Investigations into recent events have revealed the involvement of many banks in exacerbating the country’s worsening security situation.
Several financial institutions have strayed from their primary duties, disregarding regulatory guidelines and engaging in activities that pose harm to the economy.
These activities encompass enabling kidnappings, facilitating ransom transactions, perpetrating insider misconduct, and being complicit in electronic fraud and cyber offences.
A study conducted by SB Morgen Intelligence, a geopolitical research firm focused on Africa, indicates that ransom payments have emerged as the primary incentive for kidnappings, driven by Nigeria’s economic challenges, escalating inflation, and soaring unemployment rates.
From July 2022 to June of the following year, there were 582 incidents of kidnapping in Nigeria, resulting in the abduction of 3,620 individuals.
The reported ransom demands amounted to at least N5 billion, with actual payments reaching N302 million.
A considerable amount of these funds found their way to criminals through the financial system, though the actual total might be even greater owing to underreporting.
Illicit Bank Accounts
According to a former Representative at Interpol in Nigeria and CEO of Sheiks and Bishops Limited, Chikwe Udensi, Nigeria, experiences an annual loss of N350 billion due to fraud, cybercrimes, and other illicit activities such as ransom payments.
He stated that out of the 133 million bank account holders in the country, five million are fraudulent.
He said: “Banks are using stolen Identity Cards (IDs) of dead people to open accounts. The active accounts opened with fake IDs are what kidnappers are using to receive ransom payments, and such funds are hardly traced.
“Ransoms are paid into accounts of customers of banks, and such funds cannot be traced because they were opened with fake or stolen identity cards.”
The President of the Association of Bureaux De Change Operators of Nigeria (ABCON), Aminu Gwadabe, highlighted that certain banks’ alleged involvement in activities such as money laundering, kidnapping, terrorism financing, and illicit drug transactions stems from their pursuit of profit maximisation and competition for market dominance.
He emphasised that compromised professional enablers facilitate the inflow of illicit finances through financial institutions.
He said: “Banks and designated non-financial institutions are categorised as professional enablers in money laundering, terrorism financing and financing of weapons because of their roles in creating these evils within the society.”
Gwadabe noted that banks’ eagerness to attract substantial deposits from clients has resulted in deficiencies in conducting thorough checks, Know Your Customer (KYC) procedures, and Due Diligence during account opening and customer service provision.
He highlighted that the heightened reliance on technology in financial service delivery has increased vulnerability to sophisticated cybercriminals with advanced technological skills.
Banks’ Neglected Duties
The Financial Action Task Force (FATF) is an autonomous inter-governmental organization established to safeguard the global financial system from money laundering, terrorist financing, and the funding of weapons of mass destruction proliferation.
Nigeria is committed to FATF recommendations, including directives prohibiting banks from maintaining anonymous or obviously fictitious accounts.
Despite Central Bank of Nigeria (CBN) policies mandating financial institutions to conduct customer due diligence (CDD) measures for establishing business relationships and processing occasional transactions, investigations reveal that many banks are not adhering to these directives.
As per FATF recommendations, banks are obligated to identify customers and verify their identities using dependable, independent source documents, data, or information.
Moreover, lenders are expected to identify the beneficial owner and take reasonable steps to verify their identity, ensuring that the financial institution is confident in its knowledge of the beneficial owner’s identity.
Financial institutions are also legally required to comprehend the ownership and control structure of the customer, gather information on the purpose and intended nature of the business relationship, and continuously conduct due diligence on the business relationship, scrutinizing transactions carried out throughout the duration of that relationship.
That would ensure that the transactions being conducted are consistent with the institution’s knowledge of the customer, their business and risk profile, including, where necessary, the source of funds.
“Where the financial institution is unable to comply with the applicable requirements, it should be required not to open the account, commence business relations or perform the transaction; or should be required to terminate the business relationship, and should consider making a suspicious transactions report in relation to the customer,” the FATF stipulated.
These requirements should extend to new customers, while financial institutions must also apply them to existing customers based on materiality and risk, conducting due diligence on these existing relationships at appropriate intervals.
Financial institutions must maintain necessary records on transactions, both domestic and international, for a minimum of five years, enabling swift compliance with information requests from competent authorities.
These records should be adequate to reconstruct individual transactions, including details on currency amounts and types, if applicable, to provide evidence for prosecuting criminal activities if necessary.
Financial institutions should take reasonable measures to ascertain whether a customer or beneficial owner is a domestic Politically Exposed Person or an individual who currently or previously held a prominent function within an international organization.
“If a financial institution suspects or has reasonable grounds to suspect that funds are the proceeds of a criminal activity, or are related to terrorist financing, it should be required, by law, to report promptly its suspicions to the financial intelligence unit (FIU),” the FATF established.