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A Comparative Study of the Money Laundering Laws/Regulations in Nigeria, the United States and the United Kingdom: Reporting Requirements

Authors:
  • James Hope University

Abstract

The Financial Action Task Force (FATF), the independent intergovernmental body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing and financing the proliferation of weapons of mass destruction, advised countries to enact laws that mandate financial institutions and designated nonfinancial businesses and professions (DNFBPs) to file certain reports. These reports are to be filed when a financial institution or DNFBP suspects or has reasonable grounds to suspect that funds are the proceeds of a criminal activity or are related to terrorist financing. Although countries have followed the advice of the FATF, the reporting requirements in different countries are not the same. For example, Nigeria and the United States require financial institutions to file suspicious transaction reports (STRs) and currency transaction reports (CTRs), while countries like the United Kingdom require financial institutions to file only a suspicious activity report (SAR). This paper, therefore, compares the reporting requirements in Nigeria with those of the United States and the United Kingdom. The aim of such comparison is to determine if Nigeria needs to adopt the approach in these countries or if there is no need for reform.This paper briefly highlights the relevant money laundering laws/regulations in Nigeria, the United States and the United Kingdom. It will then compare the reporting requirements in Nigeria with those of the United States and the United Kingdom under five subheadings: ‘What to File’, ‘Where to File’, ‘When to File’, ‘Confidentiality of SARs’ and ‘Penalties’. This paper will later analyse issues that arise from the earlier comparison, with the aim of determining if there is need for reform.
TITLE OF THE ARTICLE: A COMPARATIVE STUDY OF THE MONEY
LAUNDERING LAWS/REGULATIONS IN NIGERIA, UNITED STATES AND THE
UNITED KINGDOM: REPORTING REQUIREMENTS
AUTHOR: EHI ERIC ESOIMEME
MANAGING PARTNER AT E-FOUR & AAF
DEPUTY EDITOR IN CHIEF OF DSC PUBLICATIONS LTD.
EMAIL ADDRESS: EHIESOIMEME@YAHOO.COM
CORRESPONDING AUTHOR: EHI ERIC ESOIMEME
AUTHOR OF THE BOOK: THE RISK-BASED APPROACH TO COMBATING
MODERN SLAVERY
AUTHOR OF THE BOOK: THE RISK-BASED APPROACH TO COMBATING
MONEY LAUNDERING AND TERRORIST FINANCING
AUTHOR OF THE BOOK: DETERRING AND DETECTING MONEY LAUNDERING
AND TERRORIST FINANCING: A COMPARATIVE ANALYSIS OF ANTIMONEY
LAUNDERING AND COUNTERTERRORISM FINANCING STRATEGIES
1. INTRODUCTION
The Financial Action Task Force (FATF), the independent intergovernmental body that develops
and promotes policies to protect the global financial system against money laundering, terrorist
financing and financing the proliferation of weapons of mass destruction, advised countries to
enact laws that mandate financial institutions and designated nonfinancial businesses and
professions (DNFBPs) to file certain reports. These reports are to be filed when a financial
institution or DNFBP suspects or has reasonable grounds to suspect that funds are the proceeds
of a criminal activity or are related to terrorist financing.
1
Although countries have followed the advice of the FATF, the reporting requirements in
different countries are not the same. For example, Nigeria and the United States require
financial institutions to file suspicious transaction reports (STRs) and currency transaction
reports (CTRs),
2
while countries like the United Kingdom require financial institutions to file
only a suspicious activity report (SAR).
3
This paper, therefore, compares the reporting requirements in Nigeria with those of the United
States and the United Kingdom. The aim of such comparison is to determine if Nigeria needs to
adopt the approach in these countries or if there is no need for reform.
This paper briefly highlights the relevant money laundering laws/regulations in Nigeria, the
United States and the United Kingdom. It will then compare the reporting requirements in
Nigeria with those of the United States and the United Kingdom under five subheadings: ‘What
1
The Financial Action Task Force (FATF): International Standards on Combating Money Laundering and the
financing of terrorism and proliferation (The FATF Recommendations) (2012), Recommendation 20, 23.
2
Money Laundering Prohibition Act 2011 (as amended), s 6, 2 and 10. See also the Codified Bank Secrecy Act
Regulations 2010, s 1020.320 (b) (1), s 1022.320 (b) (1) and s 1010.311.
3
The Joint Money Laundering Steering Group JMLSG, Prevention of Money Laundering/Combating Terrorist
Financing (2013) revised version, Guidance for the United Kingdom Financial Sector Part I, Amended November
2013, Paragraph 6.33. Please note that STR and SAR are the same even if the names are different. For more
information, see E.P Ellinger, Modern Banking Law, 5th edition (Oxford University Press, 2011), 97.
to File’, ‘Where to File’, ‘When to File’, ‘Confidentiality of SARs’ and ‘Penalties’. This paper will
later analyse issues that arise from the earlier comparison, with the aim of determining if there
is need for reform.
2. RELEVANT MONEY LAUNDERING LAWS/REGULATIONS
2.1 NIGERIA
The laws enacted to combat money laundering in Nigeria include: the Money Laundering
Prohibition Act 2011 (as amended), Central Bank of Nigeria (CBN) (Anti-Money Laundering
and Combating the Financing of Terrorism in Banks and other Financial Institutions in Nigeria)
Regulations 2013 and the Anti-Money Laundering/Combating the Financing of Terrorism
(AML/CFT) Reporting Guidelines 2012.
2.2 UNITED STATES
The laws enacted to combat money laundering in the United States include: the Currency and
Foreign Transactions Reporting Act of 1970 (which legislative framework is commonly
referred to as the ‘Bank Secrecy Act’ or ‘BSA’) as amended, Codified Bank Secrecy Act (BSA)
Regulations 2010, the Bank Secrecy Act/Anti-Money Laundering Examination Manual 2010
and the Bank Secrecy Act/ Anti-Money Laundering Examination Manual for Money Service
Businesses 2008.
2.3 UNITED KINGDOM
The laws enacted to combat money laundering in the United Kingdom include: Proceeds of
Crime Act 2002 (as amended), Money Laundering Regulations 2007, the Financial Conduct
Authority Handbook, Senior Management Arrangements, Systems and Controls (SYSC) and
the Joint Money Laundering Steering Group JMLSG, Prevention of money
laundering/combating terrorist financing, 2013 Revised Version, Guidance for the UK financial
sector Part I Amended November 2013.
3. REPORTING REQUIREMENTS
3.1 NIGERIA
3.1.1 WHAT TO FILE
A financial institution or designated non-financial institution is required to report any suspicious
transaction.
4
A transaction is deemed to be suspicious if it involves a frequency which is
unjustifiable or unreasonable
5
or is surrounded by conditions of unusual or unjustified
complexity.
6
It is also deemed suspicious if it appears to have no economic justification or
lawful objective
7
or in the opinion of the financial institution or designated non-financial
institution involves terrorist financing or is inconsistent with the known transaction pattern of
the account or business relationship.
8
The report required to be filed is called a Suspicious
Transaction Report (STR).
9
In addition to reporting any suspicious transaction, a financial institution or designated non-
financial institution is also required to report a transfer to or from a foreign country of funds or
securities by a person or body corporate including a money service business of a sum exceeding
4
Money Laundering Prohibition Act 2011 (as amended), s 6 (2)
5
Money Laundering Prohibition Act 2011 (as amended), s 6 (1) (a)
6
Money Laundering Prohibition Act 2011 (as amended), s 6 (1) (b)
7
Money Laundering Prohibition Act 2011 (as amended), s 6 (1) (c)
8
Money Laundering Prohibition Act 2011 (as amended), s 6 (1) (d), See also the CBN (Anti-Money Laundering and
Combating the Financing of Terrorism in Banks and Other Financial Institutions in Nigeria) Regulations, 2013,
Regulation 31 (1) for the definition of a Suspicious Transaction.
9
Nigerian Financial Intelligence Unit: Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT)
Reporting Guidelines 2012, Paragraph 2.
ten thousand US dollars or its equivalent.
10
The law also requires a financial institution or
designated non-financial institution to report in writing any single transaction, lodgement or
transfer of funds in excess of five million naira or its equivalent in the case of an individual or
ten million naira or its equivalent in the case of a body corporate.
11
The report required to be
filed is called a Currency Transaction Report (CTR).
12
3.1.2 WHERE TO FILE
A financial institution or a designated non-financial institution is required to file a STR with the
Economic and Financial Crimes Commission (EFCC)
13
A financial institution or a designated non-financial institution is also required to file a CTR with
the Central Bank of Nigeria, Securities and Exchange Commission or the EFCC in writing.
14
3.1.3 WHEN TO FILE
A financial institution that suspects or has reason to suspect that funds are the proceeds of a
criminal activity or are related to terrorist financing, is required to report its suspicions
immediately and without delay.
15
The report is expected to be filed not later than within 24
hours.
16
All suspicious transactions, including attempted transactions are to be reported regardless of
the amount involved.
17
10
Money Laundering Prohibition Act 2011 (as amended), s 2 (1)
11
Money Laundering Prohibition Act 2011 (as amended), s 10 (1)
12
Nigerian Financial Intelligence Unit: Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT)
Reporting Guidelines 2012, Paragraph 2.
13
Money Laundering Prohibition Act 2011 (as amended), s 6 (2) (c)
14
Money Laundering Prohibition Act 2011 (as amended), s 2 (1), s (10) (1)
15
Money Laundering Prohibition Act 2011 (as amended), s 6 (2)
16
CBN (Anti-Money Laundering and Combating the Financing of Terrorism in Banks and Other Financial
Institutions in Nigeria) Regulations, 2013, Regulation 31 (3)
17
CBN (Anti-Money Laundering and Combating the Financing of Terrorism in Banks and Other Financial
Institutions in Nigeria) Regulations, 2013, Regulation 32 (7)
The CTR on the other hand is to be filed within 7 days from the date of the transaction.
18
3.1.4 CONFIDENTIALITY OF STRs/TIPPING OFF (GENERAL RULE)
Financial institutions, their directors, officers and employees (permanent and temporary) are
prohibited from disclosing the fact that a report is required to be filed with the competent
authorities.
19
3.1.5 CONFIDENTIALITY OF STRs/TIPPING OFF (EXCEPTION)
There are no exceptions to the general rule.
20
3.1.6 PENALTIES
A person who discloses the fact that a report is required to be filed is liable on conviction to
imprisonment for a term of not less than two years or a fine of not less than ten million naira.
21
A person who fails to file a STR or CTR would be liable to imprisonment for a term of not less
than 3 years or a fine of ten million naira or to both, in the case of an individual and twenty five
million naira in the case of a body corporate.
22
3.2 UNITED STATES
3.2.1 WHAT TO FILE
3.2.1.1 BANKS
Every bank is required to file a report of any suspicious transaction relevant to a possible
violation of law or regulation.
23
A transaction requires reporting if it is conducted or attempted
18
Money Laundering Prohibition Act 2011 (as amended), s 2 (1), s 10 (1)
19
Money Laundering Prohibition Act 2011 (as amended), s 16 (1) (a)
20
Money Laundering Prohibition Act 2011 (as amended), s 16 (1) which provides for no exception to the General
Rule
21
Money Laundering Prohibition Act 2011 (as amended), s 16 (2) (a)
22
Money Laundering Prohibition Act 2011 (as amended), s 16 (2) (b)
by, at, or through the bank, it involves or aggregates at least five thousand dollars in funds or
other assets, and the bank knows, suspects or has reason to suspect that:
i. The transaction involves funds derived from illegal activities or is intended or
conducted in order to hide or disguise funds or assets derived from illegal activities
(including, without limitation, the ownership, nature, source, location, or control of
such funds or assets) as part of a plan to violate or evade any federal law or
regulation or to avoid any transaction reporting requirement under federal law or
regulation,
ii. The transaction is designed to evade any requirements of this chapter or of any
other regulations promulgated under the Bank Secrecy Act, or
iii. The transaction has no business or apparent lawful purpose or is not the sort in
which the particular customer would normally be expected to engage, and the bank
knows of no reasonable explanation for the transaction after examining the
available facts, including the background and possible purpose of the transaction.
24
A suspicious transaction shall be reported by completing a Suspicious Activity Report (SAR).
25
In addition to filing of a SAR, Banks are required to file a report of each deposit, withdrawal,
exchange of currency or other payment or transfer, by, through or to such financial institution
which involves a transaction in currency of more than ten thousand US dollars. This report is
referred to as a Currency Transaction Report.
26
3.2.1.2 MONEY SERVICE BUSINESSES
23
Codified Bank Secrecy Act Regulations 2010, s 1020.320 (a) (1)
24
Codified Bank Secrecy Act Regulations 2010, s 1020.320 (a) (2)
25
Codified Bank Secrecy Act Regulations 2010, s 1020.320 (b) (1)
26
Codified Bank Secrecy Act Regulations 2010, s 1010.311
Every money service business is required to file a report of any suspicious transaction relevant
to a possible violation of law or regulation.
27
A transaction requires reporting if it is conducted
or attempted by, at or through a money service business, involves or aggregates funds or other
assets of at least two thousand dollars and the money service business knows, suspects or has
reason to suspect that the transaction (or a pattern of transactions of which the transaction is a
part):
i. Involves funds derived from illegal activity or is intended or conducted in order to
hide or disguise funds or assets derived from illegal activity (including without
limitation, the ownership, nature, source, location, or control of such funds or
assets) as part of a plan to violate or evade any federal law or regulation or to avoid
any transaction reporting requirement under Federal law or regulation
ii. Is designed, whether through structuring or other means, to evade any
requirements of this chapter or of any other regulations promulgated under the
Bank Secrecy Act, as amended.
iii. Serves no business or apparent lawful purpose, and the reporting money service
business knows of no reasonable explanation for the transaction after examining the
available facts, including the background and possible purpose of the transaction.
iv. Involves use of the money service business to facilitate criminal activity.
28
A suspicious transaction shall be reported by completing a Suspicious Activity Report MSB
(‘SAR-MSB’)
29
27
Codified Bank Secrecy Act Regulations 2010, s 1022.320 (a) (1)
28
Codified Bank Secrecy Act Regulations 2010, s 1022.320 (a) (2)
29
Codified Bank Secrecy Act Regulations 2010, s 1022.320 (b) (1)
In addition to filing a SAR, a money service business is also required to file a report of each
deposit, withdrawal, exchange of currency or other payment or transfer, by, through or to such
financial institution which involves a transaction in currency of more than ten thousand
dollars.
30
3.2.2. WHERE TO FILE
3.2.2.1 BANKS
The SAR is to be filed with the Financial Crimes Enforcement Network (FinCEN) in a central
location, to be determined by FinCEN, as indicated in the instructions to the SAR.
31
The CTR is to be filed with the Commissioner of Internal Revenue, unless otherwise specified.
32
3.2.2.2 MONEY SERVICE BUSINESSES
The SAR-MSB is to be filed in a central location to be determined by FinCEN, as indicated in the
instructions to the SAR-MSB.
33
The CTR is to be filed with the Commissioner of Internal Revenue, unless otherwise specified.
34
3.2.3 WHEN TO FILE
3.2.3.1 BANKS
A bank is required to file a SAR no later than 30 calendar days after the date of initial detection
by the bank of facts that may constitute a basis for filing a SAR. If no suspect was identified on
the date of the detection of the incident requiring the filing, a bank may delay filing a SAR for an
additional 30 calendar days to identify a suspect. In no case is reporting to be delayed more
30
Codified Bank Secrecy Act Regulations 2010, s 1010.311
31
Codified Bank Secrecy Act Regulations 2010, s 1020.320 (b) (2)
32
Codified Bank Secrecy Act Regulations 2010, s 1010.306 (a) (3)
33
Codified Bank Secrecy Act Regulations 2010, s 1022.320 (b) (2)
34
Codified Bank Secrecy Act Regulations 2010, s 1010.306 (a) (3)
than 60 calendar days after the date of initial detection of a reportable transaction. In situations
involving violations that require immediate attention, such as, for example, on-going money
laundering schemes, the bank shall notify by telephone, an appropriate law enforcement
authority in addition to filing timely a SAR.
35
A CTR is also required to be filed by the bank within 15 days following the day on which the
reportable transaction occurred.
36
3.2.3.2 MONEY SERVICE BUSINESSES
A money service business is required to file each SAR-MSB no later than 30 calendar days after
the date of the initial detection by the money service business of facts that may constitute a
basis for filing a SAR-MSB.
37
A CTR is also required to be filed by the money service business within 15 days following the
day on which the reportable transaction occurred.
38
3.2.4 CONFIDENTIALITY OF SARs/TIPPING OFF (GENERAL RULE)
3.2.4.1 BANKS AND MONEY SERVICE BUSINESSES
No bank/money service business and no director, officer, employee, or agent of any
bank/money service business is to disclose a SAR or any information that would reveal the
existence of a SAR. Any bank, and any director, officer, employee, or agent of any bank/money
service business that is subpoenaed or otherwise requested to disclose a SAR or any
information that would reveal the existence of a SAR, shall decline to produce the SAR or such
35
Codified Bank Secrecy Act Regulations 2010, s 1020.320 (b) (3)
36
Codified Bank Secrecy Act Regulations 2010, s 1010.306 (a) (1)
37
Codified Bank Secrecy Act Regulations 2010, s 1022.320 (b) (3)
38
Codified Bank Secrecy Act Regulations 2010, s 1010.306 (a) (1)
information. The bank/money service business is also to notify FinCEN of any such request and
the response thereto.
39
3.2.5 CONFIDENTIALITY OF SARs/TIPPING OFF (EXCEPTIONS)
3.2.5.1 BANKS AND MONEY SERVICE BUSINESSES
The disclosure by a bank/money service business, or any director, officer, employee, or agent of
a bank/money service business of:
i. A SAR, or any information that would reveal the existence of a SAR, to FinCEN or any
Federal, State, or Local Law enforcement agency, or any Federal regulatory authority
that examines the bank/money service business for compliance with the Bank
Secrecy Act, or any State regulatory authority administering a State law that requires
the bank/money service business to comply with the Bank Secrecy Act or otherwise
authorizes the State authority to ensure that the bank/money service business
complies with the Bank Secrecy Act
40
; or
ii. The underlying facts, transactions and documents upon which a SAR is based,
including but not limited to, disclosures to another financial institution, or any
director, officer, employee, or agent of a financial institution, for the preparation of
a Joint SAR
41
; or
iii. The sharing by a bank/money service business, or any director, officer, employee, or
agent of the bank/money service business, of a SAR, or any information that would
reveal the existence of a SAR, within the bank’s/money service business’s corporate
39
Codified Bank Secrecy Act Regulations 2010, s 1020.320 (e) (1), s 1022.320 (d) (1)
40
Codified Bank Secrecy Act Regulations 2010, s 1020.320 (e) (1) (A) (1), s 1022.320 (d) (1) (A) (1)
41
Codified Bank Secrecy Act Regulations 2010, s 1020.320 (e) (1) (A) (2), s 1022.320 (d) (1) (A) (2)
organizational structure for purposes consistent with Title II of the Bank Secrecy Act
as determined by regulation or in guidance is not prohibited.
42
3.2.6 PENALTIES
3.2.6.1 CIVIL PENALTY
i. For any wilful violation, committed on or before October 12, 1984, of any reporting
requirement for financial institutions, the Secretary may assess upon any domestic
financial institution, and upon any partner, director, officer, or employee thereof who
wilfully participates in the violation, a civil penalty not to exceed one thousand dollars.
43
ii. For any wilful violation committed after October 12, 1984 and before October 28, 1986,
of any reporting requirement for financial institutions, the Secretary may assess upon
any domestic financial institution, and upon any partner, director, officer, or employee
thereof who wilfully participates in the violation, a civil penalty not to exceed ten
thousand dollars.
44
iii. For any wilful violation committed after October 27, 1986, of any reporting requirement
for financial institutions under this part (except §103.24, §103.25 or §103.32), the
Secretary may assess upon any domestic financial institution, and upon any partner,
director, officer, or employee thereof who wilfully participates in the violation, a civil
penalty not to exceed the greater of the amount (not to exceed $100,000) involved in
the transaction or twenty five thousand dollars.
45
3.2.6.2 CRIMINAL PENALTY
42
Codified Bank Secrecy Act Regulations 2010, s 1020.320 (e) (1) (B), s 1022.320 (d) (1) (B)
43
Codified Bank Secrecy Act Regulations 2010, s 1010.820 (a)
44
Codified Bank Secrecy Act Regulations 2010, s 1010.820 (b)
45
Codified Bank Secrecy Act Regulations 2010, s 1010.820 (f)
Any person who violates any provision, may, upon conviction thereof, be fined not more than
two hundred and fifty thousand dollars or be imprisoned not more than 5 years, or both.
46
3.3 UNITED KINGDOM
3.3.1 WHAT TO FILE
A firm’s nominated officer must report any transaction or activity that, after his evaluation, he
knows or suspects, or has reasonable grounds to know or suspect, may be linked to money
laundering or terrorist financing, or to attempted money laundering or terrorist financing.
47
Such report is called a Suspicious Activity Report.
48
3.3.2 WHERE TO FILE
To avoid committing a failure to report offence, nominated officers must make their disclosures
to the National Crime Agency (NCA). The national reception point for disclosure of suspicions,
and for seeking consent to continue to proceed with the transaction or activity, is the UK
Financial Intelligence Unit (FIU) within the NCA.
49
3.3.3 WHEN TO FILE
46
Codified Bank Secrecy Act Regulations 2010, s 1010.840 (b)
47
Proceeds of Crime Act 2002 (as amended), s 331, Money Laundering Regulations 2007, Regulation 20 (2) (d) and
the Joint Money Laundering Steering Group JMLSG, Prevention of money laundering/combating terrorist
financing, 2013 Revised Version, Guidance for the UK financial sector Part I Amended November 2013, Paragraph
6.33.
48
Joint Money Laundering Steering Group JMLSG, Prevention of money laundering/combating terrorist financing,
2013 Revised Version, Guidance for the UK financial sector Part I Amended November 2013, Chapter 6, See also P
Lilley, Dirty Dealing The Untold Truth About Global Money Laundering, International Crime and Terrorism (3rd
Edition, Kogan Page Limited, 2006) 209.
49
Joint Money Laundering Steering Group JMLSG, Prevention of money laundering/combating terrorist financing,
2013 Revised Version, Guidance for the UK financial sector Part I Amended November 2013, Paragraph 6.40
Such reports must be made as soon as is reasonably practicable after the information comes to
him.
50
3.3.4 CONFIDENTIALITY OF SARs/TIPPING OFF (GENERAL RULE)
A person is not to disclose a SAR if such disclosure is likely to prejudice any investigation that
might be conducted following the disclosure and the information on which the disclosure is
based came to the person in the course of a business in the regulated sector.
51
3.3.5 CONFIDENTIALITY OF SARs/TIPPING OFF (EXCEPTION)
i. An employee, officer or partner of an undertaking does not commit an offence if the
disclosure is to an employee, officer or partner of the same undertaking.
52
ii. A person does not commit an offence in respect of a disclosure by a credit institution or
a financial institution if
a. The disclosure is to a credit institution or a financial institution,
b. The institution to whom the disclosure is made is situated in an EEA State or in a
country or territory imposing equivalent money laundering requirements, and
c. Both the institution making the disclosure and the institution to which it is made
belong to the same group.
53
iii. A professional legal adviser or a relevant professional adviser does not commit an
offence under section 333A if
(a) The disclosure is to professional legal adviser or a relevant professional
adviser,
50
Joint Money Laundering Steering Group JMLSG, Prevention of money laundering/combating terrorist financing,
2013 Revised Version, Guidance for the UK financial sector Part I Amended November 2013, Paragraph 6.33
51
Proceeds of Crime Act 2002 (as amended), s 333A (1)
52
Proceeds of Crime Act 2002 (as amended), s 333B (1)
53
Proceeds of Crime Act 2002 (as amended), s 333B (2)
(b) both the person making the disclosure and the person to whom it is
made carry on business in an EEA State or in a country or territory
imposing equivalent money laundering requirements, and
(c) Those persons perform their professional activities within different
undertakings that share common ownership, management or control.
54
3.3.6 PENALTIES
3.3.6.1 TIPPING OFF
A person guilty of the offence of tipping off is liable on summary conviction to imprisonment for
a term not exceeding 3 months or to a fine not exceeding level 5 on the standard scale or to
both
55
and on conviction on indictment, to imprisonment for a term not exceeding two years,
or to a fine, or to both.
56
3.3.6.2 FAILURE TO FILE A SAR
A person guilty of not filing a SAR is liable on summary conviction for a term not exceeding 6
months or to a fine not exceeding the statutory maximum or to both,
57
and on conviction on
indictment, to imprisonment for a term not exceeding five years or to a fine or to both.
58
54
Proceeds of Crime Act 2002 (as amended), s 333B (4), See also Proceeds of Crime Act 2002 (as amended), s
333C and D for more exceptions.
55
Proceeds of Crime Act 2002 (as amended), s 333A (4) (a)
56
Proceeds of Crime Act 2002 (as amended), s 333A (4) (b)
57
Proceeds of Crime Act 2002 (as amended), s 334 (2) (a)
58
Proceeds of Crime Act 2002 (as amended), s 334 (2) (b)
4. DISCUSSION
The previous section compared the reporting requirements in Nigeria with those of the United
States and the United Kingdom. This section analyses the issues that arose from the
comparison, with the aim of determining if there is need for reform.
4.1 WHAT TO FILE
As stated earlier, Nigerian and US money laundering laws require financial institutions to file
currency transaction reports (CTRs) and suspicious transaction reports (STRs), while the United
Kingdom’s law requires that financial institutions file only suspicious activity reports (SARs). Is it
necessary for Nigerian and US money laundering laws to mandate financial institutions to file
CTRs since they are not required by the United Kingdom?
The question can be answered by looking briefly into the history behind the US Bank Secrecy
Act. In 1970, Congress passed the Currency and Foreign Transactions Reporting Act, commonly
known as the Bank Secrecy Act, which established requirements for record keeping and
reporting by private individuals, banks and other financial institutions. The Bank Secrecy Act
was designed to help identify the source, volume and movement of currency and other
monetary instruments transported or transmitted into or out of the United States or deposited
in financial institutions. The statute requires individuals, banks and other financial institutions
to file currency reports with the US Department of the Treasury, properly identify persons
conducting transactions and maintain a paper trail by keeping appropriate records of financial
transactions. These records enable law enforcement and regulatory agencies to pursue
investigations of criminal tax and regulatory violations, if warranted, and provide evidence that
is useful in prosecuting money laundering and other financial crimes.
In April 1996, a suspicious activity report (SAR) was developed to be used by all banking
organizations in the United States. A banking organization is required to file a SAR whenever it
detects a known or suspected criminal violation of federal law, a suspicious transaction related
to money laundering activity or a violation of the Bank Secrecy Act.
59
Legislators did not remove the CTR requirement, even though the SAR seeks to achieve the
same objective, which is identifying the source, volume and movement of currency and
preventing money laundering.
The international law the United States based its 1996 development on required financial
institutions to file both a CTR and a STR.
60
This international law has been updated several
times, with the most recent version requiring only an STR to be filed.
61
Since the CTR requirement seeks to achieve a similar objective as the SAR requirement, it’s no
surprise that the UK money laundering law does not include the CTR requirement. This
strengthens the argument that it may not be necessary for a financial institution to be required
by law to file a CTR.
4.2 WHEN A TRANSACTION REQUIRES REPORTING
As stated earlier, the Nigerian and United Kingdom money laundering laws require all
suspicious transactions, including attempted transactions, to be reported, regardless of the
amount involved. This position is different from that of the US Bank Secrecy Act, which sets a
59
Federal Financial Institutions Examination Council: Bank Secrecy Act/AntiMoney Laundering Examination
Manual (2010), 78.
60
The Forty Recommendations of the Financial Action Task Force on Money Laundering (1990),
Recommendations 16, 24; The Financial Action Task Force on Money Laundering, The Forty Recommendations
(1996), Recommendations 15, 23.
61
The Financial Action Task Force (FATF): International Standards on Combating Money Laundering and the
financing of terrorism and proliferation, (The FATF Recommendations) 2012, Recommendation 20.
particular threshold for reporting. This section seeks to determine which of these requirements
is preferable.
A threshold requirement appears to allow businesses to flourish because bank customers who
engage in transactions below five thousand dollars will not have their transactions stalled by
ongoing investigations. However, the threshold mechanism can be circumvented with
techniques like smurfing.
62
Therefore, the ‘no threshold rule’ is preferable.
4.3 CONFIDENTIALITY OF SARS
The Nigerian Money Laundering Prohibition Act 2011 (MLPA 2011) (as amended) provides no
exceptions to the general rule of tipping off, which is contrary to the positions of the United
Kingdom and the United States. This section of the paper seeks to determine if the tipping-off
provision in MLPA 2011 needs to be amended to include detailed exceptions.
The tipping-off provision, as currently drafted, could cause serious problems for financial
institutions and designated nonfinancial institutions. First, it is not clear if a disclosure by a
financial institution to law enforcement agents is permitted. Second, it is not clear if a
disclosure by a financial institution to another financial institution is permitted. Third, it is not
clear if a disclosure by a professional legal adviser to another professional legal adviser is
permitted. All these disclosures are stated in both the UK and US laws as clear exceptions to the
general rule of tipping off.
In view of the above arguments, the tipping-off provision in MLPA 2011 needs to be amended
to contain detailed exceptions like those of the United Kingdom and the United States.
62
Smurfing is the act of breaking down a transaction into smaller transactions to avoid regulatory requirements or an
investigation by the authorities. http://financial-dictionary.thefreedictionary.com/Smurfing
5. CONCLUSION
This paper compared the reporting requirements in Nigeria with those of the United States and
the United Kingdom. It has also analysed issues that arose from the comparison to determine
the need for reform. This section focuses on those areas that need reform.
Based on the arguments canvassed in paragraph 4 of this paper, the following reforms to MLPA
2011 are recommended:
I. Sections two and ten of MLPA 2011 should be deleted, and section six should remain
intact. In other words, firms should be required to file only STRs and should no
longer be required to file CTRs.
II. Section 16 (1) (a) of MLPA 2011 and Regulation 31 (6) of CBN (AntiMoney
Laundering and Combating the Financing of Terrorism in Banks and other Financial
Institutions in Nigeria) Regulations 2013 should be amended to include exceptions to
the general rule of tipping off, as stated in the US Codified Bank Secrecy Act
Regulations 2010.
63
Alternatively, the exceptions could be added to Section 333B,
333D (1) and (2) and 333D (3) of the United Kingdom’s Proceeds of Crime Act 2002
(as amended).
63
Codified Bank Secrecy Act Regulations (2010), s 1020.320 (e) (1) (A) (1), s 1022.320 (d) (1) (A) (1), s 1020.320
(e) (1) (A) (2), s 1022.320 (d) (1) (A) (2), s 1020.320 (e) (1) (B), s 1022.320 (d) (1) (B).
ABOUT THE AUTHOR
Ehi Eric Esoimeme's skill and knowledge in the field of the financial crime space is drawn from
his many years of experience as a researcher in anti-money laundering laws and policies,
counter-fraud measures and anti-corruption strategies. So far, Ehi has authored more than 25
publications, including six books on Money Laundering Law/Banking Law. Ehi Eric Esoimeme's
second book titled ‘The Risk-Based Approach to Combating Money Laundering and Terrorist
Financing’ became a bestseller on Amazon for banking law. Ehi's fourth book titled ‘Deterring
and Detecting Money Laundering and Terrorist Financing: A Comparative Analysis of Anti
Money Laundering and Counterterrorism Financing Strategies’ has received many
commendations from both academic researchers and Anti-Money Laundering professionals.
Ehi Eric Esoimeme's law firm, E-Four and AAF offers consultation services to financial
institutions and designated non-financial institutions on anti-money laundering compliance.
They critique anti-money laundering policies to identify areas that need reforms and proffer
recommendations where necessary. E-Four and AAF also offers consultation on the most
relevant regional approaches to confronting financial crime, and the current regulatory
environment and priority areas addressing and/or attempting to combat fraud and money
laundering as well as other financial crimes.
Ehi Eric Esoimeme is now part of the largest community of frontier market experts. He is
available for calls via OnFrontiers: https://onfrontiers.com/profile/eesoimeme.
For more information on Ehi’s books, visit https://www.amazon.com/Ehi-Eric-Esoimeme-
Esq/e/B00OESQ4VS
EHI ERIC ESOIMEME’S PUBLICATIONS
BOOKS
Esoimeme, E.E. (2019),’The Risk-Based Approach to Combating Modern Slavery’, DSC
Publications Ltd, Available on Amazon: https://www.amazon.co.uk/Risk-Based-
Approach-Combating-Modern-
Slavery/dp/9782787914/ref=sr_1_fkmr0_1?keywords=ehi+esoimeme&qid=1569793632
&s=gateway&sr=8-1-fkmr0
Esoimeme, E.E. (2019), ‘Balancing Anti-Money Laundering/Counter-Terrorist Financing
Requirements and Financial Inclusion: The Case of Telecommunications Companies’,
DSC Publications Ltd, Available on Amazon: https://www.amazon.co.uk/Balancing-Anti-
Money-Laundering-Counter-Terrorist-
Requirements/dp/9782787892/ref=sr_1_1?keywords=esoimeme&qid=1559731958&s=
gateway&sr=8-1
Esoimeme, E.E. (2018), ‘Deterring and Detecting Money Laundering and Terrorist
Financing: A Comparative Analysis of AntiMoney Laundering and Counterterrorism
Financing Strategies’, DSC Publications Ltd, Available on
Amazon: https://www.amazon.co.uk/Deterring-Detecting-Laundering-Terrorist-
Financing/dp/9782787795/ref=sr_1_1?ie=UTF8&qid=1520869556&sr=8-
1&keywords=ehi+esoimeme
Onwudiwe, C.C. and Esoimeme, E.E. (2016), ‘Banker-Customer Relationship: A Practical
Legal Guide’, Bank Customers Association of Nigeria.
Esoimeme, E.E. (2015), ‘The Risk-Based Approach to Combating Money Laundering and
Terrorist Financing’, Eric Press; Available on Amazon: https://www.amazon.co.uk/Risk-
Based-Combating-Laundering-Terrorist-
Financing/dp/9789486030/ref=sr_1_2?ie=UTF8&qid=1437508453&sr=8-
2&keywords=ehi+eric+esoimeme
Esoimeme, E.E. (2014), ‘A Comparative Study of the Money Laundering
Laws/Regulations in Nigeria, the United States and the United Kingdom’, Eric Press;
Available on Amazon: https://www.amazon.co.uk/dp/9782787906
Article
Full-text available
PURPOSE – This paper aims to shed light on the use of precious metals, precious stones, or jewels as an alternate currency by criminals, and discuss the various anti-money laundering programmes that dealers in precious metals, precious stones, or jewels, and banks are required to put in place, to mitigate money laundering risk(s).. This is particularly notable in the case of gold companies used by criminal enterprises engaged in drug trafficking, (i.e., the trade of gold for drugs). Gold companies are also used by such criminals for wealth movement, storage and preservation, and use as a status symbol. DESIGN/METHODOLOGY/APPROACH – This paper uses the “FinCEN Files” to illustrate the vulnerability of the banking system and the gold and diamond industry to money laundering, and to solidify the hypothesis that effective implementation of anti-money laundering measures, including customer due diligence, enhanced due diligence, recordkeeping, account monitoring and suspicious activity reporting with artificial intelligence enabled systems can help flag illicit funds before they are fully integrated into the society. FINDINGS – This paper determined that dealers in precious metals, precious stones, or jewels and banks may be able to detect illicit funds if they implement an anti-money laundering program that, at a minimum, provided for: (a) procedures for using all available information to determine and verify name, address, social security or taxpayer identification number, and other identifying information for a person; (b) procedures for using all available information to determine the occurrence of any transactions or patterns of transactions required to be reported as suspicious; (c) procedures for using all available information to determine whether any records must be made and maintained pursuant to the United States Bank Secrecy Act (BSA) and the Nigerian Money Laundering Prohibition Act 2011 (as amended); (d) independent testing of the anti-money laundering program of banks and dealers in precious metals, precious stones, or jewels; (e) training of personnel; and (f) the designation of an individual or individuals responsible for assuring day-to-day compliance. ORIGINALITY/VALUE – This paper uses the “FinCEN files” to help build awareness with the regulatory, enforcement and customs authorities as well as reporting entities about the money laundering risks and vulnerabilities of precious metals, precious stones, or jewels, and how to mitigate them. This paper recommends the use of artificial intelligence enabled systems with risk-based measures. This is the only Article to adopt this kind of approach. Keywords: FinCEN Files, Money Laundering, Banks, Dealers in Precious Metals, Precious Stones, or Jewels, Artificial Intelligence, Machine Learning
Article
Full-text available
PURPOSE – The United Nations Secretary-General Antonio Guterres recently revealed that the flow of illegal funds, money-laundering and tax evasion, cost Africa fifty billion dollars every year. The Stolen Asset Recovery Initiative (Star) in Washington estimates up to forty billion dollars is lost each year to developing countries through corruption and only five billion dollars was returned in the 15 years till 2011. Most is never found. These revelations call for an entirely new approach/direction to be taken for the identification and recovery of criminal assets. The approach should be one that can curtail the flow of illegal funds, money-laundering and tax evasion. This paper critically analyses the existing framework on assets tracing and recovery in Nigeria. It will thereafter discuss the measures adopted by developed countries which Nigeria can use to effectively trace illicit assets. DESIGN/METHODOLOGY/APPROACH – The analysis took the form of a desk study, which analyzed various documents such as the Constitution of the Federal Republic of Nigeria 1999 (as amended), the Economic and Financial Crimes Commission (Establishment) Act, 2004, the Administration of Criminal Justice Act 2015, the Advance Fee Fraud and other Fraud Related Offences Act 2006, the Mutual Assistance in Criminal Matters within the Commonwealth (Enactment and Enforcement) Act, 2004, the United Kingdom Proceeds of Crime Act 2002 (as amended), the United Kingdom Investigatory Powers Act 2016, the final rules issued by FinCEN under the Bank Secrecy Act to clarify and strengthen customer due diligence requirements, the Mutual Assistance in Criminal Matters Bill, 2016, the Proceeds of Crime Bill 2017 and the Financial Action Task Force Recommendations 2012. FINDINGS – This paper determined that the Nigeria asset recovery scheme is likely to be more effective if the following recommendations are implemented: I. The Proceeds of Crime Bill, 2017 should be given accelerated consideration in the Nigerian National Assembly based on its urgency and significance for the anti-corruption war. Civil (Non-Conviction Based) Judicial Forfeiture is an essential tool in the fight against corruption to deprive offenders of the proceeds of their criminal conduct; to deter the commission of further offences; and to reduce the profits available to fund further corrupt or criminal enterprises. II.The Federal Government of Nigeria should introduce a Bill to the National Assembly that would provide a clear framework for the use of investigatory powers by law enforcement, the security and intelligence agencies and other public authorities. This includes the interception of communications, the retention and acquisition of communications data, the use of equipment interference, and the retention and use of bulk data by the security and intelligence agencies. The Bill must establish a number of safeguards against the arbitrary or unlawful use of investigatory powers by the Executive. The United Kingdom’s Investigatory Powers Act 2016, for example, established a number of safeguards for the retention and acquisition of communications data. Authorisations for obtaining communications data will have to set out why accessing the communications data in question is necessary in a specific investigation for a particular statutory purpose, and how it is proportionate to what is sought to be achieved. III. The Central Bank of Nigeria should mandate financial institutions in Nigeria to use the blockchain technology for know your customer purposes. The blockchain technology will aid law enforcement agents to identify and trace proceeds of criminal activity. IV. The Central Bank of Nigeria should issue a rule requiring the financial industry to identify the real owners of companies and propose a bill that would require companies to report the identities of their owners to the federal government. V. Bureau De Change Operators, Estate Agents, High Value Dealers e.g. dealers in precious metals and precious stones and Gambling Operators should be effectively supervised and monitored for compliance with anti-money laundering and countering the financing of terrorism (AML/CFT) requirements, namely customer due diligence (CDD), recordkeeping, and reporting. This should be performed on a risk-sensitive basis. VI. The Mutual Assistance in Criminal Matters Bill, 2016 should be given accelerated consideration in the Nigerian National Assembly based on its urgency and significance for assets tracing and recovery. A National Mutual Legal Assistance Legislation is necessary to address issues that treaties generally do not cover such as the procedures for obtaining a search warrant, compelling the attendance of a witness, or appealing a decision of judicial or law enforcement authorities. RESEARCH LIMITATIONS – This paper critically analyses the existing legal and regulatory framework for assets tracing and recovery in Nigeria and suggests new ways to improve the asset tracing/recovery scheme in Nigeria. ORIGINALITY/VALUE – Previous research papers have extensively discussed the problems faced with assets tracing and recovery from a prohibitive and investigative stand point. This paper will discuss the topic from a preventive stand point with little focus on investigative mechanisms. Keywords: CORRUPTION, ASSET TRACING, ASSET RECOVERY
Article
Full-text available
PURPOSE - The Bank Verification Number (BVN) project was introduced by the Central Bank of Nigeria due to increasing incidents of compromise on conventional security systems (password and PIN) and a high demand for greater security for access to sensitive or personal information in the Banking System. This paper seeks to determine whether or not the project can achieve its core objectives? DESIGN/METHODOLOGY/APPROACH - This paper critically analyses the centralized biometric identification system tagged Bank Verification Number (BVN). The analysis would be done under the following headings: Identity Theft, Beneficial Owners, Financial Inclusion, Direct Discrimination and Blacklisted Customers. This paper relies mainly on primary and secondary data drawn from the public domain. It also relies on documentary research. FINDINGS - This paper determined that the BVN project could achieve its objectives if the following recommendations are implemented: i. Automated Teller Machines should request for biometric identification. ii. All Directors and shareholders of companies should enrol. iii. Customers who are unable to enrol at banking premises should be allowed to enroll online. Since it may be impossible to capture their biometric data online, banks could use the biometric information already captured during the voters’ registration process. Alternatively, banks could use FreeSpeech voice biometrics solution to automatically confirm and identify such customers. KEYWORDS - Bank Verification Number, Identity Theft, Beneficial Owners, Financial Inclusion, Blacklisted Customers, Money Laundering
Anti-Money Laundering and Combating the Financing of Terrorism in Banks and Other Financial Institutions in Nigeria) Regulations
CBN (Anti-Money Laundering and Combating the Financing of Terrorism in Banks and Other Financial Institutions in Nigeria) Regulations, 2013, Regulation 32 (7)
) (d) and the Joint Money Laundering Steering Group JMLSG, Prevention of money laundering/combating terrorist financing, 2013 Revised Version, Guidance for the UK financial sector Part I Amended
Proceeds of Crime Act 2002 (as amended), s 331, Money Laundering Regulations 2007, Regulation 20 (2) (d) and the Joint Money Laundering Steering Group JMLSG, Prevention of money laundering/combating terrorist financing, 2013 Revised Version, Guidance for the UK financial sector Part I Amended November 2013, Paragraph 6.33.
See also P Lilley, Dirty Dealing The Untold Truth About Global Money Laundering
Joint Money Laundering Steering Group JMLSG, Prevention of money laundering/combating terrorist financing, 2013 Revised Version, Guidance for the UK financial sector Part I Amended November 2013, Chapter 6, See also P Lilley, Dirty Dealing The Untold Truth About Global Money Laundering, International Crime and Terrorism (3rd Edition, Kogan Page Limited, 2006) 209.
Recommendations 16, 24; The Financial Action Task Force on Money Laundering
The Forty Recommendations of the Financial Action Task Force on Money Laundering (1990), Recommendations 16, 24; The Financial Action Task Force on Money Laundering, The Forty Recommendations (1996), Recommendations 15, 23.