Recent Trends in Regulating Money Laundering & Terrorism Financing in the Banking, Insurance and Capital Market Sectors of the Financial Economy of Nigeria: Role of the Financial Regulators

Abstract

In the recent past, more countries are becoming vulnerable to the risks of money laundering and its contagious effects. According to the International Monetary Fund (IMF), the scale of money laundering globally could be between 2% and 5% of World Gross Domestic Product at the very lowest. This translates into a range of anything between US Dollars 590 billion to USD 1.5 trillion of laundered money per year.According to a very recent release by the Nigerian Economic and Financial Crime Commission (EFCC), an estimated $129 billion dollars (equivalent to N21 trillion Naira) was illicitly transferred out of Nigeria in the last ten years (2003-2013). The sources of the funds are often corruption, tax avoidance, tax evasion, illegal mining activities, drugs and human trafficking. The Nigerian Financial Intelligence Unit domiciled with the EFCC estimates that between 2009 and 2013, about $25.4 billion dollars were moved out of the country through cross border physical movement of cash and financial instruments. While these figures may not be necessarily indicative of the proceeds of crime, it shows vulnerabilities associated with cash movement within and outside the West African sub-region..The African region and indeed most of the developing countries are vulnerable to money laundering and terrorist financing particularly because of their cash-based and open economies. In Africa, this is further aggravated by the porous and weak controls at the borders. Combating money laundering and terrorist financing in these economies is further complicated by weak or ineffective regulation of financial institutions, lack of comprehensive legal framework, weak law enforcement agencies and poor coordination and collaboration between law enforcement agencies and financial regulatory bodies.Recent studies, including the ones carried out by the Inter-Governmental Action Group Against Money Laundering in West Africa (GIABA) and the Financial Action Task Force (FATF), suggest that advances in technology and the progressive tightening of Anti-Money Laundering (AML) regulations are leading money launderers to make more complex arrangements outside the formal financial services industry, such as the use of various professional services, and in particular the real estate business, legal practitioners, tax consultants, chartered accountants and designated Non-Financial Institutions or sectors, such as the International football, casinos and gaming, hotels, supermarkets, dealers in luxury goods, cars and jewelry.The above opportunities and skills acquired by money launderers and their collaborators led to the renewed strategy and initiatives adopted by the Nigerian Government between 2011 and October 2013 in combating money laundering and terrorism financing in Nigeria. This resulted in the promulgation of the Money Laundering (Prohibition) Act, No. 11, 2011, which inter alia, repealed the 2004 Act, made comprehensive provisions to prohibit the financing of terrorism, provide for appropriate penalties and expand the scope of supervisory and regulatory authorities so as to address the challenges faced in the implementation of the anti-money laundering regime in Nigeria. A year later, amending the 2011 Act, the Money Laundering Act, No.1, 2012 introduced new initiatives that greatly improved and added value to the provisions of sections 2, 3, 6, 9, 11, 15, 16, 20, 23 and 25 of the amended 2011 Act. Furthermore, the other recent trend is the provision for liability regime for financing of terrorism under the Terrorism (Prevention) Act, 2011 as amended by the 2013 Terrorism (Prevention)(Amendment) Act and strengthened by the 2013 Regulations on the Freezing of International Terrorists Funds and other related Measures.It is against this background that this paper seeks to realize the following objectives:1. To examine why and how is combating money laundering and financing of terrorism a top priority for the international community;2. To appraise the development and initiatives reflected in the legal and institutional frameworks in combating money laundering and financing of terrorism in Nigeria;3. To highlight the critical roles of financial regulators in regulating money laundering and terrorism financing in the banking, insurance and capital market sectors of the Nigerian economy;4. To conclude with some recommendations.