There have been countless scandals of money laundering across countries all over the world. Countries have been indicted in this criminal activity from Europe to America and down to Africa. Oh yes, money laundering is a crime in most countries. In the past, money laundering was associated with organised criminal associations. Now, the term has been extended to governments and international organisations.
Individuals, drug dealers, businesses, corrupt officials, members of criminal organisations and even states are all involved in money laundering. It’s a worrisome development as the masses tend to suffer for it. In this article, we shall explain this trend and ways to resolve it, especially in Nigeria.
What is money laundering?
Interpol defines money laundering as concealing or disguising the origins of illegally obtained proceeds so that they appear to have originated from legitimate sources. It is often a prominent factor in other serious crimes such as drug trafficking, robbery or extortion. Criminals illegally move money around through banks, shell companies, intermediaries and money transmitters to integrate their crime with legitimate businesses to make their operations easier. It’s also important to note that there are intermediaries who unknowingly help these criminals to launder money.
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Money laundering in Nigeria
Nigeria has been associated with all manner of criminal acts. So adding money laundering into the mix is not all that surprising. As part of efforts to combat crime, President Muhammadu Buhari signed the Money Laundering (Prevention and Prohibition) Bill, 2022, which became effective in May. Below is a breakdown of what the legislation is all about:
- No person or business (body corporate) shall make or accept cash payment of a sum exceeding N5 million or its equivalent as an individual. For a business, the payment should not exceed N10 million or its equivalent. Any transaction exceeding the stated cash limit must be reported by the banks within seven days.
- Financial institutions or designate non-financial institutions must file suspicious transaction reports with the NFIU. within 24 hours. According to the law, designate non-financial businesses and professions are businesses in the hospitality industry, mechanized farming equipment, farming equipment and machineries, dealers in precious metals and precious stones, dealers in real estate, estate developers, estate agents and brokers, high value dealers, mortgage brokers, practitioners of mechanized farming, trust and company service providers and pools betting.
- The prohibits the splitting of a single transaction into two or more separate transactions with the intent to avoid reporting such transactions.
- International transfer of funds or securities to or from a foreign country exceeding $10,000 must be reported within one day of the transaction.
- Virtual assets, which have been defined by the law as a digital representation of value that can be digitally traded, or transferred, and can be used for payment or investment purposes but does not include digital representation of fiat currencies, securities and other financial assets, are also part of the funds that should be regulated.
- Transportation of physical cash or negotiable instruments, in or out of Nigeria, higher than $10000 must be declared to Nigerian Customs. Offenders will have to give up the excess amount or face up to two years imprisonment or both.
- Financial institutions and designated non-financial businesses and professions shall keep necessary records on transactions, both domestic and international, account, files, correspondence and analysis for at least five years after completion of business transaction.
- Anonymous opening of accounts by any person, financial institution or corporate body is prohibited. This also includes the operation of and establishment of a shell bank in Nigeria.
- Casinos, including online and ship-based casinos, must verify the identity of customers carrying out financial transactions by submitting valid documents and records of transactions of their customers to the Special Control Unit against Money Laundering.
- Financial institutions and non-designated financial businesses and professions must create measures to determine if a customer or beneficiary is a politically exposed person. A politically exposed person is an individual who has been entrusted with prominent public functions domestically or by a foreign country. For example, heads of government, politicians, senior government, judicial or military officials, senior executives of State-owned corporations and prominent political party members.
Causes of money laundering
Shell companies are business organisations where many money launderers hide illegal funds and identities of real owners. A shell company is a non-public entity formed to protect or hide another company’s assets. It only exists on paper as there are no physical premises, employees, revenue, or significant assets. However, there are bank accounts or investments. Shell companies are not illegal as they are legitimate financial systems that raise funds, hold stocks, or act as limited liability trustees. However, money launderers have taken advantage of shell companies’ often anonymous activities to illegally move money.
Introducing cryptocurrencies, such as bitcoins, Ethereum and the like, has exacerbated the money laundering trend globally. In the crypto world, money launderers send digital assets across blockchains, bypassing a centralized service that can trace and freeze transactions.
Lack of cooperation by governments
Some countries are known to frustrate the efforts of some governments to prosecute money launderers. These countries are largely uncooperative in responding to mutual legal assistance requests from countries where money laundering has taken place. They tend to hide the perpetrators for their own selfish interests.
Corruption and the failure of bank regulators
This is usually the bane of many underdeveloped countries where policies regarding the banking system are poor. The corruption and porous nature of these banking systems open the door to foreign actors’ use of domestic financial institutions to launder the proceeds of foreign crime.
Vendors and their financial institutions
Some vendors and their financial institutions are also complicit in money laundering as part of their business operations. They are willing to allow their businesses to be used for money laundering by accepting payments for goods and services from third parties with no apparent connection to the purchaser of the goods and services.
The government’s inability to investigate and prosecute money launderers and recover criminal proceeds is partly why the trend is growing. Many governments don’t have the existing tools to trace assets to criminal activities, thus letting the crime continue under their various noses.
Effects of money laundering
- Money laundering damages the reputation of the financial sector. When a financial institution has been busted for money laundering, it loses customers, affecting business and the nation’s economy.
- Promotes crime such as terrorism, robbery, drug trafficking, etc and corruption that slows economic growth.
- Foreign investors are repelled from investing in countries involved in money laundering scandals. This affects the economy of such countries.
- Illicit funds from money laundering are often used to bring goods and services into the market. These goods and services are often sold at lower prices, thus discouraging legit businesses from operating effectively.
How to curb money laundering
- There should be government laws prohibiting money laundering. Nigeria’s Money Laundering (Prevention and Prohibition) Bill, 2022, is a great step in the right direction. What remains is the effective implementation of the Act.
- Countries should cooperate in prosecuting money launderers for their crimes.
- Improve searches and tracing with technology.
- Banks should train their officials to identify suspicious activities in their systems.
- Banks should also follow the rules of the Anti-Money Laundering (AML) policy of each country.
Money laundering is a serious international crime affecting not only a country but the globe as a whole. Terrorist organisations, drug trafficking syndicates and other criminal organisations can operate through the illegal movement of funds. Depriving a criminal of ill-gotten wealth will make the criminal vulnerable and thus reduce crimes.
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