Introduction
Money laundering has become a global concern in recent years, with wrongdoers using financial systems to hide illegal proceeds. The Nigerian Money Laundering (Prevention and Prohibition) Act of 2022 (the “Act”) is a legislation aimed at combating money laundering in Nigeria. It repeals and replaces the Money Laundering (Prohibition) Act of 2011, and aims to curb money laundering and associated activities by imposing more stringent anti-money laundering measures.
The Money Laundering Act introduces some innovative statutory requirements and dynamics within Nigeria’s anti-money laundering landscape. Notably, the Money Laundering Act expands the scope of Designated Non-financial Businesses and Professions (“DNBPs”), introduces new money laundering offenses, imposes additional measures for transactions with Politically Exposed Persons (“PEPs”), requires the assessment of certain new products or business practices for money laundering risks, and prescribes additional penalties for violation of the Money Laundering Act. This article discusses the improvements to the Money Laundering Act.
Money Laundering Offences
Money laundering offences encompasses a range of activities and extends beyond utilization of illegally obtained funds or property. Under the Money Laundering Act, money laundering offences is defined as the act of concealing/disguising the origin, converting, transferring/removing from jurisdiction, acquiring possession of or controlling funds or property that are known or reasonably assumed to be proceeds of an unlawful act.[1] Additionally, it entails failing to file a report which ought to be filed in accordance with the Money Laundering Act; destroying or removing a register or record required to be kept under the Money Laundering Act; carrying out or attempting to carry out any of the transactions specified in Sections 2 to 6 of the Money Laundering Act under a false identity; making or accepting cash payments in violation of the Money Laundering Act; failing to report an international transfer of funds or security required to be reported under the Money Laundering Act; or conspiring, aiding or abetting the commission of a money laundering offence.
Compliance Requirements under the Money Laundering Act
In order to combat money laundering effectively, the Money Laundering Act imposes specific compliance requirements on individuals and entities operating within Nigeria. These requirements aim to promote transparency and accountability in financial transactions. They include;
- Limitation on Cash transactions
The Money Laundering Act sets limitations on cash transactions to prevent the illicit movement of large sums of money. Individuals are prohibited from making cash payments exceeding five million Naira (N5,000,000.00), while corporate bodies are restricted to ten million naira (N10,000,000.00). Where a transaction exceeds the prescribed limit, it must be conducted through a financial institution, ensuring a transparent and traceable record of the funds involved. Likewise, the Money Laundering Act prohibits conducting multiple small transactions with one or more financial institutions or DNBPs in a bid to avoid the duty to report a transaction that should be reported under the Money Laundering Act.[2] In the case of financial institutions, the reports is made to the Nigerian Financial Intelligent Unit (the “NFIU”) of the Central Bank of Nigeria (“CBN”), for DNBPs on the other hand, the report is made to the Special Control Unit Against Money Laundering (“SCUML”).[3]
- International Transfers
Transfer of funds or securities to and from a foreign country exceeding US$10,000 must be reported to the NFIU, and the Securities and Exchange Commission (“SEC”),[4] within one day of the transaction.[5] Individuals carrying cash or other negotiable instruments exceeding US$10,000 into or outside Nigeria, must declare them to the Nigerian Customs Service, who would report the notification to the NFIU and CBN.[6] Where an individual makes a false declaration or fails to make necessary disclosure to the Nigerian Customs Service, such individual will be liable upon conviction to either an imprisonment for a term of at least two years or/and forfeit the undeclared funds or negotiable instruments.[7]
- Identification of Customers
Financial Institutions and DNBPs have an obligation to identify their customers. To ensure compliance, they must implement due diligence measures (i.e. mandatory Know Your Customer onboarding requirements) to ensure that the identity of persons making or receiving payment through their services or platforms are known and verifiable.[8] Financial Institutions and DNBPs also have a continuous obligation to scrutinize the transactions they process, and fictitious accounts are prohibited under the Money Laundering Act. [9]
- Enhanced Due Diligence for Politically Exposed Persons
The Money Laundering Act imposes a higher due diligence requirement on PEPs, and financial institutions and DNBPs are required to put measures in place to identify customers who are PEPs or whose beneficial owner is a PEP. For foreign PEPs or domestic PEPs entrusted with a prominent function by an international organisation, Financial Institutions and DNBP must,[10] obtain approval from its senior management before establishing such business relationships, take reasonable measures to establish the source of wealth and the funds of the PEPs, and conduct enhanced ongoing monitoring on that relationship.
- Reporting Suspicious Transaction
Financial Institutions and DNBPs must report suspicious transactions to the NFIU within 24 hours of the transaction and take appropriate actions to prevent money laundering.[11] Suspicious transactions as contemplated in the Money Laundering Act includes transactions which;
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- involves a frequency which is unjustifiable or unreasonable,
- is surrounded by conditions of unusual or unjustified complexity,
- appears to have no economic justification or lawful objective,
- is inconsistent with the known transaction pattern of the account or business relationship, or
- involves the proceeds of a criminal activity, unlawful act, money laundering or terrorist financing.
Upon receipt of a report of a suspicious transaction, the NFIU may demand for such additional information as it deems fit and/or place a stop order on the transaction, which shall not exceed 72 hours. The Financial Institutions or DNBPs will proceed with the transaction if no stop notice is received or where a stop notice has expired.
- Record-Keeping
Financial Institutions and DNBPs are required to maintain records sufficient for the reconstruction or review of each individual transaction for a minimum of five years from the completion of the transaction or termination of the business relation. Such records should be made available to relevant regulatory authorities upon request.
- Internal Procedures, Policies and Controls
The Money Laundering Act mandates Financial Institutions and DNBPs to develop and implement internal policies and measure to combat money laundering. These measures include;
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- designating a compliance officer at management level in the organization’s headquarters and branches;
- conducting regular training programmes for employees;
- centralisation of the information collected within the organization; and
- establishment of an internal audit unit to ensure compliance with and effectiveness of the measures taken to enforce the provisions of the Money Laundering Act.
A failure to implement the minimum measures required by the Money Laundering Act may result in penalties such as suspension of regulatory license or fine of not more than one million naira for DNBPs, not less than five million Naira for Banks, and not less than one million Naira for capital brokerage and other Financial Institutions.
- Risk Assessment
Financial Institutions and DNBPs are mandated to undertake risk assessments for new products, business practices and technologies before launching them to identify and manage money laundering risks. Financial Institutions and DNBPs must then take appropriate measures to manage and mitigate any identified risks.
- Penalties
The Money Laundering Act provides for the prosecution of money laundering offences, with penalties such as fines, imprisonment, or revocation of corporate licenses. In particular, the Money Laundering Act, provides that an individual who commits any of the money laundering offence listed in Section 18 (2) is liable to imprisonment for a period of four (4) to fourteen (14) years, or a fine of not less than five (5) times the value of the proceeds of the crime or both. Also, a corporate entity which commits a money laundering offence is liable to pay a fine of not less than five (5) times the value of the proceeds of the crime and in the case of a repeated offence, the certificate or license of the corporate entity may be revoked.
Conclusion
The Money Laundering Act provides a comprehensive framework for combating money laundering in Nigeria. Compliance requirements include reporting obligations, due diligence, record-keeping, implementation of internal policies and procedures to prevent money laundering, and risk assessment. Adhering to these requirements is crucial to avoiding sanctions and penalties.
Authors: Ifeoma Ezeribe and Tolulope Oguntade
Footnotes
[1] Section 8 of the Money Laundering Act.
[2] Section 2(2) of the Money Laundering Act.
[3] Section 11 of the Money Laundering Act.
[4] In Section 30 of the Money Laundering Act, “funds” is defined to include financial assets.
[5] Section 3(2) of the Money Laundering Act.
[6] Section 3(3) and (4) of the Money Laundering Act.
[7] Section 3(5) of the Money Laundering Act.
[8] Section 4 of the Money Laundering Act.
[9] Section 12 of the Money Laundering Act.
[10] Section 4(8) and (9) of the Money Laundering Act.
[11] Section 7(2) of the Money Laundering Act.