The primary aim of every business organization is to maximize shareholders value through an increase in profitability. This core business objective is often in conflict with the need to ensure compliance with applicable rules and regulations that govern business operations.
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Often, whenever there is a conflict between the core business objectives (profit) and the need to comply with certain regulations or law such conflict is often resolved in favour of the business unit by the alter ego of the entities. In other words, the interest of the business is rated far above the mischief the law or regulation sets out to cure or remedy.
In Nigeria, the benefits of violation outweigh the cost of non-compliance. Therefore, most organizations do not see any commercially justifiable reasons to comply with the law. This is largely attributed to the failure of the government to review existing laws and regulations in line with present day realities. The penalties and sanction regime are incentives for violation of anti-money legislation in Nigeria. This unwittingly laid back dispossession of government creates an enabling environment for the banks to rate the interest of its stakeholders above the interest of the state.
The lack of political will to enforce the AML regulations in Nigeria has made a mess of the entire banking system. Nigerian banks are the warehouse of corruption. The banking institutions like other business entities often pay lip service to the issue of compliance with anti-money laundering (AML) regulations. By the provisions of the Money Laundering Prevention Act (MLPA) 2011 and the AML/CFT Regulation 2009 (as amended), banks are expected to implement an effective compliance programme.
The law and regulation on AML/ CFT authorize the CBN to require financial institutions to establish AML Programs, file certain reports and keep certain records of transactions. However, the banks are less concerned and will not lose a wink of sleep over non-compliance. Part of the reason is that the regulators have been relegated to the background by the “powers-that be”.
Hence, they bark but cannot bite. Where the regulators are unable or have refused to enforce the laws, the regulator becomes an accomplice to the crime of money laundering. The business processes of most banks in Nigeria are designed in such a manner that defeats the very essence of AML reguWhat is common in Nigeria is paper compliance.
Banks are comfortable having a signpost within the banking hall stating, “every transaction above N5, 000, 000.00 or N10, 000,000.00 will be reported to the Financial Intelligence Unit.” Yet most transactions exceeding this threshold are never reported. As for the banks, having that sign post in a conspicuous area within the banking hall means that the AML obligations have been discharged. Although most banks tend to represent that compliance is integral component of their business processes, the effectiveness of the AML system is nothing to write home about.
The AML regime in Nigeria was designed to help identify the source, volume and movement of currency and other monetary instruments transported or transmitted into or out of Nigeria, or deposited in financial institutions in the country.
In achieving this laudable objective, individuals, banks and other financial institutions are required to render suspicious transaction reports (STRs) to Nigerian Financial Intelligence Unit by properly identifying persons conducting transactions and maintain a paper trail by keeping appropriate records of their financial transactions.
Should the need arise, these records will enable law enforcement and regulatory agencies to pursue investigations of criminal, tax and regulatory violations, and provide useful evidence in prosecuting money laundering and other financial crime.
The question is, how has banks performed in the light of this obligations? How many reports have been filed by banks since the inception of this regulation? How many investigations have been conducted and concluded based on this report? How many people have been convicted by the law enforcement agencies because of investigation conducted on STR filed by any of the banks?
How many banks have been sanctioned because of failure to fulfill the reporting obligations? For instance, Standard Chartered Bank in 2012 paid penalties totalling $667million for U.S violations to both Federal and State government agencies.
Thereafter, in a global settlement in 2014 an additional $300million penalty was paid for failure to remediate AMPL compliance problems. In Nigeria, AML regime is conducive for banks to operate with reckless abandon with little or no regard for AML obligations.
Despite the numbers of agencies responsible for implementing the AML/CFT, there is no significant achievement to justify the mandate imposed on them by the law. These agencies include the Central Bank of Nigeria (CBN), Nigerian Deposit Insurance Cooperation (NDIC), Economic and Financial Crimes Commission (EFCC), Federal Ministry of Trade and Investment, Nigeria Customs Service, etc.
The ineffectiveness of the many good-intentioned policies and agencies has its roots in the corruptness of the persons and the institutions in the first place. No corruption-ridding organization can fight against money laundering. The failure of the anti-money laundering legislation starts with the failure of the agencies responsible for enforcing the laws.
Where the enforcers are the launderers what can the law do? The society simply becomes helpless and hopeless. To imagine that the Nigerian banks will be of help in the enforcement of AML when the enforcers and violators are customers to the banks is a pipe dream that will not be fulfilled. The banks are more interested in protecting the secrecy of customers’ transactions than reporting to regulators or law enforcement agencies. To the banks, the most effective way to remain liquid and run profitable banking business is to receive large deposit regardless of the source or origin.
The banks take pride in customers’ transaction secrecy as a way of retaining the fund within the bank. In any case, how do you expect a bank to report a customer to itself? Prior to the introduction of the Treasury Single Account, government agencies and ministries were the biggest clients Nigerian’s banks proud about. So, where the head of the agencies that regulates the banks are laundering money through the bank, what do you expect of the bank? The banks have built business around laundering money for government officials and high net-worth politically exposed persons.
Most banks have products and services that are deliberately designed to evade the reporting obligations created under the AML. These products are presented in different forms to attract the specific customers who are often mindful of the reporting obligations of the banks.
The account comes with different names and incentives, Premium Gold Account with COT free, Platinum Gold Account with unrestricted deposit and withdrawals and a host others. Banks are on daily basis exploiting the weaknesses in the AML regime deliberately to make profits at the expense of the financial system.
The vulnerability of the banking system to collapse is more, when large chunk of the bank’s customers or heavy ticket depositors are politically exposed persons. Most of the Banks in Nigeria are either directly or indirectly being controlled by Politically Exposed Persons (PEPs), that is, if the PEPs are not the owners of the banks. Failure of credible reporting by the banks is a major pitfall for AML. Most banking products or services are not developed with the AML obligations in mind.
Prior to the introduction of new products or services, the bank should first undertake an examination on how the delivery and use of the products by the customers will affect its AML obligations. The key consideration for Nigerian banks is what profits will be made from the products or how many more PEPs will be attracted to the products. In Nigeria, the number of PEPs you have as your customer determines how solid and immune the bank is from regulator’s harassment.
The banks also adopt a recruitment policy and system that makes a mockery of the AML obligations, through the recruitment of inexperienced and untrained personnel who are often deployed as frontline officers. This gesture by banks is a clear indication that they have no regard for the AML obligations.
What is the role of the frontline officers in the discharge of AML obligations? These officers are the ones who have the first contact with the customer during transactions. They are the ones who receive the cheque, collect and receive the deposit, pay out cash and interact with the customer to determine what banking service or services the customer requires.
These sets of employees should be properly trained and well educated to understand customer mannerism, well able to read through the conducts and attitude of the customer in the course of the transaction, understand AML compliance and reporting obligation, evaluation and analysis, Know Your Customer(KYC) information and transaction history within seconds or minutes.
Rather, what you will see are Ordinary National Diploma (OND) holders who are not trained and who do not know what KYC is all about. Some of them cannot tell how the information contained in the customer’s KYC account opening forms corresponds with extant banking transaction of the customer. Nor can they psychoanalyze a customer to detect suspicious activities or make a case for filing Suspicious Transaction Report (STR) and Suspicious Activity Report (SAR).
The issue is not about the recruitment of OND holders but rather about the fact that these set of employees do not go through the requisite training that will prepare them for the job ahead. The only consideration for the bank is cost reduction and profit maximization.
So, for the banks, outsourcing the employment of these employees who play pivotal roles in the discharge of the banks’ AML obligations to a non-banking shelf recruitment firm serves the business interest of the banks than meeting statutory AML obligations.
There is a need for a radical overhaul in the employment policies of banks and an introduction of service or product approval and examination by SELLERS and a more stringent enforcement of reporting obligations. The SELLERS should embark on nationwide audit of the banks to determine their level of compliance with AML obligations. There will be no change in the attitude of banks until and unless there is change in the enforcement attitude of regulators. •Yeku, a certified anti-money laundering specialist, practices law in Port Harcourt, Rivers State.
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