Nigeria

Political situation

Nigeria has remained on a democratic, albeit turbulent, path since its return to multiparty politics in 1999. The country continued to experience a tense political situation over the past year. This was reflected in part in an escalation of violence through attacks by the radical Islamist group Boko Haram and the resulting deterioration of law and order in some states of north-eastern Nigeria. These attacks are part of a radical Islamist insurgency that seeks not only to create a situation of anarchy, but also to overthrow what it sees as a westernised and corrupt Nigerian state and to impose a system of governance based on Islamic Sharia. Significantly, the arrest of a senior Boko Haram commander in the house of a serving Senator raised suspicions that some politicians had co-opted the group and welcomed the escalation of violence for their own ends.

The escalation of the Boko Haram insurgency coincided with mass protests and a week-long labour strike triggered by the federal government’s abrupt and unilateral removal, on New Year’s Day 2012, of fuel subsidies which, although costly, were popular, and by the resulting sharp rise in the price of fuel. The subsidy crisis thus exacerbated the tense political situation in Nigeria: protesters demanded the resignation of the President, and attempts by the Nigerian police to contain the protests led to the deaths of several demonstrators. Indeed, there were fears that the unrest and resentment created by the removal of the subsidy would give Boko Haram a pretext to intensify its attacks and to recruit and radicalise even more young people, particularly those most directly affected by the rise in the price of petroleum and its derivatives.

While the escalating attacks by Boko Haram insurgents and the apparent deterioration of law and order in some north-eastern states raised concerns about security in Nigeria and regional stability, there is also concern that the country may become a hotspot for terrorism and extremism. Even more significant is the apparent success of terrorist financing, although terrorist activities do not appear to be very expensive. Prominent Nigerians, including senior state officials and security officers, are suspected of having sponsored Boko Haram attacks. In addition, the group is reported to have received financial support from a foreign-based Islamic trust fund.

The alleged political involvement in financing insurgent activities for personal ends could seriously undermine AML/CFT efforts in Nigeria and could reverse the progress made in recent years.

Furthermore, the state’s total control over the country’s immense oil wealth, and its dominance over economic life, continued to provide a basis for political corruption in Nigeria. Recent revelations by a House of Representatives inquiry that fuel importers, including some with close ties to major political figures, had diverted nearly USD 7 billion in fuel subsidies between 2009 and 2011 caused great controversy in the country. The situation was aggravated by allegations that a legislator had tried to solicit a USD 3 million bribe to have a company removed from a list of firms implicated in the scandal, and by the legislator’s eventual admission that he had received USD 500,000.

Economic and financial situation

Nigeria remains on a robust economic trajectory, with projected growth of 6.9% and 6.6% in 2012 and 2013 respectively. Following a slowdown in global economic growth and a shortfall in oil and gas production in previous years, growth in 2012 was driven mainly by increased oil production and exports. Nevertheless, the non-oil sector, especially the dynamic wholesale and retail trade sector, as well as agriculture, manufacturing, telecommunications and construction, contributed significantly to growth. Falling food prices and the implementation of tight monetary policy measures, in response to the recent banking and financial crises, are reducing inflation, albeit slowly, from 10.2% in 2011 to 10.1% and 8.4% in 2012 and 2013 respectively. At the same time, real GDP growth per capita is expected to rise slightly from 4.1% in 2011 to 4.4% in 2012.

Growth in 2012 was largely non-inclusive, as it translated neither into jobs nor into an improvement in the chronically difficult socio-economic conditions faced by the vast majority of Nigerians. The poverty rate remained at 70%, while the unemployment rate rose slightly from 21% to 24%. Nearly 38% and 22.4% of Nigerians aged 15 to 24 and 25 to 44 respectively remained unemployed. Likewise, graduate unemployment and underemployment remained widespread. These conditions created an environment conducive to the recruitment and radicalisation of disadvantaged young people into criminal activities.

Similarly, Nigeria faces serious development challenges, as shown by deep income disparities within the population. The social structure remains highly unequal: members of the ruling and business elite and their associates enjoy a high standard of living, while the majority of Nigerians, particularly young people, face harsh living conditions. Moreover, most Nigerian communities, particularly in rural areas, remain far removed from the various levels of government and have little or no access to basic services. This has created a situation in which criminal activities and other predicate offences are not only organised and often perceived as legitimate means of survival, but in which illicit enrichment is also widely accepted and glorified.

Nigeria’s financial sector, the most developed in the region, has great potential although it is still developing. There are 21 deposit money banks, accounting for more than 70% of the sector’s total assets, valued at 40.3% of GDP in 2010. Inward remittances amounted to USD 20.6 billion in 2011, or about 8.7% of GDP. All of this calls for close monitoring of inward remittances, given their implications for money laundering and terrorist financing.

Prevalence of predicate offences

Nigeria remains the main hub of organised crime activity in the West African region. The country’s location along trafficking routes and its vast, porous borders continue to make it a major transshipment point for cocaine from Latin America and heroin from South-East and South-West Asia bound for Europe and, to a lesser extent, the United States. Nigerian criminal networks continue to play a major role in drug trafficking to consumer markets. The National Drug Law Enforcement Agency (NDLEA) seized a total of 227,055 kilograms of hard drugs worth about 2.5 billion Naira at Murtala Mohammed International Airport (MMIA) in the first half of 2012. In the same period, the NDLEA seized 2,476 kilograms of hard drugs in Kogi State. MMIA in particular remains a major transit point for narcotics. A Nigerian tailor was arrested at MMIA in June 2012 for attempting to smuggle 2.70 kilograms of cocaine, with an estimated value of 29 million Naira, into the country. In September 2012, two Nigerian men were arrested for attempting to smuggle 2.56 kilograms of cocaine into Turkey. Two other Nigerian men were arrested in the same month for attempting to export 4.285 kilograms of amphetamine to India. Two months later, a UK-based Nigerian student was arrested at MMIA for attempting to smuggle 1.535 kilograms of cocaine into the United Kingdom.

Despite these arrests and seizures, however, weak inter-agency cooperation, as shown by the absence of joint operations between law enforcement agencies, continues to undermine Nigeria’s ability to apprehend major traffickers or intercept large consignments. Rich and powerful drug trafficking networks continue to stay ahead of a poorly equipped and under-resourced NDLEA, despite increases in its capital and personnel expenditure over the past five years. Funding for other law enforcement agencies remains largely inadequate. If no action is taken, this could further undermine progress in the medium and long term. Moreover, there is evidence not only of increased use of cannabis, opium, cocaine and amphetamine-type stimulants, but also of clandestine manufacture of amphetamine in Nigeria. These drugs are mainly exported to illicit markets in South-East Asia.

Oil theft by local groups and criminal networks, commonly known as bunkering, continues unabated in Nigeria. Clandestine makeshift refineries run by small operators have reportedly increased dramatically across the Niger Delta region, further undermining oil production. In August 2012, the Nigerian Maritime Administration and Safety Agency (NIMASA) intercepted a vessel carrying 300 metric tonnes of stolen crude. This followed the arrest of 150 bunkerers by the Nigeria Security and Civil Defence Corps in March 2012. The Joint Task Force (JTF) also reported intercepting two vessels carrying 60,000 tonnes of stolen diesel worth an estimated 11 billion Naira in Rivers State. According to Royal Dutch Shell, Nigeria’s largest oil producer, between 150,000 and 180,000 barrels are stolen every day, representing about 6% of the country’s total output. The Nigerian government reported that about 400,000 barrels of oil were stolen per day in April 2012, resulting in a 17% drop in official sales that month. With daily output of about 2.4 million barrels and an average price of USD 121 per barrel, this translates into a loss of more than USD 1 billion for that month alone. The recent arrest of twenty Ghanaians and six Nigerians by the JTF shows that oil bunkering operations continue to be run not only by Nigerians but also by foreign individuals and criminal networks. While part of the stolen oil is smuggled to regional and international markets, most of it is sold domestically. Oil thieves have reportedly used their proceeds to fund development projects, including schools and hospitals in their communities. Hence the considerable political capital and support base that oil thieves have acquired through the sympathy of local populations won by providing basic social services. This allows them to launder their illicit fortunes through a range of community projects.

The high level of corruption, particularly bribery and embezzlement in Nigeria’s public and private sectors, is linked to oil theft. The fuel subsidy scandal mentioned above bears witness to this. There are also numerous persistent allegations that low- and high-ranking politicians as well as military officers collaborate with criminal networks involved in oil bunkering. The Economic and Financial Crimes Commission (EFCC) arrested and arraigned several suspects, including six companies and eleven individuals, for their alleged involvement in the fuel subsidy fraud. While the reduction of fuel subsidies could reduce the level of diversion through the subsidy regime, there are concerns that the money saved by the government could itself be diverted. In September 2012, a foreign security company was fined by a French court for paying bribes to Nigerian officials between 2000 and 2003 to obtain a contract to produce national identity cards. This followed the conviction and imprisonment by a British court of a former Nigerian state governor for embezzling and laundering USD 77 million of public funds.

In addition, fraudulent activities and transactions, particularly advance fee fraud (419 scams), bank fraud and document forgery for financial gain, remain serious concerns in Nigeria. In one case, the EFCC arrested and prosecuted an insurance broker for defrauding his company of more than 30 million Naira, and a banker for forging customers’ signatures and diverting 20 million Naira to his own account. Another banker was arrested and arraigned for embezzling nearly 1.2 million Naira. Other arrests and prosecutions included a Polish woman for issuing a forged cheque for 9 million Naira, two Nigerian men for attempting to defraud an EFCC officer of 250,000 Naira, four Nigerian men involved in a 54 million Naira land scam, three Nigerian men involved in a 66 million Naira scam, and a Nigerian man for counterfeiting currency. To make matters worse, cybercrime is widespread, including romance and marriage scams through which victims, mostly foreigners, are defrauded.

Human trafficking, arms trafficking and other predicate offences showed no signs of decline over the past year. For example, a Nigerian diplomat reported that an average of 30 Nigerian girls aged between 10 and 15 are smuggled into Mali, and expressed fears that the problem was growing in scale and sophistication. Similarly, arms traffickers, particularly in the Sahel region, are suspected of continuing to supply heavy weapons to Boko Haram. In July 2012, Nigerian security forces exchanged fire with two Boko Haram members at the border with Chad who were attempting to smuggle a consignment of weapons into Maiduguri.

Linked to the predicate offences mentioned above, cash smuggling out of Nigeria remains significant despite the efforts of law enforcement agencies. Airports remain the main transit points for trafficking illicit goods. This is shown by the arrest at MMIA of a Federal Airports Authority security officer for illegal possession and attempted smuggling of USD 1.4 million in cash. The arrest raised concerns that airport officials may be working with money laundering syndicates. Two couriers were arrested at Mallam Aminu Kano International Airport for attempting to smuggle USD 107,000. This followed the arrest at MMIA in September 2012 of a 24-year-old courier bound for Dubai for attempting to export more than USD 7 million. Two months later, two Dubai-bound couriers were arrested with nearly USD 240,000 at Nnamdi Azikiwe Airport in Abuja. The EFCC also arrested and prosecuted a former bank cashier for embezzling and laundering 2.4 million Naira. More seriously, EFCC officers at Aminu Kano International Airport arrested the son of a state governor for attempting to smuggle USD 50,000 in December 2012.

The many cases referred to above point to a sound cash declaration system as required by Financial Action Task Force (FATF) Recommendation 32. However, the challenges remain enormous given the complexity of the country. In summary, tax fraud and evasion in its various forms remains a major challenge, as tax revenue amounts to only 6.1% of a GDP of USD 170 billion. Corruption, particularly in the public sector, is the most widespread predicate offence. In terms of prevention and control, Transparency International ranked Nigeria among the lowest in West Africa, ahead only of Guinea and Guinea-Bissau. Unfortunately, several high-profile cases, mostly involving Politically Exposed Persons, have remained inconclusive. The fuel subsidy scam, an example of corruption within corruption, revealed the theft of about USD 7 billion between 2009 and 2012. A weak criminal justice response would only encourage it further. Drug trafficking remains a problem, as Nigeria appears to be evolving from a transit country into a source country. Of course, the efforts made to combat this and other crimes must be acknowledged: for example, the NDLEA seized about 227,055 kg in the first quarter of 2012, valued at 2.5 billion Naira. However, borders remain porous, and airports are now the main points of departure. Regarding oil theft as discussed above, about 150,000 to 180,000 barrels are stolen daily (Shell), and Nigeria is estimated to lose USD 1 billion every month to oil theft. The proceeds go towards the purchase of weapons, while armed robbery, kidnapping and corruption fuel a vicious circle of criminals, with political and military elites colluding in oil bunkering.

AML/CFT situation

Since 2009, on the basis of Nigeria’s Mutual Evaluation Report (MER) and the size of its banking sector, which exceeds USD 5 billion, and in line with the G8 mandate to the FATF to identify high-risk jurisdictions and push them to improve their systems, Nigeria was identified as a high-risk ML/TF jurisdiction and placed under review by the FATF for non-compliance with international AML/CFT standards. With the support of the FATF Regional Review Group and GIABA, an action plan to address deficiencies in Nigeria’s AML/CFT regime was adopted in February 2010, and Nigeria made a high-level political commitment to implement it. By June 2011, Nigeria had made significant progress in addressing its AML/CFT deficiencies, including through the issuance of regulations to financial institutions by the Central Bank of Nigeria (CBN) and the enactment of the Money Laundering (Prohibition) Act (MLPA) 2011 and the Terrorism (Prevention) Act (TPA) 2011, both aimed at remedying deficiencies in the criminalisation of ML/TF. Following a review of these laws by the FATF ICRG, it emerged that Nigeria had not adequately criminalised ML/TF in line with FATF standards, which required Nigeria to amend both pieces of legislation; the National Assembly passed the amended law towards the end of 2012. The delay in passing the Terrorism Prevention Act kept Nigeria under the FATF review process throughout 2012.

In addition to issuing regulations to implement United Nations Security Council Resolutions (UNSCR) 1267 and 1373, as well as other regulations to financial institutions and the supervisory functions of the CBN, the Special Control Unit against Money Laundering (SCUML) and the Nigerian Financial Intelligence Unit (NFIU) also conducted inspections of Designated Non-Financial Businesses and Professions (DNFBPs), car dealers, hotel owners and discount houses, thereby improving AML/CFT compliance. In particular, the NFIU received more than 5,000 Currency Transaction Reports (CTRs) and more than 4,000 Suspicious Transaction Reports (STRs). The registration by SCUML of 384 additional DNFBPs during the past year increased the number of DNFBPs under AML/CFT supervision and further anchored AML/CFT in the DNFBP sector. Reporting guidelines and guidance notes on money laundering and terrorist financing, as well as regulations on the freezing of terrorist assets and a circular on cash declaration, were developed and published.

The Nigerian Financial Intelligence Unit introduced an initiative to prevent and reduce cash smuggling into and through Nigeria, and a tiered know-your-customer procedure was established to promote and deepen financial inclusion. In addition, several AML/CFT training, sensitisation and awareness workshops were provided to various stakeholders, including DNFBP compliance officers, hotel employees, and non-bank regulators and supervisors. The workshops included courses on AML/CFT compliance, corruption risk assessor training and a financial crime symposium.

Furthermore, over the past year, bank accounts holding various sums in both local and foreign currency, as well as assets including vehicles belonging to suspected drug traffickers, were investigated, frozen or seized by the NDLEA. Likewise, the EFCC brought several cases to court, including car trafficking, money laundering and predicate offences involving fraudulent activities.

However, major challenges remain. Although the main AML/CFT laws have been amended, how the strategic deficiencies are to be remedied in the context of the FATF Recommendations remains unclear. As a result, Nigeria remains on the list of high-risk ML/TF jurisdictions and continues to be under FATF review.

Not only do the regulatory, supervisory, judicial and law enforcement agencies still lack minimum AML/CFT skills and expertise, but ICT infrastructure also remains inadequate. Serious constitutional and legal gaps persist, such as the non-conviction-based asset forfeiture bill still pending before the National Assembly. The situation is aggravated by excessively long judicial proceedings, as shown by the lengthy trial of three former governors charged with corruption. Despite the existence of an elaborate AML/CFT regime in the country, actual implementation of the standards has so far been very weak. The most critical area of weakness in this evolving AML/CFT regime is the capacity to prosecute and adjudicate ML/TF cases. High-profile ML/TF cases are either stalled indefinitely in the courts or prematurely dismissed for lack of prosecutorial and/or judicial evidence, or both.

Technical assistance

According to Nigeria’s 2012 report to GIABA, several regulatory, judicial and law enforcement agencies still lack AML/CFT skills and expertise. Law enforcement agencies in particular suffer from serious capacity problems in detecting, preventing, investigating and prosecuting ML/TF and related offences. There is a general lack of advanced analytical skills on AML/CFT issues. Law enforcement agencies are also constrained by inadequate and obsolete ICT equipment. Legislators and financial sector stakeholders generally remain unaware of AML/CFT issues.

Consequently, Nigeria has identified the need to develop and strengthen the analytical, investigative and prosecutorial capacities of its law enforcement agencies. This requires capacity building in advanced analytical and examination skills for risk assessment, and in asset tracing, seizure and forfeiture for its regulatory, supervisory and law enforcement agencies. Nigeria has also requested training for legislators on AML/CFT issues, as well as support to upgrade its ICT equipment.

Conclusion

Nigeria has made commendable efforts to improve its AML/CFT framework. Nevertheless, it remains on the list of high-risk AML/CFT jurisdictions and under review for non-compliance with AML/CFT standards. This situation is further aggravated by the apparent rise in terrorist attacks, as shown by the surge in violent Boko Haram insurgent activity. In addition, corruption and weak supervisory, judicial and law enforcement capacities continue to hamper the effective implementation of AML/CFT efforts in the country. Moreover, high levels of poverty, inequality, unemployment and underemployment, and the existence of many deprived communities in the country, help to provide a climate conducive to predicate offences and, by extension, to ML/TF.

Combined with poor governance and rampant public sector corruption, the inability to successfully investigate, prosecute, convict and punish offenders would encourage impunity and further embolden criminals to engage in money laundering and terrorist financing. In other words, as long as prosecution, conviction and confiscation rates remain low; as long as ML/TF cases remain pending in the courts; as long as sentences are not proportionate and sufficiently dissuasive for criminals; and as long as criminals can freely enjoy the proceeds of their crimes, all efforts to combat ML/TF in line with international standards will be in vain. The handling of high-profile ML/TF cases by Nigeria’s criminal justice system shows that implementing international AML/CFT standards faces daunting challenges in the country.

One of the most sensational high-profile cases involved the former governor of Delta State, Mr James Ibori. Ibori was arrested by the Economic and Financial Crimes Commission (EFCC) in December 2007 and charged with 170 counts of corruption and money laundering. After exactly two years of what looked like a judicial chess game, the former governor was acquitted by the court of all 170 charges in December 2009, to the disappointment of the entire nation. Although the EFCC appealed against the court’s decision and reopened investigations into Ibori in March 2010, the former governor managed to evade the Nigerian security forces and flee the country in April 2010. Since then, there has been no significant progress on the outcome of the appeal and investigations. Fortunately, the same person who had been cleared and acquitted in Nigeria was found guilty and convicted of the same offences in a United Kingdom court. For reasons of space, this is just one example of how money laundering cases are handled in Nigeria. This does not mean that the country has not made, or is not making, remarkable efforts, far from it: there are a good number of success stories known to the public. Moreover, the government has continued to reassure the public of its commitment to fighting corruption. GIABA will continue to support Nigeria and other member States in tackling all predicate offences to money laundering.