3. I. INTRODUCTION
ML being a process of disguising illicit proceeds (ill-
gotten funds), the role of financial institutions in the
process both as possible intermediary and an effective
point of curbing the vice cannot be overemphasized.
On the one hand, launderers are ever trying to
establish rapport with financial institutions as
medium of perpetration because they know that ill-
gotten monies that enter into the financial system can
be “legitimized” if appropriate and effective measures
are not taken by financial institutions.
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4. On the other hand, governments (through
enforcement agencies) are equally counting on
financial institutions in an effort to combat the vice
because the intervention of financial institutions is
essential hereto in that they are the ones with direct
or substantive connection with the launderers.
Overview and General Understanding of Money
Laundering. (Participants’ Input)
Definition, Principles, History, Process, Dimension,
Predicate Offences, Mischief, Players and Roles.
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5. Definitions of Money Laundering
Literal Definition
Money Laundering is the attempt(s) or act(s) of a process to
conceal or disguise the true nature and source of money
(value) in a bid to mislead the public from knowing that the
same are proceeds of crime.
United Nations Dual Definitions
1988 UN Vienna Convention Against Illicit Traffic in
Narcotic Drugs and Psychotropic Substances:
First, The conversion or transfer of property, knowing that
such property is derived from any [drug trafficking] offence
or offences, for the purpose of concealing or disguising the
illicit origin of the property or of assisting any person who is
involved in the commission of such an offence or offences to
evade the legal consequences of his actions; or
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6. The concealment or disguise of the true nature,
source, location, disposition, movement, rights with
respect to, or ownership of property, knowing that
such property is derived from an offence or offences
or from an act of participation in such an offence or
offences.- Article 3(b).
Second, The acquisition, possession or use of property,
knowing at the time of receipt that such property was
derived from an offence or offences, or from an act of
participation in such an offence or offences.- Article
3(c)(i).
All the above are legal definitions and countries can
devise their own additional to the above but usually
not subtracting therefrom.
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7. Elements by Definition
(a) Actus Reus
•Process;
•Concealment/Disguising/Transformation/Conversion/
Usage/Acquisition/Possession;
•Money/Property/Value;
•True Source/nature/origin/use/ownership;
•Proceeds of crime;
•Derivative; and
(b) Mens Rea
•Knowledge- actual/implied.
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8. Participants By Definition
Actual Perpetrators;
Abettors- suppliers of instrumentalities;
Accomplices- both and after the facts; and
Other modus operandi participants.
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9. Techniques of ML By Definition
First Stage- Placement: Introduction of proceeds of crime
into the economy thus moving them from direct association
with the crime;
Second Stage- Layering: Tactical maneuvering of the
introduced proceeds within the economy so as to impede and
outwit possible pursuits by law enforcers by creating a sham
of legitimacy. For instance, repeated and spontaneous money
transfers or spurious transactions aimed at confusing audit trails;
and
Third stage- Integration: Reintegration or getting the
‘laundered’ resources back to the instigator with a smokescreen
making the proceeds seemingly legitimate when in fact not.
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10. Critique of the Definitional Stages/Techniques
of ML
Kenneth Mwenda avers that the three-stage interpretation of
money laundering is superficial and has its roots in a time
when money laundering was a crime that was often committed
only in relation to proceeds of drug trafficking, which by virtue
of the fact that all drugs are sold on the streets for cash,
generated large volumes of cash.
This approach postulates that the process of money laundering
is a simple one and it occurs in three successive stages, namely,
placement, layering and integration.
Such postulations are somewhat misplaced as the perpetration
of ML in modern times much more complicated defying all
logic hold the three stages stricto sensu aspects.
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11. Historical Developments
ML as an a formal and official expression of economic legal mischiefs
(white collar crimes) was first used by an American Judge in the case of
US v $4,255,625.39 (1982) 551 F Supp.314 in 1982.
Prior to that, it was originally coined by a journalist for newspaper
tabloid to casually spur public resentment against the instigators of the
1973 Watergate scandal.- Abhishek Dadoo, Money Laundering (2008)
As a notion, though, the roots of ML date as far back as the early 1930s
to the Al Capone epoch of bootlegging underworld black marketeering
where Laundromats were bogusly used by the Mafia and gangsters as cash
business frontages or facades to disguise ill-gotten proceeds of prostitution,
gambling and extortion from the unsuspecting populace.
Ultimately, the practice of modern ML proper started with ‘the Mob’s
Accountant’, Meyer Lansky, who got so apprehensive after the
October 1931 trial and conviction of Al Capone that he skimmed a
way of depositing/stashing his illegal loot in identified Swiss Banks.
Thereafter, he employed the ML tactic known as ‘loan-back’ concept
whereby illegal money could now be disguised by ‘loans’ provided by
compliant foreign banks with ‘all rigours and niceties’ of the law
followed- even taxes deducted on disguised dirty monies.- Billy
Steel, Money Laundering - A Brief History.
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12. Criminalisation of ML
Money laundering as a crime only attracted interest
in the 1980s, essentially within a drug trafficking
context. It was from an increasing awareness of the
huge profits generated from this heinous activity and
a concern at the massive drug abuse problem in
western society which created the impetus for
governments to act against the drug dealers by
creating legislation that would deprive them of their
illicit gains and criminalise their conduct.- Ibid.
Following therefrom, a number of international,
regional and domestic legal instruments in almost all
well-meaning jurisdictions have since been enacted.
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13. Criminal liability is often spelt out in a country’s legislation,
and it may include a term of imprisonment and/or a fine for
engaging in or abetting and facilitating an offence of money
laundering or obstructing an investigation into suspicions of
money laundering activities.
In some countries, such as the United Kingdom, failure to
report a ‘suspicious transaction’ to the AML authorities could
constitute a criminal offence just as would be the case where
someone ‘tips-off’ a suspected money launderers of possible
investigations that are expected.
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14. In almost all jurisdictions the aspect of criminalising ML
has proved very controversial in checking the same
against- (i) constitutional guarantees/liberties of persons;
and (ii) traditional criminal law doctrines.- See Chitengi ,
Pertinent Legal Issues and Impediments Fettering the
Successful Prosecution of the Crime of Money Laundering
and its Predicate Offences: Proposed Reforms in Zambia
(2009).
On a plethora of authorities and indeed as enunciated by
Mwenda, op cit, the following are some of the
controversies surrounding criminalisation of ML and the
possible cushioning aspects thereof namely; civil liability
option:
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15. Burden of Proof- Which party should shoulder the burden of
proof in money laundering cases?
In many common law jurisdictions, the burden of proof in
criminal law cases, including offences of money laundering, lies
on the prosecution. See Woolmington v. DPP [1935] AC 462; Cf.
Rex v. Oliver Smith (1910) 6 Cr. App. R. 19, where it was stated
that, as an exception to the rule that the burden of proof lies on
the prosecution, where insanity is relied upon, the defendant must
establish that defense. See also M’Naughton’s case (1843) 4 St.
Tr. (N. S.) 847) a case hereto applicable by implication and
analogy.
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16. Standard of Proof- The standard of proof normally is such
that the prosecution must prove beyond reasonable doubt that you
committed the offence!
This can make it very difficult for the prosecution to succeed,
especially in developing countries where there are very few good
lawyers working for the State, say, within the Directorate of
Public Prosecution. The majority are in private practice.
So, what’s the way forward?
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17. A possible way out of this conundrum, would be to introduce
legislative changes that shift the burden of proof from the
prosecution to the accused so that the accused should now prove
beyond all reasonable doubt how, where and when he acquired
his seemingly dubious wealth.
Indeed, the accused should show that he amassed his or her
wealth in a lawful and legal manner.
This proposal has in it a deterrent element. The idea is that
the law offender and all would-be-offenders should be
discouraged from ever committing money laundering offences.
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18. Once the burden of proof has been shifted to the defence, it
would no longer be a question for the prosecution to prove
beyond reasonable doubt that the accused committed the
offence of ML.
Rather, the accused would have to show, beyond reasonable
doubt, that he or she legally and lawfully acquired the wealth
and did not engage in any offence of ML.
Admittedly, if implemented, the above proposal would attract
strong criticism. But, we are awake to this fact. In any case,
both UNCAC and the Vienna Convention seem to okay this
approach.
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19. A notable criticism here could be that implementing such a
proposal would have disastrous effects on the rule of law and
the constitutionally guaranteed presumption of innocence.
But, then, is it not a precept of the law that to every general
rule there can be an exception?
Indeed, what wrong would there be in enshrining in the
Republican Constitution an exception to the general rule,
stating therein, unequivocally and explicitly, that
notwithstanding whatever is contained in the Bill of Rights,
the exception applies only to offences of ML, corruption, and
drug trafficking?
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20. Civil liability for ML offences, as a cushioning
aspect of the criminal controversies often involves
seizure and forfeiture of proceeds of crime to the
State, and this is usually regulated by legislation.
Also, in common law jurisdictions, doctrines of
Trusts Law play an important role through the
institution of a Constructive Trust.
Restitution, too, is another aspect of the common
law that facilitates the recovery of proceeds of
crime through civil procedure.
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21. ML as a National and Global
Manifestation
ML is multi-dimensional, constituting of both a national
as well as an international dimension; thus the typologies
of ML are best observed at both levels.- Dadoo, op cit.
Tritely, ML a truly global phenomenon largely
exacerbated by the International financial community-
offshore banking, safe havens and alternative remittance
systems such as ‘hawala’ among others.
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22. Indeed as per the 1993 UN Report, [T]he basic
characteristics of the laundering of the proceeds of crime,
which to a large extent also mark the operations of
organised and transnational crime, are its global nature,
the flexibility and adaptability of its operations, the use of
the latest technological means and professional assistance,
the ingenuity of its operators and the vast resources at
their disposal and connections/networks at the
international scene.
The international dimension of ML was well depicted in a
study of Canadian ML police files where it was revealed
that over 80% of all laundering schemes had an
international dimension.
Also the 1992 Operation Green Ice aptly expatiated the
essentially transnational nature of modern ML.
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23. ML on an international level necessitates it having a
national dimension as well. ML may, however, be
practiced exclusively on a national level just as much
there could be an overlap between the national and
international dimension of laundering money.- Dadoo, op
cit.
The international dimension of ML is far more effective
as compared to the national dimension; it also becomes
extremely difficult, if not impossible, to unravel the
complex web transactions in order to expose the origin of
the money that is the proceeds of the crime if concealed at
international level.- Ibid.
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24. ML in its Present Context
Today, ML is a transnational legal mischief dealt with
from both a criminal and/or civil perspective with the
aim to take away financial gains from perpetrators.-
Crime does not pay approach of messaging.
As such AML actions could lie in personum or in rem.
Considering the magnitude of ML negative effect on
the world economy (economic distortion), both
international and regional enforcement
mechanisms/efforts are implicitly permitted to
reinforce domestic efforts/mechanisms.
Consequently, imperious defensive arguments such
as dual criminality, extraterritorial jurisdiction, state
sovereignty and non crimen sine lege are readily
sacrificed for the good of world humanity in this case.
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25. II. ThE POLICY DEfINITION AND
REGULATORY fRAMEwORks
Leading jurisdictions have combined efforts with either
the international or regional communities to combat the
ML menace and its predicate offences to ameliorate its
devastating negative impact on their economies.
These efforts include enhancing the regulatory
frameworks through legislative and policy interventions
premised on evidenced-based AML programming and
institutional capacity building- mostly a concern of policy
activism coupled with political will.
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26. Policy Objectives: The Rationale Combating
ML/CTF- Mwenda, op cit
(a) ML tends to undermine legitimate private sector
initiatives by extending finance and credit to front
companies that are used by launderers, thereby
making it difficult for other companies to compete
with these front companies on a fair and level
playing field;
(b) ML may lead to a government’s loss of control over
economic policy when proceeds of crime continue to
dwarf the government’s budget;
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27. (c) ML also affects currencies and interest rates since launderers
tend to reinvest their funds where their schemes are less likely
to be detected rather than where rates of return are higher;
(d) ML leads to economic distortion and instability since
launderers are often not interested in profit generation from
their investment but rather in concealing their identity and
protecting the proceeds of crime (money launderers usually
invest their laundered funds in activities that are not
necessarily economically beneficial to the country, but which
promise them concealment of the source of funds and the
identity of the launderers);
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28. (e) ML can lead to loss of government revenue where tax evasion,
as a predicate offence, is rampant in the country;
(f) ML can lead to risks to privatization programs since money
launderers often have the financial power to out-bid legitimate
investors;
(g) ML can expose a recipient country to reputation risk,
resulting in the erosion of investor confidence in that country’s
financial market;
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29. (h) ML can lead to a legal risk to banks in cases where banks are
subjected to all sorts of lawsuits resulting from a bank’s failure
to observe the ‘know your customer’ standards or from failure to
practice ‘due diligence’ in customer evaluation and acceptance;
(i) ML can compromise the corporate governance structure of a
bank, especially in the case of small banks and their approach
to deposit mobilization and customer selection; and
(j) ML sometimes provides fuel for terrorists, while draining its
‘milk’ from such predicate offences as drug dealing, animal
poaching, tax evasion, the running of illegal brothels, illegal
arms dealing, illegal trafficking in children and women, and
corrupt practices by public officials.
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30. AML Law and Regulation: A Case of
Nigeria
Nigeria, for its part, has undertaken several initiatives aimed
at combating ML though some of these have arguably been in
response to international pressure.
The first significant regulatory effort in form of legislation
was probably the 1989 National Drug Law Enforcement
Agency (NDLEA) Act, which bought Nigeria in tandem with
the 1988 Vienna Convention.
Subsequent such measures kept coming through, much to the
commendation of all successive Governments for demonstrating
political will and good leadership as well as the citizenry as
demonstrated hereinafter:
1991 Banks and Other Financial Institutions Act (BOFIA)-
amended in 2002;
1993 Advanced Fee Fraud and Other Related Offences Decree;
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31. 1994 Failed Banks (Recovery of Debt and Financial
Malpractice in Banks) Act;
1995 Money Laundering Act- amended 2002;
1995 Advance Fee Fraud and Other Related Offences
Decree- creating “419” offences;
2000 Corrupt Practices and Other Related Offences
Act- establishing the Independent Corrupt Practices
Commission;
2002 Electoral Act- replaced the 2001 Electoral Act;
2002 Economic and Financial Crimes Act- establishing
the Economic and Financial Crimes Commission;
2004 Money Laundering (Prohibition) Act
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32. As per Robert Hull et al, op cit, one of the most
significant of these efforts was the 2002 Economic and
Financial Crimes Act, which, along with two important
amendments to existing ML legislation, was passed partly
in response to international pressure.
The Act was signed on 14 December, just one day before
an FATF deadline to recommend sanctions for non-
compliance with the Forty Recommendations.
The Act created the Economic and Financial Crimes
Commission (EFCC), given a mandate to investigate all
financial crimes, including ML, in addition to enforcing
the aforesaid ML legislation of 1995 (as amended in 2002).
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33. On the basis of the Implementation Plan prepared by an
inter-agency technical committee, set up by the EFCC in
2003, the Nigerian Financial Intelligence Unit (NFIU)
was also established. It became operational in the last
quarter of 2004. The NFIU draws its power from the
EFCC Establishment Act 2004 and the Money Laundering
(Prohibition) Act 2004.- Ibid
In shaping the creation and operation of the said NFIU,
guidance was drawn from the FATF 40 Recommendations
[Recommendation 26], United Nation Convention Against
Transnational Organized Crime(Palermo Convention)
[Article 7 (1)(b)], Egmont Group of Financial Intelligence
Units [Statement of Purpose] and the UN Convention
Against Corruption(UNCAC) [Articles 14 & 58].
09/18/12 33
34. All these provisions point to the need for every
jurisdiction to create a national central body responsible
for the collection and analysis of data for the purpose of
referring financial information on suspected money
laundering activities to the appropriate law enforcement
agency and regulatory/supervisory institution.- Ibid
09/18/12 34
35. Another important Nigerian body in the fight against ML
is the Independent Corrupt Practices Commission (ICPC),
established in 2000.
Its main tasks are to investigate reports of corrupt
practices, to eradicate corruption in public bodies and to
educate the public against corruption.
The ICPC also lists amongst its duties the prevention of
corruption through studies of systems, practices and
procedure.
Whilst the EFCC is an investigation and prosecution body
focused on financial crime, the ICPC has a broader
mandate to tackle corruption as a predicate offence of ML
in all forms both by investigation and education.
09/18/12 35
36. The Central Bank of Nigeria (CBN) has since been
assigned greater responsibility in dealing with ML
following the 2002 legislative amendments.
In particular, the Governor has been given discretionary
powers to intervene in the banking sector in order to
safeguard confidence in the financial system as a whole.
The CBN has also been given a greater role in financial
sector surveillance, identifying trends and patterns of
corruption in banks and other monetary institutions.
The CBN has directed all commercial banks in Nigeria to
report any transaction of a sum over half a million naira
(US $5,000 equivalent).
The CBN then transmits all such reports to the National
Economic Intelligence Committee (NEIC).
09/18/12 36
37. This system is set up to monitor money sources and uses,
track spending patterns and generally forestall terrorist
activity. Anyone who cannot satisfactorily explain a
transaction over a half million naira may be charged
under the Exchange Control (Anti-Sabotage) Act, which
carries a minimum penalty of five years in prison for
individuals, and a fine of N100,000 (US $1000) for
corporate enterprises.- Ibid.
As rightly observed by Hull, et al, op cit, legal persons
can also be charged with ML under the said National
Drug Law Enforcement Agency (NDLEA) Act, which
carries a penalty of ten years to life in prison, and
forfeiture of assets.- Alter ego doctrine to operate as in
the Zambian case of Shamabanse.
09/18/12 37
38. If a bank fails to report transactions for amounts over a
half million naira, it may carry a penalty of
imprisonment, fines, or both. Corporations convicted of
such an offense may be forced to forfeit their property
and assets.- Ibid
The CBN also has a responsibility to coordinate efforts
among financial organisations to increase efficiency in
regulatory oversight. This is done through the Financial
Services Regulation Coordinating Committee (FSRCC),
representing a framework for coordination of regulatory
and supervisory activities in the Nigerian financial sector
(with the CBN being the chair).- Ibid
09/18/12 38
39. Alongside the work of the CBN to monitor the banking
sector the Nigerian Stock Exchange has a number of
structures and measures in place to check money
laundering in Nigeria.
These include a Central Securities Clearing System
(CSCS) aimed at making transactions more transparent;
Administrative Guidelines to ensure the proper
documentation of legitimate capital importation through
Nigerian banks; and
Know Your Client Requirement and membership of the
International Federation of Stock Exchanges, which
subjects them to international standards and code of best
practice.
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40. Freezing of Accounts- CBN’s
Role
The National Drug Law Enforcement Agency Act, the
Foreign Exchange (Monitoring and Miscellaneous
Provisions) Decree (previously the now repealed Exchange
Control (Anti-Sabotage) Act) and the Money Laundering
Act all authorise the freezing of assets.- Ibid
Freezing accounts may be administrative or judicial,
coming from the Central Bank of Nigeria, or as the result
of a judgment handed by an authorized court or tribunal.-
Ibid
Assets can be frozen at the request of another government
in cases where both governments share mutual legal
treaties in cases of criminal or civil matters.- Ibid
09/18/12 40
41. A final measure introduced in Nigeria has been the
creation of the due process office in the Presidency. This
is one of the Nigerian Government’s greatest efforts to
enthrone accountability and transparency in the public
service. Since its creation, over N85 billion has been
recovered by the office.- Ibid
These success stories are attributable to a number of
concerted efforts by all stakeholders such as the
distribution of a booklet, “Know Your Customer,” to banks
throughout Nigeria, as well as convening seminars and
conferences on ML.- Both the Central Bank and
Commercial banks deserve credit hereon.
09/18/12 41
42. The FRSCC’s members are the Central Bank of Nigeria
(as chairman), the Securities and Exchange Commission,
National Insurance Commission, Corporate Affairs
Commission and the Federal Ministry of Finance.
Observers are the National Board for Community Banks,
the Nigerian Stock Exchange and the Nigeria Deposit
Insurance Corporation.
09/18/12 42
43. III. MONEY LAUNDERING TEChNIqUEs
Placing, Layering and Integration of illicit funds/value
executed in a single or multiple combination of the
following 10 complex typologies or mechanics among
others:- Dadoo
1) Retail Businesses: These businesses may be used as
mere fronts where most of the sales disclosed are fictitious.
Owners of such fronts may convert their illegally obtained
income into legitimate income by showing sales through
the retail business and paying the requisite taxes as
applicable. The same technique as applicable to retail sale
also applies to wholesale businesses;
09/18/12 43
44. 2) Charity Shows: ML by way of organizing charity and
entertainment shows constitutes an effective method ML.
The key to laundering money by this mode lies in the
fraudulent sale of tickets. The extant to which fraudulent
tickets can be sold is the extent to which money can be
laundered;
3) Lottery tickets: The lottery constitutes big business in
several countries. Launderers acquire lottery tickets from
genuine winners by paying them the lottery prize with their
illegitimately acquired proceeds. The encashment of these
tickets leads to the legitimization of their proceeds. A
similar technique of legitimizing illegal proceeds is given
effect by purchasing winning tickets of racecourses;
09/18/12 44
45. 4) Casinos: ML is given effect in casinos by way of the
launderers taking their proceeds to the casinos and buying
large number of casino chips with which they did little or
practically no gambling. At the end of the day, the launderer
conveniently cashes the casino chips passing them off as
genuine winnings;
5) Property: The sale of property at random prices
constitutes an effective way of laundering money. Sale of low
value property at highly inflated prices is one such
technique. The level to which the price is inflated is the
extant to which money is laundered;
09/18/12 45
46. 6) Inheritance laws: Laws of inheritance related to
jewellery comprise yet another technique of laundering
money. Illegal proceeds may be laundered to this extant by
the families of such married women;
7) Securities market: The capitalization of markets is
one of the primary ways to mobilize funds for economic
growth. The markets so capitalized are also known as the
stock exchanges. The stock market characterizes as one of its
features that as long as the prices of shares moves up or
down, the participants in this market make money. In the
securities market, the profits can easily be recorded on paper
to launder the illegal proceeds;
09/18/12 46
47. 8) Insurance sectors: Insurance companies offer life
insurance and other forms of general insurance, including
health and property insurance. Laundering of money is
given effect by investing in very expensive insurance policies
and after paying a few premiums, applying for premature
encashment of policies at a discounted rate. The payment of
the premature policies received by the insurer is passed on as
legitimate money.
09/18/12 47
48. 9) Amnesty schemes: ML an offence which is
punishable by law but it is no secret that laws against money
laundering have not entirely succeeded in curbing its
practice. Sometimes governments, therefore, introduce
amnesty schemes from time to time.
These schemes are introduced to bring black money into
the open. Under these schemes governments facilitate for
the people to declare their illegally acquired proceeds on the
payment of a certain amount of tax. The scheme also make
provisions for non-inquiry of the source of the money and
after payment of tax it becomes legitimate money.
An example is the Indian Government which
implemented such a scheme in the form of the ‘Indira Vikas
Patras.’’- Dadoo, op cit; and
09/18/12 48
49. 10) Illegal Oil Bunkering: In Nigeria for example, this
is big business, just like the financial fraud (“419” scams),
accounting for as much as around 10% of Nigeria’s daily
production and generating between US$1.5 billion and
US$4 billion per year. Numerous cartels operate in various
districts of the Niger Delta, including Bonny, Akassa,
Cawthorne Channel and Okrika to name a few. These
employ sophisticated techniques to siphon oil from
legitimate companies’ pipelines. It is then sold on the black
market. The profits generated from the sale of illegal oil are
laundered in Nigeria, in the case of lower-level cartel foot
soldiers, or internationally, in the case of cartel leaders and
associates, who in some cases hold very high positions in
public office.- Robert Hull, Jonathan Evans and Stephen
Davis, MONEY LAUNDERING AND NIGERIA, at 5.
09/18/12 49
50. Fundamental AML Principles
Derivative Offence- Founded on other underlying
crimes;
Predicate offences- Underlying offences e.g.
corruption;
Burden of Proof- May Shift to accused (Illicit
enrichment);
PEP- Notion of strict liability implied on Politically
Exposed Person;
Asset Recovery and Property Forfeiture- Entry,
Search, Warrant, seizure, confiscation, freezing and
finally forfeiture of proceeds to the State (in rem and/or in
personum);
09/18/12 50
51. Lis Pendens- Pre- hearing seizure of real property;
Bona Vacantia doctrine- Failure to prove source of
resources;
Cybercrime and Banking Law- Principles of
Electronic Evidence, ATM Skimming, Phishing etc.;
FIUs- International Cooperation Among FIUs; and
FSAs- International Cooperation Among Financial
Supervisory Authorities.
09/18/12 51
52. Laundering as a Process
i. Placement
ii. Layering
iii.Integration
09/18/12 52
53. Purpose of ML
i. Legitimation;
ii. Evading the Law;
iii.Concealing and Broad Disguise;
iv.Investment for criminal purpose; and
v. Advance World Terrorism- 9/11 Twin Tower.
09/18/12 53
54. Methods and Typologies of ML
i. Domestic Laundering- Commercial Banks Major Target
ii. Cross-Border Laundering- Safe Heavens(Sese Seko
Case)
iii. Trade Based Laundering- Lawyers, Insurers, Bankers
etc.
09/18/12 54
55. IV. INTERNATIONAL AML sYsTEMs : NIGERIA’s
sUCCEssfUL PREVENTION AND REsPONsE
MEChANIsMs
In terms of prevention and response mechanisms to ML,
there are a number international legal instruments and
initiatives that contribute, through binding norms or otherwise,
to the shaping of the landscape of jurisprudence manifesting
themselves in various forms including the following among
others:
Conventions; - Vienna Convention
Recommendations; - FATF 40+9 Recommendations
Principles;- Basel Principles on the Prevention of Criminal
Use of the Banking System for the Purpose of ML (1988)
Directives;- European Union Council Directive on the
Prevention of the Use of the Financial System for the Purpose
of Money Laundering (91/308/EEC)
09/18/12 55
56. Declarations;- Kingston Declaration on Money
Laundering (November 5-6, 1992)
Standards & Guidelines;- Papers issued by the
International Association of Insurance Supervisors
(IAIS)
Model Laws; and- UN Model ML and Proceeds of Crime
Bill(2000),
International ML Information Network (IMoLIN).
09/18/12 56
57. The Financial Action Task Force-
FATF
Among the international efforts and works on ML, the
FATF is the most significant and prominent.
Origin- In response to mounting concern over ML, the
FATF was established by the G-7 Summit that was
held in Paris in 1989. Recognising the threat posed to
the banking system and to financial institutions, the
G-7 Heads of State or Government and President of
the European Commission convened the Task Force
from the G-7 member States, the European
Commission and eight other countries.-http://www.fatf-
gafi.org/pages/aboutus/historyofthefatf/
In 1990, the FATF issued a report named The FATF
Forty Recommendations which served as a worldwide
framework to combat ML.
09/18/12 57
58. The Forty Recommendations were endorsed by more than
130 countries and it today considered the leading AML
standard.
The success of the FATF and its Recommendations was
that the report clearly expressed its objectives and
mechanisms to combat ML, providing broad standards and
principles that may equally be applicable in different
jurisdictions with diverse legal frameworks and
traditions.- Dadoo, op cit.
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59. Nature and Mandate - Inter-governmental body for
development and promotion of policies, both at national
and international levels, to combat money laundering
through recommendations.
Membership- Direct Members; Associate Members; and
Observers.
Like the rest of African countries, with the exception of
South Africa, Nigeria is not part of the current 34 ‘direct’
Member States of FATF but an ‘indirect’ Member State of
the FATF-Style Regional Bodies (FSRBs) namely
GIABA.- http://www.fatf-gafi.org/pages/aboutus/membersandobservers/
Functions- (a) Rule- making; and (b) Enforcement
(FSRBs setting up, monitoring and supervision).
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60. FATF Activities- From Inception
to Date
At inception, the FATF was given the responsibility of
examining money laundering techniques and trends,
reviewing the action which had already been taken at a
national or international level, and setting out the
measures that still needed to be taken to combat money
laundering.
In April 1990, less than one year after its creation, the
FATF issued a report containing a set of Forty
Recommendations, which were intended to provide a
comprehensive plan of action needed to fight against
money laundering.
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61. In 2001, the development of standards in the fight against
terrorist financing was added to the mission of the FATF.
In October 2001 the FATF issued the Eight Special
Recommendations to deal with the issue of terrorist
financing. The continued evolution of ML techniques led
the FATF to revise the FATF standards comprehensively
in June 2003.
In October 2004 the FATF published a Ninth Special
Recommendations, further strengthening the agreed
international standards for combating ML and terrorist
financing (TF)- the 40+9 Recommendations.
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62. In February 2012, the FATF completed a thorough review
of its standards and published the revised FATF
Recommendations.
This revision is intended to strengthen global safeguards
and further protect the integrity of the financial system by
providing governments with stronger tools to take action
against financial crimes. They have been expanded to deal
with new threats such as the financing of proliferation of
weapons of mass destruction, and to be clearer on
transparency and tougher on corruption.
The 9 Special Recommendations on TF have been fully
integrated with the measures against money laundering.
This has resulted in a stronger and clearer set of
standards.
09/18/12 62
63. The FATF Forty Recommendations
Key responsibilities of Member States:
i.Ensuring compliance and providing an appropriate
regime of sanctions for failure to comply;
ii.Application of Counter Measures;
iii.Implementation, Monitoring and Evaluation;
iv.Devise Methodology of Assessing Compliance with the
FATF 40 Recommendations and FATF 9 Special
Recommendation (2006); and
v.Establish own FIU to serve as a national centre for
the collection, analysis and dissemination of
suspicious transaction reports and other
information.
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64. FATF 9 Special Recommendation
(2006)
Legislate against ML in furtherance of Terrorism;
Establishes and recognises the connection between
ML and Terrorism; and
Supplements the FATF 40 Recommendations.
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65. Other FATF regional and
international AML Initiatives
Asia/Pacific Group on Money Laundering (APG);
Caribbean Financial Action Task Force (CFATF);
Eastern and Southern African Anti-Money
Laundering Group (ESAAMLG);
Financial Action Task Force for South America
(GAFISUD);
Inter-Governmental Action Group against Money
Laundering in West Africa (GIABA);
MONEYVAL Committee of the Council of Europe
(the select Committee of experts on the evaluation of
anti-money laundering measures); and
Offshore Group of Banking Supervisors (OGBS).
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66. The Role of International Financial
Institutions (IFIs)
The following international organisations have
observer status with the FATF. They have, among
other functions, a specific anti-money laundering
mission or function.
i. The International Monetary Fund (IMF)-
ii.The World Bank (WB)-
iii.The African Development Bank (ADB)-
iv.The Inter-American Development Bank (IADB)-
09/18/12 66
67. Nigeria’s Scores on the International and Regional Stage
Regional Efforts
Nigeria played a major role in the establishment of
Inter-Governmental Action Group Against Money
Laundering In Africa (GIABA) a regional action
group against ML.
The countries involved are Nigeria, Benin, Burkina
Faso, Cape Verde, Cote d' Ivoire, Guinea Conakry,
Gambia, Ghana, Guinea Bissau, Liberia, Mali, Niger,
Senegal, Sierra Leone and Togo.
09/18/12 67
68. The Economic and Financial Crime Commission (EFCC)
anchored the hosting in Nigeria of ECOWAS Legal Experts in
November 2003 to consider legislative framework for Member
States.
The EFCC also facilitated the meeting between GIABA and
Development Partners in May 2004 to draft a two year Strategic
Action Plan for a FATF styled regional body. The plan was
adopted by ECOWAS Council of ministers at its meeting on 1
July 2004 in Abuja.
The commission also facilitated the 3rd Technical Commission
and Ministerial Meeting of GIABA. The commission also co-
sponsored the 3rd plenary of GAIBA.
09/18/12 68
69. International Co-
operation
There are also cases of effective joint working between
Nigeria and state organisations outside of Africa.
The cooperation between the EFCC and Scotland
Yard over attempts to prosecute two Nigerian State
Governors for money laundering is one such example.-
Hull et al, op cit.
Another is the reported collaboration between the
EFCC and US officials regarding Nigerian politicians’
purchase of property with embezzled funds. Assistance
from developed countries is increasingly becoming a
more structured and consistent fixture.- Ibid
09/18/12 69
70. Of all these, the most internationally lauded attempt to address
cooperation with international bodies is the Gulf of Guinea
Energy Security Strategy that was drafted at the behest of
President Obasanjo in August 2004.- Ibid
The Strategy links Nigeria’s domestic efforts with those of
specific international partners in the first instance being the
US and UK governments, and then extend other governments
and international financial institutions with the specific aim
of closing down ML channels specifically linked to crude oil
theft and illegal arms importation.- How far advanced today?
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71. ML, Banks & Terrorism
Often a time, money to fund terrorists is laundered
and transmitted through the financial sector.
This explains the concern of many multilateral
financial institutions with the scourge of money
laundering and its impact on the stability and
soundness of the financial sector in many countries.
Modern financial systems, in addition to facilitating
legitimate commerce, also allow criminals to order the
transfer of millions of dollars instantly using personal
computers and satellite dishes.
09/18/12 71
72. PART II: SPECIFIC BASE:- THE ROLE OF CENTRAL
AND COMMERCIAL BANKS IN COMBATING ML
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73. Commercial Banks- 10 Key
Mandates
1. ML Detection;
2.KYC, Customer Identification and Due Diligence
Enforcement;
3. Staff Training, sensitization and education;
4. Record Keeping Requirements Observation;
5. Suspicious Transaction Reporting;
6. Cash Transaction Reporting;
7.Internal Controls, Compliance office set up, forensic
Auditing and Forensic Accounting;
8. Forensic Investigations- Cooperation & Disclosure;
9. Judicial Proceedings/Orders- Adducing Evidence; and
10. Client Fiduciary Obligations vs. Public Policy Demands-
Balance.
09/18/12 73
74. Central Banks- 10 Key Mandates
1. Supervisory Role- All Financial Institutions;
2. Compliance Monitoring;
3. Formulation of Regulations;
4. Setting Minimum Standards of Practice;
5. Unfair Competition Regulation;
6. Fiscal Governance;
7. Staff Training and Appraisal/Capacity building;
8. IC & MLA;
9. FIU Representation and TA thereto; and
10. Government Liaison- Advisory Policy Directions on
ML.
09/18/12 74
75. CONCLUsIONs
Role of Central and Commercial Banks herein may be
classified into two:
(a) Prevention; and
(b) Response.
ML requires embracing of economic liberalization, a
consequence of which is greater integration of financial
and banking systems worldwide.- Dadoo, op cit.
While offences of ML tend to be dependant upon the
occurrence of some underlying criminal behaviour, or
‘a predicate offence’, the act of terrorism can involve
use of ‘clean money’ which does not necessarily
originate from an illegal source or activity, but both
need the banks as intermediaries.
09/18/12 75
76. Because ML relies to some extent on existing
financial systems and operations, the criminal’s
choice of ML vehicles is limited only by his or her
creativity (Mwenda, op cit), therefore, Bank staff need
to be careful how much ingenuity they pass to
‘clients’ as they may peradventure be aiding the
commission of ML as accessories before the fact.
Indeed, money is laundered through currency
exchange houses, stock brokerage houses, gold
dealers, casinos, automobile dealerships, insurance
companies, trading companies, private banking
facilities, offshore banking, shell corporations, free
trade zones, wire systems, and trade financing.
09/18/12 76
77. Typical indicators of ML in the banking sector include
among others:- Bankers, WATCH OUT!!!
large deposits and transfers;
false name accounts;
accounts of friends, relatives and cronies;
smurfing (electronic structured transactions of
electronic cash);
shell and front companies, usually offshore, for
layering transactions; and
lawyers, accountants, consultants, trustees, fiduciaries
‘collection or clients pool accounts.’
09/18/12 77
78. RECOMMENDATIONs- BANkERs’ ROLE
Considering the major role played by banks in the
laundering process, it is mandatory to note that ML can
greatly be checked if all banks file appropriate reports in
time. Bank's role in preventing ML begins with ensuring
KYC requirements and to watch activities inconsistent
with customer's business.
Banks operating staff should persistently monitor
suspicious activities/transactions like large deposits
immediately followed by wire transfers, large cash
transactions, changing currency to higher denomination
notes etc. It must be born in mind that illegal money can
be moved by all manners of means. Criminal groups may
deposit heavy cash by cheque in some account and
withdraw it by debit cards or wire transfers.’
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79. Without violating Banking Law, bankers should
regulate the use of automated banking. The more
automated the banking and financial system becomes, the
less face-to-face contact between clients and employees and
greater the holes in the detection unless client information
is electronically scanned for abnormal patterns and
connections. There is much disenchantment with suspect
transaction being reported. It is actually difficult to
distinguish between objectively suspect transactions or
those which short of the threshold, are merely suspected.
Ordinary transactions may present vital information as
related to laundering money. In an effort to curtail the
activities related to ML, banks must closely observe the
transactions being carried out by suspect customers.-
Dadoo, op cit.
09/18/12 79
80. Bankers should set up and/or strengthen their AML
programmes. As stated by Mwenda, op cit, a good
AML programme should Provide for an early warning
system, covering effective and efficient risk
management and compliance to deter and counter
money laundering activities.
Such a programme must involve the use of internal
control measures like the KYC, due diligence, know
the counter partners, know your business, know your
administration, recognize suspicious transactions, and
continuous education and training.
09/18/12 80
81. Equally important, a good AML Programme should
emphasise preventive measures against money
laundering through continuous in-house exchange of
new hints and trends on effective compliance;
The MLRO in a financial institution, such as a bank,
should be independent in his or her functions (i.e.
reporting and accountable only to the Board) and
should be serving at managerial level so that there is
no interference from other sections of management.
There is also need for a strong whistle-blower
protection program if AML efforts are to succeed so
that whistle-blowers are not victimised by perpetrators
09/18/12 money laundering.- Mwenda- op cit.
of 81
82. Though not necessarily a proposal for bankers
hereon, law reforms should be considered to lower the
standard of proof in criminal law cases of ML from
the traditional beyond reasonable doubt to the civil
law standard of balance of probabilities. Bankers may
lobby legislators hereon.
Such a measure would remove the onerous and
strenuous task on the prosecution – especially given
that law policing and criminal investigation offices in
many developing countries are understaffed and have
limited resources at their disposal – to prove beyond
reasonable doubt that the accused committed the
offence of money laundering.
09/18/12 82
83. Lastly, there is need to introduce technologically
advanced computer systems that can identify trends in
outward financial transactions and detect
unusual/suspicious transaction by bookmarking them with
alerting red tape.
Reported CBN working closely with the EFCC to do so,
how far so far?
09/18/12 83
84. END Of PREsENTATION
On behalf of IFE- Zambia, Dr Caleb
Fundanga (former bank of Zambia governor)
and indeed on my own behalf, I wish to most
sincerely thank the current governor of
the central bank of Nigeria for inviting as
the key resource person and all of you for
having accorded me this rare opportunity to
interact with your busy selves in the manner
we just did herein Nigeria. Stay well!!!
09/18/12 84
