The Nigeria Money Laundering Act 2011/2022: An In-depth Guide for SMEs

What is Money Laundering?

The term “laundering” means cleaning. This translates money laundering literally to “money cleaning.”

Money laundering is, however, broadly defined as concealing the origin of illegally earned money by converting it into a legitimate source.

The perpetrators get most of these funds from illegal activities; for example, embezzlement, corruption, drug trafficking, kidnapping, gambling, etc.

What does the 2022 Act say about Money Laundering? 

The Act defines money laundering as an act carried out by a person or a company regarding any fund or property while trying to:

• Conceal or disguise its origin
• Convert or transfer it
• Remove it from his locality
• Acquire, use, keep, or take possession or control of any illegal fund or property. 

It specifies that for this to apply to you, you must have been intentional about your actions. It also applies to situations where you reasonably ought to have known that such a fund or property is part of the proceeds of an unlawful act. This includes taking part in or assisting someone else in the movement of funds to make the proceeds appear legitimate. It involves three steps:

1. depositing cash into the financial system
2. Carrying out transactions to conceal the source of the money
3. Taking possession of the wealth produced by the transactions

The Act defines an unlawful act to include:

• Participation in an organised criminal group
• Racketeering, terrorism, terrorist financing
• Trafficking of persons, smuggling of migrants, sexual exploitation of adults and children
• Illicit trafficking in narcotic drugs and psychotropic substances
• Illicit arms trafficking, illicit trafficking in stolen goods
• Corruption, bribery, fraud, currency counterfeiting
• Counterfeiting and piracy of goods, environmental crimes
• Murder, grievous bodily injury
• Kidnapping, hostage taking robbery, or theft
• Smuggling (including customs and excise duties and taxes), tax crimes (related to both direct and indirect taxes)
• Extortion, forgery, piracy
• Insider trading and market manipulation
• Any other criminal act specified in this Act or any law in Nigeria
• Any action considered unlawful in Nigeria but committed anywhere in the world

Regulatory authorities do not have to establish that a person committed a specific unlawful act to prove a money laundering offence. They can infer all elements of the offence from the facts and circumstances of the action.

The Act comprises 31 sections, divided into 5 parts.

1. Objectives
2. Prohibition of Money Laundering
3. Special Control Unit against Money Laundering
4. Offences and Penalties
5. Miscellaneous provisions

Objectives

1. The Act provides a practical framework for the “prevention, prohibition, detection, prosecution, and punishment of money laundering and related offences,”
2. It strengthens the existing system for combating money laundering
3. The scope of money laundering offences is expanded as well as provisions made for penalties
4. The Act establishes the Special Control Unit against Money Laundering (SCUML) under the EFCC for effective implementation of the provisions concerning the designated non-financial businesses and professions.

Prohibition of Money Laundering

This is the core aspect of the Act. It is aimed at five categories of corporate and non-corporate bodies:

1. Businesses and professions in the financial and specified non-financial sectors
2. Individuals 
3. Political persons
4. Shell banks
5. Casinos

We will focus mainly on the first three bodies. There is a threshold for the maximum amount of money that you can travel with or transact with, either as an individual or a company. Let’s discuss this alongside the obligations of financial and non-financial institutions in carrying out these transactions.

Find trusted rehabs near me options to get the support you need for recovery. Explore personalized treatment plans and resources to help you achieve sobriety and rebuild your life.

Businesses and Professions in the financial and specified non-financial sectors

The Act defines businesses in the financial sector to include:

• Banks
• Companies
• Associations or groups of persons, whether corporate or incorporate, which carry on the business of investment and securities
• Virtual asset service providers
• Discount houses
• Insurance companies
• Debt factorisation and conversion firm 
• Bureau de Change
• Finance company
• Money brokerage firm whose principal business includes factoring 
• Project financing, equipment leasing, debt administration, fund management, private ledger service, investment management, local purchase order financing, and export finance firms 
• Project consultancy, financial consultancy, pension fund management, and such other businesses as the Central Bank or other appropriate regulatory authorities may designate from time to time.

The specified non-financial businesses and professions fall under the ambit of SCUML. You can check the list here. It is referred to as the Designated Non-Financial Businesses and Professions in the Act, but for clarity, we will refer to them as “Non-financial institutions.”

Prohibitions and Guidelines under the Act

1. You cannot make or receive a cash payment that is higher than
   • ₦5,000,000 (Five Million Naira) as an individual
   • ₦10,000,000 (Ten million Naira) as a company, unless you do so through a bank or any other financial institution.

2. You cannot carry out transactions separately with one or more financial institutions or non-financial institutions with the intention of
   • not reporting a transaction, especially when the Act requires that it be reported, or hiding information in any other way

3. Any transfer of money or securities worth more than US$10,000 to or from a foreign nation must be reported in writing to the NFIU, CBN, and SEC within one day of carrying out the transaction. The report should show:
   • Nature and amount of transfer
   • Names and addresses of the sender and receiver

Additionally, you should inform the Nigerian Customs Services (who will report it to the CBN and the NFIU) if you transport cash or negotiable instruments in that amount into or out of Nigeria. Failure to comply with this will lead to two years of imprisonment, forfeiture of money or other negotiable instruments, or both.

4. Both financial and non-financial institutions must:
   • Identify any customer by using relevant identification documents, e.g., driver’s licence, national identity card, voter’s card, Nigerian passport, etc.
   • Confirm the identity of the customer using a reliable and independent means
   • Identify and confirm the identity of the beneficiary
   • Verify the identity of any person purporting to act on behalf of the customer

5. Both financial and non-financial institutions are required to ensure customer due diligence in:
   • All their relationships, regardless of whether there is a suspicion of money laundering and especially where there is a doubt about the identification data gotten from the customer
   • They must keep all documents and information up-to-date, especially for high-risk categories of customers or business relationships
   • With international transactions, they are to perform due diligence on the receiving party.

This also applies to any casual transaction involving more than US$1,000 or where they suspect that the amount of the transaction is the proceeds of an illegal activity, regardless of whether it is up to US$1,000.

Furthermore, a financial or non-financial institution must deem a transaction suspicious and report it to the NFIU right away and within 24 hours.

They should do this if the transaction, in the institution’s opinion, is unjustifiable, occurs more frequently than the account’s typical pattern, or involves the proceeds of an illegal act. The institution must:

• Draw up a report of their suspicions
• Take actions to prevent the laundering of the transaction sum, as the case may be
• Report the transaction and actions taken to the NFIU

The NFIU is empowered to place a stop order on such a transaction or issue an order within 72 hours if it is suspected to be an illegal act.

If the financial or non-financial institution does not receive a stop order from the NFIU within 72 hours or if the order has expired, they can carry out the transaction unless they get an order from the FHC. A criminal proceeding can be brought against such an officer of the institution if it is discovered he was involved in a conspiracy. 

Unless an institution can prove that they were acting in good faith, failure to comply is an offense that is punishable by a fine of ₦1,000,000 (one million naira), for each day the offense goes unpunished.

Equally important is the fact that both financial and non-financial institutions are required to keep all records for five years following the completion of business and make them quickly available to relevant authorities where needed.

They are also required to combat the laundering of proceeds of crime by putting in place internal procedures, policies, control, and training of their employees to ensure

• Compliance
• Centralization of information
• Establishment of internal audit to ensure the effectiveness of policies put in place

Failure to comply makes them liable on conviction to 

• not more than ₦1,000,000 (one million naira) for non-financial institutions 
• Not less than ₦1,000,000 (one million naira) for capital brokerage and other financial institutions
• N5,000,000 for banks
• Suspension of a practising licence issued to the affected institution

Financial and non-financial institutions are tasked with the responsibility of identifying money laundering and terrorism financing risks. These risks may arise in connection with the development of new products/business practices. Financial institutions must ensure that receiving financial institutions in foreign countries don’t allow their accounts to be used by numbered, anonymous, or shell banks.

They include the use of new delivery mechanisms and new developing technologies/mechanisms for both new and pre-existing products, as specified by regulatory authorities.

The assessment should be done before using or launching such products, technologies, or practices. It is expected that such institutions will take measures to manage and mitigate the risk.

Political Persons

The Act provides that financial and non-financial institutions should put risk management systems and procedures in place to determine whether a customer or a beneficiary is a politically exposed person.

If it is a foreign, politically exposed person, it is required that

• Senior management’s approval should be obtained before establishing such business relationships
• Take measures to establish the source of wealth and funds in question
• Ensure continuous monitoring of the relationship

These requirements also apply to a politically exposed Nigerian where the business transaction is high risk.

This brings us to the questions:

1. Who should the money laundering report be made to? 
2. When should it be made?  
3. How should it be made?
4. What is the penalty for not complying?

These questions will be answered in the next section.

Mandatory reports

Financial and Non-financial Institutions

Financial institutions are to report to the NFIU, while non-financial institutions report to SCUML, any single transaction, deposit, or transfer of funds that exceed:

• ₦5,000,000 (five million naira) or its equivalent for individuals
• ₦10,000,000 (ten million naira) or its equivalent for companies

All reports are to be given in written form. Failure to comply makes the affected institution liable to a fine of at least ₦250,000 (two hundred and fifty thousand naira), but not more than ₦1,000,000 (one million naira) for each day of non-compliance.

Individuals

A person can voluntarily give information about transactions exceeding:

• ₦1,000,000 (one million naira) for individuals;
• ₦5,000,000 (five million naira) for companies.

SCUML and the specified Non-Financial Institutions

The Special Control Unit against Money Laundering (SCUML) is a department under the EFCC responsible for supervising Designated Non-Financial Businesses and professions (non-financial institutions).

The SCUML ensures compliance with the Act and other relevant laws and regulations.

Functions of the SCUML

• Register and certify designated non-financial institutions
• Monitor and supervise them
• Take enforcement actions to ensure compliance
• Conduct checks and inspections of designated non-financial institutions
• Receive cash-based transaction reports and currency transaction reports from non-financial institutions.
• Sensitize them to their responsibilities under the act
• Perform all functions necessary to fulfill its responsibilities under this act

The specified non-financial institutions

The Act lists them as:

• Automotive dealers
• Businesses involved in the hospital industry
• Casinos
• Clearing and settlement companies
• Consultants and consulting companies
• Dealers in jewelry
• Dealers in mechanised farming equipment, farming equipment, and machinery
• Dealers in precious metals and precious stones
• Dealers in real estate, estate developers, estate agents, and brokers
• High-value dealers
• Hotels
• Legal practitioners and notaries
• Licensed professional accountants
• Mortgage brokers
• Practitioners of mechanized farming
• Supermarkets
• Tax consultants
• Trust and company service providers
• Pools betting
• Other businesses and professions as the minister responsible for trade and investment designates.

The above-named institutions that deal in cash transactions are required to: 

• submit a declaration of their operations to SCUML for newly established businesses before commencing business and for currently operating businesses within three months of the Act’s commencement, which was in May 2022.
• identify customers in a transaction of more than US$1,000 by asking him/her to fill out a data form and a prescribed form of identity.
• Maintain a register to record such transactions with the customer’s details (surname, name, and address), which will be forwarded to SCUML. The register is to be kept for five years.

Failure to comply within 7 days from the date of a transaction is an offence punishable on conviction by 

• Payment of a fine of ₦250,000 (two hundred and fifty thousand naira) for each day that the offence continues
• Suspension, revocation/withdrawal of a licence by the licensing authority.

Penalties

The Act makes provisions for penalties for offenders who have been convicted of money laundering. The penalty takes three (3) forms. A convicted offender could be liable to one or all the forms of penalties. They are:

• Imprisonment: imprisonment for not less than four years but not over 14 years
• Fines: a fine not less than five times the value of the proceeds of the crime
• Revocation of practicing or business licence.

A company will be liable for the same fine. If the company persists after conviction of the first offence, the regulators may withdraw or revoke its certificate or licence.

If an officer of the financial or non-financial institution, whether a director or an employee, connives with or warns an offender to stop the statutory report to the NFIU, he is liable on conviction to a fine of ₦10,000,000 (ten million naira) or imprisonment for at least two years. Where a person or financial institution fails to make its findings and ends up transacting with a shell bank, such a person or institution will be liable on conviction to:

• Imprisonment for at least two years, but not over five years for an individual
• For a company;
  • A fine of at least ₦10,000,000 (ten million naira), but not more than ₦50,000,000 (fifty million naira) 
  • Prosecution of the principal officers of the company
  • closing down and forbidding its formation or incorporation under any form or disguise. 

Officers of Financial and Non-Financial Institutions

The Act places a lot of responsibilities on officers and management of financial and non-financial institutions. That being said, when an officer is found guilty of the following:

• Destruction of the register required to be kept
• Carrying out transactions listed here under a false identity or attempting the same 
• Making and accepting cash payments higher than the allowed amount
• Failure to report an international transaction that is required to be reported
• non-compliance with all actions expected of financial and non-financial.

The officer or director of a financial/non-financial institution will be liable on conviction to imprisonment for at least 3 years or a fine of ₦10,000,000 (ten million naira) or both for an individual. A company will be liable for a fine of ₦25,000,000 (twenty-five million naira)

Such an officer or director will also be liable to

• either an indefinite ban or a five-year ban from engaging in the profession through which he committed the crime.
• Additional disciplinary action by the person’s or company’s professional body as they deem fit where they did not put in place the mandatory internal policy provision

Anyone who wilfully obstructs officers of a competent authority in the exercise of their powers under the Act commits an offence and is liable on conviction to;

• Imprisonment for two to three years for an individual
• a financial institution or company will pay a fine of N1 million

The Act empowers the Attorney General of the Federation (AGF) to prescribe sanctions for any breach of the Act. This takes precedence over any other sanctions imposed by existing regulations.

Conclusion

To sum it up, remember that the highest cash transaction you can do as an individual is ₦5,000,000 (five million naira) which is about US$11,816.18 today. As a company, the highest cash transaction you can handle is  ₦10,000,000 (ten million naira). That is approximately US$23,632.36. You should do any amount higher than this through a financial institution. You can not invoke customer confidentiality on activities bordering on money laundering, as it is not applicable. If a person commits the acts making up the offence in various/different countries or places, the regulatory authorities can secure his conviction and sentencing in Nigeria.

Money laundering makes economic policy formulation more difficult and is associated with lower economic growth: a major reason the government strives to put legislation in place to curb it. As such, it is also your duty as a Nigerian citizen to report voluntarily any suspicious act of money laundering.
If you have questions about the Money Laundering (Prevention and Prohibition) Act 2011, its amendment we talked about, and how it relates to you, book a free session with an expert.