Money laundering and financing of terrorism have been a concern for financial institutions, government organizations, policymakers, and businesses globally. In the bid to identify, monitor and put a stop to criminal activities from abusing the financial system and reduce the negative effects of criminal activities on the economy, many countries in the world (including Nigeria), have developed policies in place to fight against Money Laundering and the Financing of terrorism.
In this article, we will consider the meaning and purpose of the Anti-Money Laundering and Combatting the Financing of Terrorism (AML/CFT) policy, as well as how startups and businesses can stay compliant in this regard.
WHAT IS THE PURPOSE OF AML AND CFT COMPLIANCE?
To understand the purpose of AML and CFT compliance particularly as it concerns businesses and corporate organizations, a definition of anti-money laundering and terrorism financing will suffice.
Money laundering could be described as a process of concealing proceeds of illegal activity and making them appear as though they have been derived from legitimate sources.
The Money Laundering (Prevention and Prohibition) Act (MLA), 2022 on the other hand, defines “terrorism financing” as; financial support, in any form, of terrorism or of those who encourage, plan, or engage in terrorism;
Since corporate organizations such as startups, SMEs, Non-profits as well as financial institutions are not exempt from being used as conduits for money laundering and terrorism financing activities, the latter is required by law to cooperate with the Nigerian government as well as relevant International bodies by creating measures to understand, detect and report criminal activities of such nature.
Within this context, AML/CFT compliance can therefore be defined as a set of processes, procedures, or measures put in place to ensure adherence to government regulation and laws as it concerns anti-money laundering and terrorism financing.
WHAT LAWS GOVERN AML/CFT IN NIGERIA?
In Nigeria presently, the following laws regulate AML and CFT in Nigeria;
1. The Money Laundering (Prevention and Prohibition) Act (MLA), 2022;
2. The Terrorism (Prevention and Prohibition) Act, (TPPA) 2022; and
3. The Proceeds of Crime (Recovery and Management) Act, 2022.
The Money Laundering (Prevention and Prohibition) Act, 2022 provides a robust legal and institutional framework for the prevention and prohibition of money laundering in Nigeria. It also establishes the Special Control Unit under the Economic and Financial Crimes Commission.
The Terrorism (Prevention and Prohibition) Act, 2022 provides an effective, unified, and comprehensive legal, regulatory, and institutional framework for the detection, prevention, prohibition, prosecution, and punishment of acts of terrorism, terrorism financing, proliferation, and financing the proliferation of weapons of mass destruction in Nigeria.
While the Proceeds of Crime (Recovery and Management) Act, 2022 provides for an effective legal and institutional framework for the recovery and management of the proceeds of crime, benefits derived from such proceeds of crime, instruments of unlawful activities, and unclaimed properties reasonably suspected to be proceeds of crime.
WHO IS RESPONSIBLE FOR ENFORCING AML/CFT COMPLIANCE IN NIGERIA
Several government bodies are responsible for enforcing AML/CFT laws and policies in Nigeria. The primary bodies in charge of this responsibility are;
1. The Central Bank of Nigeria
2. The Nigerian Drug Law Enforcement Agency
3. The EFCC and
4. The Special Control Unit against Money Laundering
TO WHO DOES AML/CFT COMPLIANCE APPLY TO?
The responsibility of carrying out AML/CFT compliance measures in Nigeria applies to the following organizations; banks, financial advisory firms, jewelers, chartered accountants, legal practitioners, hotels, casinos, supermarkets, tax consultants, car dealers, dealers in luxury goods, bureaux de change, insurance institutions, money brokerage firms, investment management firms, project consultancy firms, financial consultancy firms, and pension fund management firms.
WHAT ACTIVITIES AMOUNT TO A BREACH OF AML LAWS AND WHAT ARE THE PENALTIES FOR BREACH?
Under the Money Laundering (Prevention and Prohibition) Act, the following activities constitute a breach of AML compliance;
i. Failing to report an international transfer of funds or securities required to be reported
ii. Non-financial institutions failing to verify the identity of a customer and submitting records of transactions within seven days of such transactions
iii. Financial institutions, failing to report transactions in excess of 5 million naira for individuals or 10 million naira for legal persons within the stipulated periods
iv. Destroying or removing a register or record required to be kept under the Act
v. The maximum penalty for a breach of AML compliance is the payment of monetary fines. For instance, failure of financial institutions to report transactions as provided in (3) above, attracts a fine of not less than N250,000 ( two hundred and fifty thousand naira) and not more than 1 million naira, for each day of the breach.
HOW STARTUPS, FINANCIAL INSTITUTIONS, AND CORPORATE ORGANISATIONS CAN BE AML COMPLIANT
Flowing from the regulations listed above, the following are some (not all) of the practical measures which organizations can put in place to qualify as and remain AML compliant;
1. Design, develop, and draft an organization’s AML/CFT policy framework. This could be handled by a Corporate/Commercial or Business lawyer who understands the subject matter
2. Appoint a compliance officer to oversee AML compliance programs within the organization
3. Carry out due diligence on customers
4. Report suspicious financial transactions to relevant authorities
5. Monitor financial accounts of employees
6. Conduct employee AML training to enable them to learn how to identify money laundering activities as well as when to report suspicious financial transactions
The list is inexhaustive and as such we recommend you seek further legal guidance with professionals on compliance measures to be put in place for your organization.
CONCLUSION
AML compliance is not restricted to financial institutions, but business organisations as well. AML compliance management systems when put in place provide numerous benefits for your organization such as; promoting brand integrity, reducing or eliminating risks of non-compliance, making it possible for businesses to forge partnerships and collaborations with other financial institutions (certain financial institutions won’t do business with your organization if there is no evidence of AML compliance in place) as well as reduces the adverse effect of criminal economic activity.
Need further guidance or assistance related to AML/CFT compliance? Our legal team assists both Nigerian and foreign clients in various sectors with navigating the AML/CFT compliance terrain in Nigeria.
Some of the ways we can help you include;
1. Offer legal advisory services with respect to AML/CFT policies
2. Prepare and amend your organization’s AML/CFT policies
3. Assist with inquiries with regulators as well as research
4. Train your team on AML/CFT laws and policies in Nigeria
Sounds similar to what you currently need assistance with? Click the Whatsapp icon at the lower right part of this page or leave a message HERE and we will be delighted to respond to you.
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