Money laundering is a serious financial crime that casts a long shadow over Nigeria’s economy and its global reputation. With a history associated with corruption, fraud, and organized crime, Nigeria faces significant challenges in combating the laundering of illicit funds. These activities not only distort the country’s economic landscape but also have deteriorating consequences on its social fabric and international standing. In this article, we will talk about how its negative consequences have led to an increase in economic instability and various stages of how money is being laundered.
Definition of Money Laundry
Money laundering entails the processing or dealing with the proceeds of criminal activities to conceal and disguise their origin. It can also be defined as “the concealment of unlawfully acquired assets to make them appear to be lawfully acquired. It includes both the process/effort involved in concealment.
The first formal definition of money laundering was from the 1988 UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances which states the offense as “any act or attempted act to conceal or disguise the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources.” In Nigeria, Part II, section 14(1) of the Money Laundering (Prohibition) Act, 2004 states that the offenses are committed when a person:
converts or transfers resources or properties derived directly or indirectly from illicit traffic in narcotic drugs and psychotropic substances or any other crimes or illegal act, with the aim of either concealing or disguising the illicit origin of the resources or property or aiding any person involved in the illicit traffic in narcotic drug or psychotropic substances or any other crime or illegal act to evade the illegal consequences of his actions or;
collaborates in concealing or disguising the genuine nature, origin, location, disposition, movement, or ownership of the resources, property, or right thereto derived directly or indirectly from illicit traffic in narcotic drugs or psychotropic substances or any other crime or illegal act…
In other term, money laundering involves the idea Of “turning ill-gotten money into legitimate money”, it is designed to mask the origin and ownership of tainted funds; that is, such monies or proceeds of arms, and drug trafficking, corruption, embezzlement of public funds, financial fraud, tax evasion, etc.
Organized Crime as a Factor of Money Laundering
Organized crime thrives on money laundering, and Nigeria is one of the most vulnerable African countries. In its latest global ranking on money laundering and terror financing risks, the Basel Institute of Governance, an international non-profit, Nigeria ranked 17th out of 128 countries, placing it firmly in the ranks of countries with “high risks of ML/TF” and susceptible to greater risks of environmental crime in 2022. The general observation is that money laundering in Nigeria was greatly induced into terrorism financing and drug trafficking
Drug trafficking is said to be the largest single generator of crimes of this ill-gotten money. Also, economic and financial crimes, such as bank fraud, advance fee fraud (419), investment fraud, and cyber fraud (yahoo) are other sources of tainted money.
The laundering of the proceeds of crime appears to occur through a wide variety of methods. In Nigeria, for example, some wealthy individuals, including those who have gained their wealth through massive corruption, may enjoy the complicity of major international companies to move their wealth to foreign bank accounts, and purchase landed properties overseas. For example, Associate Fellow of Chatham House, London, Mr. Matthew Page, said that 800 properties worth $400 million and owned by Politically Exposed Persons (PEP) in Nigeria were located in London and Dubai. It has also been alleged that businesses in Nigeria such as second-hand car dealing and fashionable boutiques, have been particularly suitable for money laundering. Smuggling is the oldest technique, in which cash moves covertly across borders either by physically transporting currency or monetary instruments or by hiding cash in outbound cargo shipments.
Threat in Money Laundry
An emerging threat of money laundering techniques as a result of advancements in technology paved the way for new methods of payment “cyberpayment” in laundering and disbursing money. A key component of “cyberpayments” technology is the use of credit-card-like devices containing a microchip on which value is encoded, wire transfer, and cryptocurrency wallet. The cards can be read by vending machines or terminals that deduct the amount of each transaction from the total stored value. When the card’s value is used up, it may be re-loaded using an ATM, telephone, or even personal computer, or it may be discarded. The term”cyberpayments” also includes electronic banking systems wherein value is held in a personal computer and transferred electronically over the Internet. The same advantages cyber payments generate for legitimate businesses, render it equally attractive to the criminal elements.
Money Laundry Stages and Techniques
These stages are known as the “money laundering process.” Here are the typical stages and techniques involved in money laundering:
The Placement Stage
This entails getting currency into the financial system to convert illicit funds from cash straight into a financial instrument or a bank account. This can be done through various ways, such as:
•Smuggling cash across borders.
•Depositing cash into banks or financial institutions.
•Buying valuable assets like real estate, jewelry, or cryptocurrency.
•Using the funds to gamble in casinos or engage in other cash-heavy activities.
It involves the movement of funds from institution to institution to hide the source and ownership of the funds or the originating destination. This stage’s objective is to make it difficult to trace the money back to its criminal origin. Techniques include:
•Transferring funds between multiple accounts.
•Buying and selling assets rapidly to create confusion.
•Conducting international wire transfers through shell companies.
This is the reintroduction of ill-gotten money in an ostensibly legitimate business so that no suspicion of its origins remains to give the appearance of legitimizing the proceeds. Techniques at this stage include:
•Giving out the funds to legitimate business moguls to invest with it.
•Purchasing high-value assets with the laundered money.
•Repatriating the funds to the home country through legal channels.
•Using the funds for everyday expenses, making them appear as income.
Common Money Laundering Techniques:
The use of accounts in false names, or the name of persons or interests operating on behalf of other beneficiaries. The accounts are utilized to facilitate the deposit or transfer of illicit funds. Often there are complex layers of transactions involving multiple accounts in the names of multiple persons, businesses, and “shell” companies. An emerging threat is
“cyberpayments,” are designed to act as cash surrogates or to provide alternative means of effecting transactions.
The use of bureaux de change; money laundering facilitators, such as solicitors, accountants, and notaries whose services are employed to assist in the disposal of criminal profits; establishment of “shell” companies, trusts, or partnerships; smuggling of currency; investment in real estate; investment in international trade; and use of casinos.
Criminals increasingly use cryptocurrencies for money laundering due to their pseudonymous nature and global accessibility.
Criminals manipulate the prices, quantities, or quality of goods in international trade transactions to move money across borders.
The three Stages and Dimensions Money Laundering can Occur:
Internal Money Laundering
This dimension of money laundering is characterized by the laundering of proceeds of assets derived from crime within the country where the crime was committed. refers to the act of laundering money within an organization or business, often by its employees or members. This process involves making illegally obtained funds, such as proceeds from criminal activities, appear legitimate by disguising their source within the organization’s financial activities. Internal money laundering can be particularly challenging to detect because it occurs within the confines of the organization itself. A good example of internal money laundry in organizations is; creating non-existent employees or contractors on the payroll that can be used to channel funds illicitly.
Incoming Money Laundering
This is the situation in which the proceeds or assets laundered are derived from crimes committed outside the country, and thereafter introduced into the country. For example
Outgoing Money Laundering
This dimension occurs wherein the proceeds of crime committed within the country are laundered through exportation to one or more countries.
Consequence of Money Laundry in Nigeria
Money laundering has serious consequences for Nigeria, and it poses various social, economic, and legal challenges to the country. Some of the significant consequences of money laundering in Nigeria include:
Economic instability: Money laundering undermines the integrity of Nigeria’s financial system and can distort economic activities. Illicit funds introduced into the economy can artificially inflate asset prices, distort market competition, and lead to economic imbalances.
Reduced Foreign Investment: Money laundering can deter foreign investors from engaging in legitimate business activities in Nigeria. The perception of a weak anti-money laundering regime discourages foreign investments, limiting economic growth and job opportunities.
Weakened Financial Institutions: Money laundering is the country’s financial institution and erodes public trust in the banking system. It has led to capital flight as individuals and businesses seek to move their assets to more stable jurisdictions.
Inequality and Corruption: Money laundering often involves funds derived from corruption, fraud, or organized crime. These activities contribute to increased corruption, income inequality, and social instability in Nigeria.
Undermining the Rule of Law: Money laundering relies on the exploitation of legal and financial systems. It can undermine the rule of law by facilitating criminal activities and reducing the effectiveness of law enforcement efforts. The prevalence of money laundry has brought about the use of plea bargains which in the eyes of the people is unreliable in crime control.
Security Concerns: Illicit funds generated from money laundering can be used to finance terrorism and other security threats. This poses a direct threat to national security and stability. Nigeria currently is suffering from various insurgence and proliferation of firearms purchased from money laundered
Loss of Tax Revenue: Money laundering reduces the government’s ability to collect taxes on illicit economic activities, resulting in reduced revenue for public services and infrastructure development.
Money laundering is a complex and serious financial crime with negative consequences for individuals, organizations, and societies at large. It involves the process of making illegally obtained funds appear legitimate by disguising their source through a series of stages, including placement, layering, and integration. Money laundering can have significant economic, social, and legal implications, including economic distortions, reduced foreign investment, weakened financial institutions, and increased prevalence of crime.