money laundering regulations 2007 as a requirement for business to follow. These represent:

  • Establishing internal checks and controls to prevent money laundering.
  • Training staff and creating awareness in accordance to money laundering.
  • Assigning nominated officer to consider the internal disclosures and make suspicious activity report to Serious Organised Crime Agency (SOCA).
  • Identifying customers and verifying customer's identity before entering into a business relationship or transaction.
  • Retaining records obtained in establishing customers' identity and business relationship for five years.

COMPARISON BETWEEN CONTROLS IN UK AND NIGERIA

RISK BASED APPROACH

The UK has a risk based approach which is elaborated in the Office of Fair Trading article; while Nigeria's manual on money laundering did not give any detailed information on risk based approach. This approach basically looks at how businesses can measure risk in relation to money laundering, and which appropriate measure is set to manage and mitigate the risks involved. Certain steps are to be taken by the business in respect to the approach to determine its cost effectiveness. They include:

  • Identifying the risk of money laundering faced by the business.
  • Assessing the risk posed by customers, products/services, delivery channels (either through persons, online or third parties) and geographical areas of business.
  • Developing and executing controls to lessen the assessed risks.
  • Monitoring the usefulness and execution of the controls and make improvements where required.
  • Record what has been done and why it has been done.

The assessment of risk is evaluated based on how businesses operate and its involvement with money laundering. By so doing it takes into account risk posed by customers (i.e. customers carrying out large cash transactions), risk as a result of customer's behaviour, risk as a result of customer entering into a business or a non face to face customer, risk as a result of the product/services the customer is doing and so on. In the process where the risk on money laundering is identified, the various measures are put to use and applied in such situations. So staffs are obliged to stay alert to such risks, and apply the principles given to them in the training and also document such procedures so that it can be reviewed. So in general, financial institutions must have sufficient controls in place as a major risk based approach. Such controls needed to be applied in this approach are mentioned below.

4.1KNOW YOUR CUSTOMER/CUSTOMER DUE DILIGENCE (CDD)

Financial institutions are required to have adequate procedure in place before entering into relationship with any customer; this is known as Customer Due Diligence or Know Your Customer measures. Both UK and Nigeria Manuals states that for this measure to be established, there must be a business relationship between the customer and the business, and must also be able to establish the beneficial owner of the business.

According to the Nigerian manual, the measures of CDD that are necessary when dealing with customers are listed below. However, these laid down rules are continually being avoided and ignored. As mentioned in FinCEN Advisory (2002), notices have been passed to various financial institutions in the US on the deficiencies of the counter money laundering system in Nigeria, and that no transaction or banking relationship should be involved with Nigeria in light of the suspicious transaction reported in the US. The measures as required by CDD include:

  • Ensuring there is an establishment of business relationship.
  • That infrequent transactions above the designated threshold of N250,000 are determined by the CBN from time to time.
  • Establish infrequent transactions carried out through wire transfers, cross border or domestic transfers either through debit cards or credit cards as a means of payment to transfer money.
  • Where there is suspicion of money laundering regardless of any exemptions or thresholds made by CBN or referred to the manual.
  • Where there are doubts as regard to previously obtained customer identification data.

Unlike Nigeria, the UK's Know Your Customer/CDD measures require businesses to know their customers, confirm their identity, know their beneficial owner and validate their identity, obtain necessary information, maintain a monitoring process and lastly have adequate records. The scope of customer due diligence measures should be decided on a risk sensitive basis and this depends on the type of customer, business relationship, product or transaction.

Where the business does not comply with the measure, then the business must:

  • Not carry out a transaction with or for the customer through a bank account.
  • Not establish a business relationship or carry out an occasional transaction with the customer.
  • Terminate any existing business relationship with the customer.
  • Consider whether to make a suspicious activity report.

There are some situations where businesses do not have to apply customer due diligence measures but instead take account of Simplified Due Diligence (SDD). Simplified Due Diligence is used when a business does not have to verify the customer's identity or the beneficial owners or have to get additional information. Such situations where SDD is applied include:

  • Where the customer is a credit or financial institution that is subject to regulations
  • Where the customer is situated outside the UK and is subject to equivalent money laundering regulation
  • Where the company is a listed company subject to disclosure provisions
  • Where the customer is a public authority in the UK
  • Where the customer is an independent legal professional
  • Where the customer is a European Community Institution

Businesses also take additional measures like Enhanced Customer Due Diligence on a risk sensitive basis. This is applied in situations where the customer is required to provide additional information or standard evidence of identification in certain circumstance. Examples of situations where EDD applies include when:

  • The customer is not present physically for identification.
  • The customer is a politically exposed person or a family member or close associate of politically exposed person.
  • A correspondent banking relationship.
  • Situations which could stand as a higher risk of money laundering.

Both UK and Nigeria have adequate information on Political Exposed Persons (PEPs). According to the Office of Fair Trading (2007) ‘‘Political Exposed Person is an individual who has, or has had in the previous year, a high political profile, or holds, or has held in the previous year, public office overseas''. They include, heads of government, heads of state, ministers, members of parliaments, members of supreme or constitutional courts or high level judicial bodies, ambassadors, high ranking officers in the armed forces, family members or close associate to PEPs and Nigerian manual included members of royal families.

4.2RECORD KEEPING

Both Nigeria and UK requires all completed transaction with a customer be maintained and kept for five years from the time of completion.

For Nigeria, CBN manual stated that any transaction that require special attention should be reported to either the CBN or NFIU (Nigerian Financial Intelligence Unit) for a thorough investigation and kept for the relevant authorities for at least five years.

While the UK requires the same compliance as stated above, it also requires that if a third party is employed to take part in Customer Due Diligence (CDD), then that party must follow the rule on record keeping which is, maintaining and keeping transactions for at least five years.

4.3SUSPICIOUS ACTIVITY REPORTING

Both countries recognize that reports should be made to relevant authorities as soon as suspicion arises. These reports should be made to compliance/nominated officer as soon as it is noted, and directors/officers/employees are not permitted to disclose any report filled by the competent authorities and as much as possible try to avoid tipping off (which is an offence when someone say or do something that might tip off another person that a report have been made to a nominated officer), giving the nominated officer the choice of whether to report or not to report.

Nigeria has a list of money laundering red flags in its manual that affects financial institutions. They are:

  • Potential transactions perceived or identified as suspicious
  • Money laundering using cash transactions.
  • Money laundering using deposit accounts
  • Trade based money laundering
  • Lending activity.

These red flags have detailed sub list in the manual.

The UK also indicated some red flags which is quite different from that of Nigeria. The red flags of money laundering could be from:

  • New customer
  • Regular and existing customer
  • Transaction
  • Internal reporting disclosure
  • External reporting disclosure

4.4INTERNAL CONTROL

Nigeria and UK recognise that adequate internal control policies and procedures are needed for Customer Due Diligence (CDD), record keeping, detecting suspicious transactions and internal control in financial institutions.

Nigeria recognises programs like:

  • Developing internal policies, procedures and control.
  • Having ongoing training program for employees to be kept informed.
  • Having an independent audit function to test the control system.

All these are done to prevent money laundering in organisations.

While UK, claims that elements of internal control should include risk sensitivity, monitoring processes and customer due diligence measures. Businesses are required to carry out assessment to ensure compliance and processes i.e. effective monitoring and implementation of internal control must be in place so that business can know the areas of weaknesses and this must be documented and rectified.

4.5STAFF AWARENESS AND TRAINING

The two countries recognised the need for staff training against money laundering. They both have modules that must be covered in the training program, and they include:

Nigeria

  • AML regulations and offences
  • The nature of money laundering
  • Money laundering ‘red flags' and suspicious transactions, including trade based money laundering typologies
  • Reporting requirements
  • Customer due diligence
  • Risk-based approach to AML/CFT
  • Record keeping and retention policy.

While that of UK is:

  • The relevant money laundering legislation including the regulations, part 7 of The Proceeds of Crime Act 2002 and sections 18 and 21A of the Terrorism Act 2000.
  • Business policies and procedures in relation to the prevention of money laundering
  • Risk appraisal on money laundering
  • Responsibility of employees in preventing money laundering
  • Identifying and verifying customers identity procedures
  • Recognising and handling suspicious transactions and activities
  • Name and responsibility of nominated officer, procedure for making internal report or disclosure of suspicious activity
  • Record keeping.

4.6ROLE OF NOMINATED/COMPLIANCE OFFICER

Financial institutions must have a nominated/compliance officer who is independent, competence and have relevant authority to implement the compliance program.

In Nigeria, the compliance officer must comply with requests made in pursuant with the law and provide necessary information to the CBN, NFIU and other relevant government agencies. Compliance officer are required to meet the following criteria when responding to information on money laundering:

  • Searching immediately the institution's records to determine whether it maintains or has maintained any account for or has engaged in any transaction with each individual, entity, or organisation named in the request;
  • Reporting promptly to the requesting authority the outcome of the search
  • Protecting the security and confidentiality of such requests.

Duties of Compliance Officer include:

  • Developing an AML/CFT Compliance Programme.
  • Receiving and vetting suspicious transaction reports from staff.
  • Filing suspicious transaction reports with the CBN and NFIU.
  • Rendering “nil” reports with the CBN and NFIU, where necessary to ensure compliance.
  • Ensuring that the financial institution's compliance programme is implemented.
  • Co-ordinating the training of staff in AML/CFT awareness, detection methods and reporting requirements.
  • Serving both as a liaison officer with the CBN and NFIU and a point-of for all employees on issues relating to money laundering and terrorist financing.

In the UK, the nominated officer is also known as the Money laundering Reporting Officer (MLRO) which must be known by all staffs that make report and receive training. And they are responsible for:

  • Receiving disclosures within the business.
  • Deciding if it should be reported to SOCA (Serious Organised Crime Agency).
  • And if necessary make the reports to SOCA (Serious Organised Crime Agency).

CHAPTER FIVE

METHODOLOGY AND DATA

INTRODUCTION

This chapter presents and discusses the methodology and process adopted in this study to gather and analyse data for the purpose of achieving the research objectives set out in chapter one of this dissertation. This chapter aims to justify the methodology adopted, and the benefits and limitations of the data collection would be considered. Also discussed in detailed are the research and data analysis techniques used, sampling problems encountered and limitations of the research will be discussed. The methodology of this study is the general plan of how researchers has gone about answering the research question and hypothesis that has been stated earlier in chapter one.

Source: ChinaStones - http://china-stones.info/free-essays/accounting/money-laundering.php



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