Money laundering and the financing of terrorist organisations has been a source of worry for policymakers and business executives.
According to Section 18(2) of the Money Laundering (Prevention and Prohibition) Act 2022, money laundering includes concealment, disguise, conversion, transfer or control of any fund or property intentionally with the knowledge that such fund or property is or forms part of the proceeds of an unlawful act. On the other hand, terrorist financing means providing funding to terrorists and their networks to enable them carry out acts of terrorism.
Money laundering funds are from an illegal source. However, in terrorist financing, funds may originate from either legal or illegal sources. The objective of terrorist financing is not necessarily to conceal the source of the funds but to conceal the activity funded.
The ability of a business or professional to correctly identify, assess, and comprehend the money laundering and terrorist financing (ML/TF) risk elements present in its business is one of the key success criteria of any anti-money laundering and counter-funding of terrorism (AML/ CFT) framework.
The Financial Action Task Force (FATF) was a task force established in July 1989 by a Group of Seven (G-7) Summit in Paris, initially to examine and develop measures to combat money laundering. FATF's aim is to develop standards and promote the successful implementation of legal, regulatory, and operational measures to combat money laundering and terrorism. The 40 recommendations by the FATF form the basis for developing an effective AML/CFT framework.
Current developments in the AML/CFT Regulatory Regime
Before 2022, AML/CFT in Nigeria was regulated through the:
- Money Laundering (Prohibition) Act 2011 and
- Terrorism (Prevention) Act 2011
These acts were supported by several other regulations such as the Federal Ministry of Industry, Trade, and Investment (Designation of Non-Financial Institutions and Other Matters) Regulations, 2016 and Terrorism Prevention (Freezing of International Terrorists Funds and Other Related Measures) Regulations, 2013.
However, President Muhammadu Buhari, enacted the following three laws with an effective date of 12 May 2022 to implement the FATF recommendations on AML/CFT and address the deficiencies found in Nigeria's 2nd round of Mutual Evaluation. As assessed by the Inter-Governmental Action Group against Money Laundering in West Africa on compliance with the FATF global standards:
- The Money Laundering (Prevention and Prohibition) Act (MLA), 2022;
- The Terrorism (Prevention and Prohibition) Act, (TPPA) 2022; and
- The Proceeds of Crime (Recovery and Management) Act, 2022.
The enactment of MLA 2022 provides a comprehensive legal and institutional framework for the prevention and prohibition of money laundering in Nigeria. The TPPA 2022 provides for a unified and comprehensive framework for the detection, prevention, prohibition, and prosecution of acts of terrorism, terrorism financing, proliferation, and financing the proliferation of weapons of mass destruction in Nigeria. Furthermore, the Proceeds of Crime Act 2022 mandates the creation of dedicated accounts for the proceeds of crime.
Some of the noteworthy modifications introduced by the MLA 2022 are as follows:
- Statutory backing for the Operation of the Special Control Unit against Money Laundering (SCUML)
- The MLA 2022 now provides statutory backing for the independent existence and operation of SCUML as a department under the Economic and Financial Crimes Commission (EFCC) and charges it with the responsibility of supervising the relevant institutions in their compliance with the Act, relevant laws and applicable regulations. SCUML was initially a unit under the Federal Ministry of Industry, Trade, and Investment.
- Mandatory Disclosures Reporting
- The MLA 2022 has changed the line of reporting for financial transactions over the threshold of ₦5,000,000 (five million naira) for individuals and ₦10,000,000 (ten million naira) for corporate bodies. While Designated Non-Financial Business and Professions (DNFBP) are required to disclose such obligations to SCUML, Financial Institutions (FI) are required to report such transactions to the Nigerian Financial Intelligence Unit (NFIU).
- This is the new line of reporting, notwithstanding anything to the contrary in any other law or regulation.
- Additionally, individuals may voluntarily give any information on transactions exceeding the threshold of ₦1,000,000 or its equivalent for an individual or ₦5,000,000 or its equivalent for a corporate body.
- Expansion of Designated Non-Financial Institutions (DNFIs)
- The MLA 2022 expands the types of firms that qualify and changes the designation of DNFI to DNFBP. DNFBPs now include dealers in precious metals and precious stones, high-value dealers, trust and public service providers, legal practitioners, and notaries.
- Enhanced KYC Requirements
- The Act also provides for enhanced KYC requirements for foreign politically exposed persons and mandates FIs and DNFBPs to take reasonable measures to ensure that any person purporting to act on behalf of a customer is so authorised, identified, and verified.
- Transaction Splitting
- The MLA now prohibits persons from conducting two or more transactions separately with one or more FIs or DNFBP with the intent to either avoid the duty to report a transaction that should be reported, or breach the duty to disclose information by any other means.
Building an effective framework
An efficient and robust system with comprehensive rules addressing AML/CFT requirements for FIs and DNFBPs must be established, along with fines for non-compliance.
Policies, processes, and controls must be established and continually improved for an AML/CFT program to be successful. Together, these three elements define and support the entire AML/CFT program, and indicate how a business is adhering to its legal requirements. When developing these three components, compliance officers must consider the needed compliance with the relevant AML/CFT laws and regulations to minimize the identified AML/CFT risks.
FIs and DNFBPs are required by the MLA 2022 to maintain and develop programs in implementing their AML/CFT Framework.1 The programs include:
- the designation of compliance officers at the management level at their headquarters and every branch and local office;
- regular training programs for employees;
- the centralisation of the information collected; and
- the establishment of an internal audit unit to ensure compliance with and effectiveness of the measures taken to enforce the provisions of the Act.
The elements of an effective AML/CFT Program are:
- The existence of policies and procedures that clearly document the business's position on AML/CFT issues along with the components of its AML/CFT program.
- The governance of the AML/CFT program indicates the commitment of the Board and Management of the Company to the program.
- AML/CFT risk assessment geared towards identifying the AML/CFT risk in the entity's operation and risk mitigation methods.
- The design and implementation of a KYC/CDD program to the extent that allows the business to identify and understand customer activity.
- The design and implementation of controls to screen customers against the relevant sanctions lists so as to identify potentially sanctioned persons and activities.
- The design and implementation of the AML/CFT transaction-monitoring program and the extent to which it identifies potentially suspicious activities.
- The level of compliance with applicable local AML/ CFT filing requirements, such as Suspicious Activity Report (SAR) and Currency Transaction Report (CTR) filings.
- Provision for adequate due diligence to be performed on all prospective employees to minimise possible recruitment of people with questionable character who pose a risk of enabling ML and TF.
- The framework must include a provision for training and communicating ML and TF risk and its mitigation to employees.
- Record keeping to ensure that the business retains records sufficient to permit individual transactions to be readily reconstructed by the competent authorities.
- The AML/CFT Program must be adequate and complete and show the efforts to evaluate its compliance with its AML/CFT Policy, practices and procedures, and applicable AML/CFT laws.
In addition to any fines specified in the Act, the disciplinary authority in charge of the FI or the professional body may impose disciplinary action against the FI or person. The disciplinary action would be in accordance with its administrative and professional standards, if a grave oversight or an internal control flaw caused the lack of compliance with any of the requirements.2
Building an AML/CFT framework is the first step toward achieving regulatory compliance, safeguarding reputation, and putting measures in place to fight money laundering and terrorism financing. Businesses can lower the risk of regulatory non-compliance by proactively analysing the recently implemented legislation to see how they affect their operations besides the new filing requirements and deadlines.
When correctly applied, an AML/CFT framework helps the integrity and stability of the company and lessens the adverse effects of unlawful economic activity. An AML/ CFT framework must prevent, identify, and report the entry of unauthorized funds into the company as well as the sponsorship of terrorist persons, groups, and/or activities to be effective.
It is imperative to identify the intricacies of the AML/ CFT regulation because businesses are required to assess their compliance with it every year. Organisations may seek the expertise and support of independent professionals to meet compliance requirements and guarantee the effectiveness of the compliance framework implemented.
1. Section 10 MLA 2022
2. Section 19(4) MLA 2022
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.