Joy Dimka, Senior Legal Officer, Nigerian Shippers' Council.

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CFT/AML regulations and Nigerian maritime industry 18 May 2022

Criminal activities are almost as old as man himself. From petty stealing to physical assault on a fellow human, crimes have been around for as long as we can remember. Unnecessary evils that we have nevertheless learnt to live with, organisations and systems have been built to fight or curb criminal activities.

Money and power are two major motivations for crimes. They are usually also the derivatives of criminal activities, with the potential to undermine local economies, international trade and political stability. Fighting crimes includes bringing the perpetrators to book, but it also entails preventing and sanctioning individual or corporate entities that enable crimes to be committed through their collusion or by not taking effective preventive actions.

The Financial Action Task Force (FATF) is both an institutional and system framework for combating financial crimes. The FATF is an intergovernmental organization established in 1989 at the behest of the G7, with the mandate to design and promote policies and standards to combat financial crime. The group of the world’s most industrialised nations aimed to control and mitigate money laundering, terrorism financing, and other crimes that could be facilitated by the interconnected global financial system.

As of 2021, there were 39 full members of the FATF, including the European Commission and the Gulf Cooperation Council, apart from regional bodies and observer members. A list of recommendations to combat terrorism financing was added in 2001, 2012 and the latest was in March 2022. The recommendations were expanded to target new threats including financing the spread of weapons of mass destruction. This, in turn, means that where the prevention of illegal trade in weapons is concerned, the FATF is in perfect alignment with the Palermo Protocol and the CATOC (UN (United Nations) Convention Against Transnational Organized Crime).

The FATF in collaboration with the International Monetary Fund came up with a set of governing laws, regulations and other practices in June 2006, called Combating the Financing of Terrorism (CFT). These body of laws is intended to restrict access to funding and financial services for those whom the government designates as terrorists. This is carried out by tracking down the source of the funds that support terrorist activities, where law enforcement may be able to prevent some of those activities from occurring. CFT is also known as Counter-financing of Terrorism or Countering the Finance of Terrorism.

CFT’s working system focuses on banks, charities, and businesses by observing their pattern of regulation, supervision and reporting. They also involve investigating and analyzing suspicious financial flows and the routine surveillance and collection of vast amounts of data regarding transactions across the economy. This is necessary because most of these activities may be disguised as legitimate financial transactions as funding may come from legal sources like legitimate businesses, government funds, religious and cultural organizations, and the likes. But when properly monitored, their processes can prove to be sometimes used to finance terrorist and illegal activities.

Another framework propounded alongside the CFT by the FATF to support the fight against financial crime internationally is the Anti-Money Laundering (AML). It is basically a body of laws, regulations and procedures aimed at uncovering efforts to disguise illicit funds as legitimate income. The AML seeks to make it harder to hide profits from crime, knowing that criminals use money laundering to make illicit funds appear to have a legitimate origin.

AML was a response to the growth of the financial industry, the lifting of international capital controls, and the growing ease of conducting complex chains of financial transactions. To become practical and effective, the AML regulations require institutions to develop sophisticated customer due diligence plans to assess money laundering risks and detect suspicious transactions.

In order to establish a strong and effective AML-CFT system with comprehensive rules covering anti-money-laundering and counter-terrorist financing requirements for both banking and non-banking sectors, it is essential to set up an adequately operational legal and institutional or administrative framework not only with the regulatory power that provides competent authorities with the necessary duties, powers and sanctions but also with the laws that create money laundering and terrorist financing offenses, plus enforcement power that provides for freezing, seizing and confiscation of the proceeds of crime and terrorist funding, according to the United Nations Office on Drugs and Crime (UNODC). The UN agency also stipulates that effective AML-CFT system also includes laws and regulations that impose the required obligations on financial institutions and designated non-financial businesses and professions, and other enforceable means that give a country the ability to provide the widest range of international cooperation.

The criminalization of money laundering and financing of terrorism, in accordance with Article 3(1) (b) and (c) of the Vienna Convention (1988), Article 6 (1) of the Palermo Convention (2000), and the criminalization of terrorist financing in line with Article 2, read in conjunction with Article 7 of the Convention Against Financing of Terrorism (1999), focus on three important factors: (1) compliance with AML-CFT preventive measures, (2) acting against offenders and (3) international cooperation in this critical law enforcement function.

The maritime industry has thrived financially with the US dollar as the official currency for business transactions. Payment for international shipping, clearing and forwarding, freight, demurrage and all services given within this industry is paid for in the preeminent global reserve currency, through the banks.

This makes it easy for criminals to run illegally derived funds through shipping companies; politicians who syphon money from the government can also sink  their stolen funds in one shipping company or the other, claiming that it is payment for a service being granted. This claim is often overlooked without the necessary authorities properly vetting it and insisting that it is backed by documentary evidence to show origin of such funds.

Another area that the AML/CFT regulations should focus on in the maritime industry is the “Illegal Bonded Terminals”. Bonded Terminals are warehouses or storage area approved by the customs for a temporary storage of imported goods. The goods are normally kept in these terminals until the customs duty is paid or the goods are cleared.

On the average, in Nigeria, it takes the company registration certificate, three years’ Tax Clearance Certificate, Tax Identification Number and insurance cover to obtain clearance for the creation of a bonded terminal. However, for the benefit of financial transparency and accountability, these requirements are highly porous if the CFT/AML Regulations are to apply in checking the excesses of these terminals.

Unfortunately, however, there are so many bonded terminals “unaccounted” for; thereby making them illegal from the point of creation. Bystanders and touts in the maritime industry who do not have clearance from the Customs can create so-called bonded terminals that serve as exchange points for illegally procured ammunitions, weapons, drugs and funds. These are just a few examples of the many areas that financial and transnational organized crimes are prevailing within the maritime industry.

In Nigeria, the EFCC, NDLEA, the Central Bank, the Nigeria Police and the Nigeria Customs Service are responsible for the enforcement of AML and CFT Regulations. However, to reduce the level of confusion and duplication in portfolios, it is best to create one body primarily for the effective execution of the regulations. Such an agency will be more accountable for its responsibilities.

In addition, there should be a detailed review of the AML/CFT regulations by the legislature for the government to have an in-depth understanding of why it is necessary to establish an effective body of laws and a corresponding enforcement agency to carry out the regulation, supervision and reporting of all financial establishments in Nigeria.

Joy Dimka is a Legal Officer at the Nigerian Shippers’ Council.