The CBN’s move is part of sweeping reforms made by central bank governor Lamido Sanusi to try and stop corruption.
The regulations, published on the Central Bank of Nigeria (CBN) website now require banks to report large movements of cash between accounts if one of them belongs to a "Politically Exposed Person".
'Politically exposed' are defined as heads of state, state governors, Politicians and government officials, Local government chairmen, Senior executives of state owned corporations, Important political party officials, Judicial officers, Soldiers and Members of Royal Families.
But I know that even when the authorities have enacted the most ingenious legislation, promulgated all the rules and set the standards, ensuring compliance by all the stakeholders is a different thing.
“There is a loophole in suspicious transaction reporting system where the crackdwon in the battle against laundrymen gets bogged down in the definition of the word ‘suspicious’. Any bank can always defend itself by claiming g that they never suspected anything”.
Another fundamental issue is the lack of identity system. We live in a country where Aliko Dangote can decide to open a company and bank account using the names Ali Dangote. If the company goes bust Ali Dangote becomes a fictitious character that never existed anywhere and nobody can do much about it.
If Igwe Michael Obi decides to open an account as Mr Mike Obi, how will the computer be able to flag him as a royal father and as such a politically exposed person if Mr Mike Obi's account is used to transfer 250k?
Or as someone pointed out to me, This same issue is responsible for why James Ibori could successfully tell a court of law that he is not the James Obori that was once convicted.
Sanusi has sacked the heads of five banks top and brought fraud charges against several bank executives. The regulations are common elsewhere in the world since the 11 September 2001 terror attacks on the US.
Many "Politically Exposed People" are major shareholders or directors in Nigeria's banks. Under the regulations, the identity of anyone making a transaction above 250,000 naira ($1651, £1013) must be checked.
The CBN has a list of "red flag" suspicious transactions that it says should trigger investigations, but the people behind corruption and money-laundering in Nigeria will already be working out ways around the regulations. They are the owners of the Banks anyway.
In response to such cash transaction reporting systems, money launderers devise multiple schemes to get around the reporting rules: prior conversion of cash to cheque through formal or informal cheque-cashing services; breaking cash deposits down to sums below the reporting threshold; securing an exemption from reporting; and even bribing bank staff.In 1988, the United Nations commissioned a team of experts led by Mr Michael Blum to study and identify the obstacles inherent in some anti-money laundering mechanisms.
From their research, the verification of a customer’s identity is one of the central principles in the fight against money laundering. This has been christened; KYC- Know Your Customers.
Therefore, a Nigerian Bank that wishes to implement this new CBN directive must implement this KYC mechanism.
However, the practical problems with the implementation of a KYC policy includes the fact that the dynamic nature of the financial world, the large number of financial institutions and of activity, the proliferation of new banks and non-bank Institutions whose services do overlap, and the development of new banking practices makes it difficult to monitor and identify suspicious activity.
Moreover, is there a centralized database in Nigeria that contains all the wire transfers and bank tracsactions. Banks often have limited details about senders and receivers of money.
Moreover, when Banks make those reports, enormous backlogs of information would be generated. Ultimately cash deposit reports, whether in paper or in electronic form, are of little use unless there are not only the resources to process them but also personnel who know what they are looking for. Most of those forms end up decomposing in warehousesBlum summarized some of the obstacles as follows:
a. How could Banks positively identify a ‘politically exposed’ person, his relatives and/or his friends?
b. Many banks show no inclination to know their customers if it puts them at a competitive disadvantage. Since overly vigorous investigation of potential customers, even those who are legitimate could make them go elsewhere, some bankers will be reluctant to engage in such activities. In some cases, the cost of compliance became so exorbitant that some banks exempt their biggest customers or simply gave up.This can easily result in tacit connivance between some banks and institutions and individuals or groups who are interested in moving, hiding or laundering the proceeds of corruption.
c. Even when identity is confirmed this might not mean the person so identified is not attempting to launder funds.
d. A determined money launderer can always find compliant Bank staff susceptible to compromise.
e. Because many business people are commission oriented, a very large initial deposit that is sufficiently enticing will make them accommodative.
f. Postal deposits with photocopied documents can hide both a customer’s identity and a multitude of sins. The ability to provide false documentation that facilitates money-laundering and other crimes is a major problem.
g. In extreme cases, corrupt bank officials connive and collude with criminals to facilitate money laundering for financial rewards.
In August, Mr Sanusi rescued five banks and fired their senior management, after they were found to have very low cash reserves. Four of the chief executives have now appeared in court charged with fraud.
Nigeria's Economic and Financial Crimes Commission (EFCC) says nearly $300m of bad debt has been recovered, but that billions are still outstanding.
The reforms come as Mr Sanusi tries to find a permanent solution to Nigeria's banking crisis by selling them off to outside investors.
Daniel Elombah (LLM)
www.elombah.com
