The Central Bank of Nigeria ("CBN")
in 2022 issued the CBN (Anti-Money Laundering, Combating
the Financing of Terrorism and Countering Proliferation Financing
of Weapons of Mass Destruction in Financial Institutions)
Regulations, 2022 (the
"Regulations"). The Regulations which
were directed to banks and other financial institutions required
them to understand the structure of legal persons and legal
arrangements; and to implement customer due diligence measures to
mitigate the risk of money laundering, financing terrorism, and
financing of weapons of mass destruction.
Building on this, the CBN has now issued the Guidance on Ultimate Beneficial Ownership of Legal Persona and Legal Arrangements (the "Guidelines") with the main objective of assisting banks and other financial institutions in identifying and verifying the beneficial owners of legal entities and legal arrangements. We believe this was necessitated following the imminent threat of Nigeria being grey-listed for not properly combating money laundering and terrorist financing. The Guidelines is a response to the demand by the Financial Action Task Force1 (FATF) that countries "ensure that adequate, accurate and timely information on beneficial ownership is made accessible to check corporate vehicles from being abused in the financial system".
In this article, we have set out some of the salient points contained in the Guidelines.
1. Who does the Guidelines Apply to?
The Guidelines apply to financial institutions ("FIs") under the purview of the CBN.
2. Who is a Beneficial Owner under the Guidelines?
Under the Guidelines, a beneficial owner
("BO") is an individual who owns or has
effective control over a customer (that is, the legal entity
seeking to initiate a transaction with any financial institution),
and/or the individual on whose behalf the transaction is being
conducted. The Guidelines further points out that in line with the
FATF, consideration should be given to those individuals
"who have ultimate (actual) ownership and effective
control over the corporate vehicle, not necessarily the legal owner
not necessarily the legal owner".
In determining who a beneficial owner is, FIs are expected to rely on the following:
- the customer's (company) incorporation documents, minutes of meetings, resolutions, partnership agreements, annual returns/financial statements, and bye-laws;
- BO information obtained from a public register e.g. the Corporate Affairs Commission; and
- an understanding of the customer's corporate governance and management structure.
FIs are also required to pay attention to relevant relationships within the company which includes senior management, authorized signatories, nominee directors, partners, trustees and beneficiaries, persons having power of attorney over the entity, etc. It is also important to state at this point that the fact that a person is acting in a transaction or in any way on behalf of, or as a representative of the company, does not mean that such person has control over the affairs of the company.
3. How is a Beneficial Owner Identified and Verified?
The Guidelines provide a three-step cascade approach that should be adopted by FIs in identifying and verifying legal entities:
- identify and verify the natural persons (if any) that have ultimate controlling ownership interest in a legal person;
- where there are no natural persons controlling the legal entity through ownership interest, or there is a doubt as to who has controlling ownership interests, then the FI shall identify and verify natural persons (if any) who exercise control of the legal entity indirectly;
- where no such natural person is identified, then the FI shall identify and take reasonable measures to verify those who occupy senior management positions in the legal entity.
Where it is a legal arrangement, the FI shall identify and verify the identity of the settlor, trustee, protector (if any), the beneficiaries, and any other natural person exercising control over such legal arrangement.
4. What are the Obligations and Responsibilities Imposed on FIs while Identifying and Verifying BOs?
FIs are required to:
- adopt a risk-based approach in identifying and verifying BOs. The measures to be taken under this approach should be on the risk-sensitive basis sets out in the FIs AML/CFT/CPF framework;
- conduct enhanced customer due diligence for BOs that pose a higher risk, and a report of any suspicious transaction should be filed with the Nigerian Financial Intelligence Unit (NFIU) by the FI where it suspects that there may be money laundering or terrorism financing activities;
- put systems in place to determine if a BO is a politically exposed person (PEP) or related to a PEP. Where this exists, the FI must take additional measures to manage the risk, like obtaining senior management approval before establishing or continuing with the customer relationship; establishing the BO's source of funds and wealth, and conducting enhanced ongoing monitoring of the customer relationship;
- maintain a BO register of its customers and endeavor to review and update this register annually or when there are changes;
- flag and report any inconsistency or discrepancy between the BO information in the public register and the BO information in their records to the Corporate Affairs Commission;
- provide, upon request, such information on BOs to the CBN and other competent authorities as required.
With the introduction of this Guideline, Financial institutions are required to go beyond their usual know-your-customer process to ensure it unveils those who ultimately control companies carrying out transactions with it. It is expected that these measures will reduce money laundering and also address the imminent threat of Nigeria being grey-listed.
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.