By Ehi Eric Esoimeme
In today’s environment sophisticated criminals are deploying (and ever more so) complex financial vehicles to conceal the location and source of misappropriated assets.
As a result, it can be difficult to identify assets located within and across multiple jurisdictions. Moreover, it can be problematic to obtain a favourable Court Order and enforce the recovery claim in these local/international jurisdictions.
In Nigeria, President Muhammadu Buhari’s administration has introduced a number of policy measures for the tracing and recovery of stolen assets.
For instance, in December 2016, the Federal Executive Council approved the Ministry of Finance’s Whistleblowing Programme that may see individuals who volunteer credible information on stolen or concealed funds go home smiling with between 2.5% and 5% of the funds when recovered.
The primary purpose of the policy is to support the fight against financial crime and corruption, promote accountability and enhance transparency in the management of public finances.
Other policies introduced by the Federal Executive Council of Nigeria include: the Treasury Single Account Policy, Plea Bargaining and Federal Government’s Surveillance Programme.
While many of the policies have achieved great success, a lot still needs to be done. The United Nations Secretary-General Antonio Guterres recently appealed to the international community to take action against the flow of illegal funds, money laundering and tax evasion, which costs Africa about fifty billion dollars every year.
It is believed that some of these funds are in Nigeria, while others are overseas or in offshore Jurisdictions like Panama. Finding and returning assets held in secret corporate structures in multiple jurisdictions can prove to be a lengthy and arduous process that is fraught with legal complications.
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.
This revelation calls for an entirely new approach or direction to be taken for the identification and recovery of assets. The approach should be one that can curtail the flow of illegal funds, money laundering and tax evasion.
A preventive type of approach where financial institutions like bureau de change operators and designated non-financial institutions like real estate agents are effectively supervised for anti-money laundering compliance may be a more preferable approach in Nigeria.
This approach could ensure that the criminal is not successful at the layering phase of money laundering.
Using suspicious activity reports filed by bureau de change operators to trace illicit assets
Cases involving bureau de change operators indicate that criminals use bureau de change operators to convert street cash into smaller bundles of high denomination foreign notes to conceal the origins of funds and as a precursor to cash movement or cash smuggling across borders.
This activity will not be detected where there is negligence or a lack of compliance on the part of the bureau de change operators or other entity.
Bureau de change operators should establish a systematic procedure for identifying new customers and should not establish a business relationship until the identity of a new customer is satisfactorily verified.
In order for business to flourish, bureau de change operators should apply a risk-based approach to their customer due diligence program.
This customer due diligence should be done at the outset of the business relationship and when a transaction of significance takes place, for example, when the customer intends to do a currency exchange of the sum of 5 million naira or more, bureau de change operators should take adequate meaningful measures to establish the source of funds and source of wealth in this situation.
In all cases if a bureau de change operator suspects that the funds are proceeds of criminal activity, the bureau de change operator should be required to file a suspicious transaction report with the Financial Intelligence Unit.
Using suspicious activity reports filed by real estate agents to trace illicit assets
Property is a favoured method for criminals to integrate the proceeds of crime into the legitimate economic and financial system, often after layering the proceeds using legal entities and arrangements.
This means property may be bought by a company or trust used by the criminal or their accomplice in order to make it more difficult to identify or trace the illicit activity that generated the funds.
There are known professional enablers within the estate agency sector who are facilitating money laundering through arranging and negotiating the purchase of property.
There are concerns over the number and quality of reports submitted by this sector in Nigeria.
Real estate agents should have robust customer due diligence measures in place that enable them to identify and verify customers and beneficial owners, obtain information on the purposes and intended nature of the business relationships/transactions and conduct ongoing due diligence.
Real estate agents should know the name, address and occupation of potential buyers and sellers, and the source of funds and wealth of their customers.
Using suspicious activity reports filed by high value dealers to trace illicit assets
The nature of services and products that this sector provides makes it attractive to criminals seeking to convert criminal proceeds into luxury goods, high value portable assets which can be easily moved outside Nigeria, or to conceal the origins of criminally derived cash.
There are concerns over the number and quality of reports submitted by this sector in Nigeria. The customer identification programme for high value dealers should detail the identification requirements for establishing a business relationship with a customer.
The programme should include the use of documentary and non-documentary methods to verify a customer. In addition, high value dealers must maintain enhanced due diligence procedures for politically exposed persons or senior political figures.
In conclusion, the following is recommended:
Bureau de change operators, estate agents, high value dealers, such as dealers in precious metals and precious stones, 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), record-keeping, and reporting.
This should be performed on a risk-sensitive basis. This may be performed by the Central Bank of Nigeria, which is in charge of supervising financial institutions in Nigeria, and the Special Control Unit against Money Laundering (the body charged with supervising non-designated financial institutions in Nigeria).
Furthermore, criminals or their associates should be prevented from being accredited, licensed, or being the beneficial owner of a significant or controlling interest in, or holding a management function in a currency exchange business, real estate business or a diamond dealing business, for example, by evaluating persons on the basis of a “fit and proper” test.
In addition, 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.
A civil recovery system will help law enforcement agents to recover illicit funds that have already been traced through suspicious activity reports.
About the author: Ehi Eric Esoimeme is the Deputy Editor-in-Chief of DSC Publications and also a contributor at KYC360. His published work includes two books: ‘The Risk-based Approach to Combating Money Laundering and Terrorist Financing’ and ‘Deterring and Detecting Money Laundering and Terrorist Financing: A Comparative Analysis of Anti–Money Laundering and Counter-terrorism Financing Strategies.’
For more information on Ehi’s books, visit here. His articles can be downloaded here.