OVERVIEW OF THE MONEY LAUNDERING (PREVENTION AND PROHIBITION) ACT, 2022

INTRODUCTION

In recent years, money laundering has gained international attention as corrupt individuals conceal illicit gains through financial systems. The Money Laundering (Prevention and Prohibition) Act of 2022 represents a significant milestone in the effort to stem money laundering, aiming to strengthen the framework for detecting, preventing, and prosecuting money laundering activities within Nigeria. This comprehensive legislation not only defines and criminalises money laundering but also imposes stringent obligations on financial institutions and designated non-financial entities to implement effective anti-money laundering measures. By outlining clear guidelines, penalties for non-compliance, and avenues for international cooperation, the Act seeks to fortify the nation's financial integrity and protect its economy from the detrimental effects of illicit financial flows. This article provides an in-depth overview of the key provisions and implications of the Money Laundering (Prevention and Prohibition) Act of 2022, highlighting its pivotal role in safeguarding financial systems and promoting transparency and accountability in the financial sector of the country.

MAJOR INNOVATIONS OF THE ACT

1.    Limitation on Cash transactions

To prevent the unauthorised transfer of substantial amounts of money, the Money Laundering Act places restrictions on cash transactions. Cash payments over five million Naira (N5,000,000.00) are not allowed for individuals, while corporate entities are limited to ten million Naira (N10,000,000.00). A financial institution must be consulted when a transaction above the allowed limit in order to guarantee a clear and traceable record of the money involved. Similarly, in an attempt to evade the obligation to report a transaction that is required to be reported under the Money Laundering Act, it is prohibited by the Act to make numerous small transactions with one or more financial institutions or DNBPs.[1] For financial institutions, the report is made to the Nigerian Financial Intelligent Unit (the “NFIU”) of the Central Bank of Nigeria (“CBN”), while for DNBPs on the other hand, the report is made to the Special Control Unit Against Money Laundering (“SCUML”).[2]

2.    Establishment of the Special Control Unit under the Economic and Financial Crimes Commission

As part of its objectives, the Act established the Special Control Unit, also known as the Special Control Unit Against Money Laundering (the SCUML), whose task it was to carry out the Act's designated non-financial businesses and professions provisions in an efficient manner.[3]

3.    Jurisdiction

The Federal High Court located in any part of Nigeria, regardless of the location where the offence is committed, shall have jurisdiction with respect to matters under the Act and offences committed under the Act. Additionally, the new Act expanded its jurisdiction outside of Nigeria to include situations in which the accused person is in Nigeria and has not been extradited to another nation for prosecution, as well as situations in which the alleged offence was committed on a ship, vessel, or aircraft registered in Nigeria by a citizen or non-citizen of Nigeria, provided that the accused person's actions would also be prohibited by the laws of the nation in which the offence was committed.[4]

4.    Expansion of the Definition of Funds

 In line with technological reality, the definition of funds under the Act has been expanded to include ‘virtual asset'.[5] It also extends the definition of a financial institution to include Virtual Asset Service Providers.

5.    Confidentiality Between Lawyers and their Clients

 Lawyer-client privilege is restricted under the Act. The Act states that the invocation of client confidentiality and legal professional privilege shall not apply in conjunction with;

a.   The purchase or sale of property

b.   The purchase or sale of any business

c.   The managing of client money, securities, or other assets

d.   The opening or management of bank, savings, or securities accounts

e.   The creation, operation, or management of trusts, companies, or similar structures

f.     Anything produced in furtherance of any unlawful act.[6]

It is noteworthy that this position has been nullified by the courts as one of the basic tenets of the legal profession is confidentiality. The Court of Appeal in Mekwunye v Carnation Registrars Limited[7] and in Central Bank of Nigeria v Registered Trustees of the NBA[8] confirmed that the provision violates the duty of confidentiality imposed upon a lawyer by Legal Practitioners Act, Evidence Act and RPC. This was also recently upheld by the Federal High Court in Arome Abu v CBN & Ors[9],where the court held that sections 6, 7, 8, 9, 11, and 30 of the Money Laundering Act 2022 are contrary to the existing provisions of section 37 of the Constitution, section 20 and 21 of the Legal Practitioners Act, and section 192 of the Evidence Act 2011.

6.    Inclusion of New Businesses and Professions as Part of Designated Non-Financial Business and Profession (DNBP)

While the repealed Act referred it to as a Designated Non-Financial Institution (DNFI). The new Act has extended Designated Non-Financial Institution to include the following:

a. Businesses involved in the hospitality industry;

b. High-value dealers;

c. Mortgage brokers;

d. Pools betting;

e. Trust and company service providers;

f.   Dealers in mechanized farming equipment, farming equipment, and machinery;

g. Dealers in precious metals and precious stones;

h.  Practitioners of mechanized farming;

i.    Notaries;

j.    Dealers in real estate, estate developers, estate agents, and brokers.[10]

The provision of this section as it relates to legal practitioners and notaries as designated non-financial businesses and professions is also contrary to the decision of the courts in Mekwunye v Carnation Registrars Limited, Central Bank of Nigeria v Registered Trustees of the Nigerian Bar Association, and in Arome Abu v Central Bank of Nigeria & Ors.

7.    Extension of Regulation to Internet Casino and Ship-Based Casino

The Act specifically includes internet and ship-based casino as opposed to the repealed Act, which did not specifically state the kind of casino to be regulated.[11]

8.    International Transfers

Any transfer of securities or money exceeding $10,000 to or from a foreign nation must be disclosed within 24 hours of the transaction to the Securities and Exchange Commission ("SEC") and the National Financial Crimes Unit (NFIU). Those entering or leaving Nigeria with cash or other negotiable instruments valued at more than $10,000 US are required to declare them to the Nigerian Customs Service, who would then notify the NFIU and CBN.[12] If found guilty of making a false statement or neglecting to provide the Nigerian Customs Service with the required information, the offender faces a minimum two-year prison sentence and/or forfeiture of any unreported funds or negotiable instruments.[13]

9.    Identification of Clients

It is required of financial institutions and DNBPs to verify the identity of their clients. They must put in place due diligence procedures (such as obligatory Know Your Customer onboarding procedures) to guarantee compliance and make sure that the identities of those making or receiving payments through their platforms or services are known and verifiable.[14] Aside from the ongoing duty to closely examine the transactions they handle, financial institutions and DNBPs are also barred by law from using false accounts.[15]

10. Reporting Suspicious Transaction

The Act mandates Financial Institutions and DNBPs to report suspicious transactions to the NFIU within 24 hours of the transaction and take appropriate actions to prevent money laundering. Suspicious transactions as contemplated in the Money Laundering Act includes transactions which:

a.   involves a frequency which is unjustifiable or unreasonable;

b.   is surrounded by conditions of unusual or unjustified complexity;

c.   appears to have no economic justification or lawful objective;

d.   is inconsistent with the known transaction pattern of the account or business relationship; or

e.   involves the proceeds of a criminal activity, unlawful act, money laundering or terrorist financing.[16]

The NFIU may request any further information it thinks necessary after receiving a report of a suspicious transaction, and it may also put a 72-hour stop order on the transaction. In the event that a stop notification has expired or is not received, the Financial Institutions or DNBPs will move forward with the transaction.

11. Enhanced Due Diligence for Politically Exposed Persons

Financial institutions and DNBPs must put procedures in place to identify clients who are Politically Exposed Persons (PEPs) or whose beneficial owner is a PEP. The Money Laundering Act places a greater degree of due diligence on PEPs. Financial Institutions and DNBP must obtain senior management approval before establishing such business relationships, take reasonable steps to establish the PEPs' source of wealth and funds, and conduct enhanced ongoing monitoring on that relationship for any foreign or domestic PEPs entrusted with a prominent function by an international organisation.[17]

12. Risk Evaluation

Risk assessments for new products, business processes, and technology must be completed by Financial Institutions and DNBPs before their launch in order to identify and control the possibility of money laundering.  After that, any identified risks must be managed and mitigated by Financial Institutions and DNBPs by taking the necessary actions.

13. Penalties

Under the Money Laundering Act, acts involving money laundering may be prosecuted and punished with fines, jail time, or the cancellation of business licenses. Under the Money Laundering Act, in particular, a person found guilty of any of the money laundering offences specified faces a minimum five times the value of the proceeds from the crime in fines, or four to fourteen years in prison.[18] In addition, if a business organisation engages in money laundering, it may have its licence or certificate withdrawn and be required to pay a fine equal to five times the amount of the unlawful proceeds.

CONCLUSION

In conclusion, Nigeria's Money Laundering (Prevention and Prohibition) Act, 2022 is a critical step in the fight against illegal financial activities and in strengthening the integrity of the nation's financial system. The main features of the Act have been discussed in this article, along with its definitions of money laundering, the strict requirements placed on financial institutions, and the severe penalties for non-compliance. Nonetheless, issues like the efficacy of law enforcement and the requirement for ongoing adjustment to changing financial crime strategies continue to be relevant. Looking ahead, continuing improvements and modifications to regulatory frameworks will be essential to bolstering the Act's effectiveness and successfully addressing new risks.

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Ikeola Atilola

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