Nigeria failed to scale a review of Money Laundering and Terrorism Financing Risk conducted by the global financial intelligence agency.
A global agency, the Financial Action Task Force faulted Nigeria’s anti-money laundering war.
Financial Action Task Force, at its plenary held between October 25 and 27 in Paris, France, reviewed Nigeria’s money laundering and terrorism financing risk.
Nigeria was among the 21 countries whose grey list status was reviewed during the FATF meeting.
Though the Nigerian Financial Intelligence Unit said it had been working to meet the FATF recommendations on money laundering and terrorism financing, it did not scale the review carried out by the FATF at its latest plenary.
Also, during the FATF meeting in June when the progress of the affected countries was reviewed, Nigeria alongside Haiti, Syria, Tanzania and Yemen chose to defer reporting.
However, eight months after it was grey-listed, Nigeria had yet to meet the 15 recommendations imposed by the FATF.
The FATF recommendations set out a comprehensive and consistent framework of measures that countries should implement in order to combat money laundering and terrorist financing, as well as the financing of proliferation of weapons of mass destruction.
FATF, an intergovernmental organisation with a mandate to combat money laundering and terrorism financing, placed Nigeria, South Africa and 20 others on its grey list in February due to deficiencies in their legislation to counter money laundering, terrorist financing and proliferation financing.
The FATF’s grey list, which is issued three times per year, includes countries in which there are major issues with anti-money laundering and countering terrorism financing legislation and regulation.
Addition to the list places those countries under increased monitoring by the FATF to ensure the countries reform their legislation and regulations within an agreed timeframe.
The global financial intelligence agency observed that since February 2023, when Nigeria made a high-level political commitment to work with the FATF and the Intergovernmental Action Group against Money Laundering to strengthen the effectiveness of its AML/CFT regime, the country had taken some steps towards improving its AML/CFT regime, including by completing its residual ML/TF risk assessment.
The group noted that though the country had made some progress since the adoption of its Mutual Evaluation Report in August 2021, it was required to implement FATF’s action plans.
In a statement on the outcome of its October plenary published on its website, the group said jurisdictions under increased monitoring were actively working with the FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing.
“When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolving swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring. This list is often externally referred to as the grey list,” it explained.
The FATF called on the concerned jurisdictions to complete their action plans expeditiously and within the agreed timeframes, just as it welcomed their commitment, adding that it would closely monitor their progress.
It disclosed that it did not call for the application of enhanced due diligence measures to be applied to the jurisdictions, noting that the FATF standards do not envisage de-risking, or cutting off entire classes of customers, but call for the application of a risk-based approach.
The financial task force encouraged its members and all jurisdictions to take into account the information presented in their risk analysis.
On the outcomes of its October plenary, the group said, “The FATF identifies additional jurisdictions, on an ongoing basis, that have strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing.
“A number of jurisdictions have not yet been reviewed by the FATF or their FSRBs, but will be in due course.
“The FATF provides some flexibility to jurisdictions not facing immediate deadlines to report progress on a voluntary basis.
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“The following countries had their progress reviewed by the FATF since October 2023: Albania, Barbados, Burkina Faso, Cayman Islands, Democratic Republic of Congo, Gibraltar, Haiti, Jamaica, Jordan, Mali, Mozambique, Nigeria, Panama, Philippines, Senegal, South Africa, South Sudan, Tanzania, Türkiye, UAE, and Uganda.’’
Among other things, Nigeria is required to implement its FATF action plan by 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.
It was also expected to enhance formal and informal international cooperation in line with ML/TF risks; improve AML/CFT risk-based supervision of Financial Institutions and “Designated Non-Financial Business and Professions and enhance implementation of preventive measures for high-risk sectors.
The FATF had equally directed Nigeria to ensure that competent authorities have timely access to accurate and up-to-date beneficial ownership information on legal persons and apply sanctions for breaches of BO obligations; demonstrate an increase in the dissemination of financial intelligence by the FIU and its use by Law Enforcement Agents.
The country must also demonstrate a sustained increase in ML investigations and prosecutions in line with ML risks; proactively detect violations of currency declaration obligations, apply appropriate sanctions and maintain comprehensive data on frozen, seized, confiscated, and disposed assets.
Furthermore, Nigeria was required to demonstrate a sustained increase in investigations and prosecutions of different types of TF activities in line with risk and enhancing interagency cooperation on TF investigations.
It was mandated to conduct risk-based and targeted outreach to non-profit organisations at risk of TF abuse and implement risk-based monitoring for the subset of NPOs at risk of TF abuse without disrupting or discouraging legitimate NPO activities.
The NFIU spokesman, Sani Tukur, told our correspondent that the agency was working hard to address the FATF observations and recommendations related to money laundering and terrorism financing deficiencies in Nigeria.
“We are working hard to achieve the FATF recommendations and we are confident we will scale through before the next evaluation,’’ he assured.
The NFIU had previously said it had accelerated efforts to ensure the nation exited the grey list of the global Financial Action Task Force which is a precursor to the black list.
In May, stakeholder agencies involved in the country’s AML/CFT framework together with representatives from the private sector met and agreed to a revised strategic roadmap to exiting the grey list.
Speaking at a two-day compliance retreat for stakeholders from the public and private sectors, Chief Executive Officer of the NFIU, Modibbo Tukur, noted that following Nigeria’s engagement with the FATF in February 2023 and the FATF’s recognition of the progress made by the country, a list of 15 items were jointly agreed to form part of the country’s Action Plan.
This, he said, was a significant reduction from the 84 items identified as deficiencies in the country’s evaluation report published in August 2021.
According to him, Nigeria had made a high-level political commitment to work with the FATF and GIABA to strengthen the effectiveness of its AML/CFT regime.
He said that achieving the ultimate objective requires consistency, commitment and coordinated efforts by all stakeholders, particularly reporting entities from the private sector to ensure that the financial sector is not seen as a safe haven for dirty money.
Nigeria had reportedly made progress on some of the Mutual Evaluation Report’s recommended actions to improve its system by improving its AML/CFT legislative framework, updating its assessment of inherent ML/TF/PF risks and strengthening its implementation of targeted financial sanctions.
A global financial advisory group, KPMG, observed that the implications for Nigeria and South Africa, two of the biggest economies in Africa, may be far-reaching.
In an advisory on the grey-listing of Nigeria and South Africa published on its website, the group hinted that the FATF action may result in a decline in capital inflow and foreign direct investment inflows.
KPMG noted, ‘’This FATF grey listing adds another layer of risk and complexity to businesses that already perceive Nigeria as a high-risk country for anti-corruption and other financial crime risks.
‘’This may put businesses with connections to Nigeria under more regulatory scrutiny, as regulators may expect them to implement more stringent AML/CFT compliance measures to mitigate the risks associated with greylisting.
‘’Furthermore, the greylisting may result in higher compliance costs and increased due diligence requirements for businesses, making transactions with Nigerian counterparties more difficult.’’
The Chief Executive Officer of the Centre for the Promotion of Private Enterprises, Muda Yusuf, said illicit fund flows have adverse effects on trade and economic policy, especially on monetary policy.
He said, “When we have such illegal funds in the system. It has a way of distorting the economy and affecting the economic government policy.
“Ideally, you expect that whatsoever money in circulation are products of one form of economic activity or the other, but if you have monies in the system that is not linked to any economic activity, it will create a lot of distortions in the economy and affect a lot of effectiveness of policy, especially monetary policy, to tackle inflation.
“It also has some effect on trade because persons who have such dirty money can afford to bring in anything just to launder the money.’’
Yusuf observed that the foreign exchange crisis in the country could be attributed to the illicit funds in the economy.
“Even this exchange rate that we are battling with, it can be traced to the amount of illegal funds in our system as you know that they won’t be kept in banks.
‘’It could have implications even on the stability of the exchange rate because people prefer to hold the dollar. There is a strong relationship between dollar cash and corruption which you will find in the countries mentioned,’’ he declared.
Also, a professor of Economics at Olabisi Onabanjo University, Sherifdeen Tella, pointed out that the increasing flow of illicit funds may force investors to be cautious due to the current level of insecurity in the country.
He said, “This shows that the level of insecurity in the country is still high. Nigeria is still facing the issue of Boko Haram which has metamorphosed into banditry and kidnapping, which means they are financed by somebody somewhere.
“On foreign investment, it is a signal that investors have to tread with caution. There is no country that is security free but we just have to improve on the issue of insecurity.”
