EFFECTIVENESS OF NIGERIA FINANCIAL INTELLIGENCE UNIT IN COMBATING MONEY LAUNDERING IN NIGERIA

CHAPTER ONE INTRODUCTION 1.1 Background to the Study Across the globe, money laundering has become an endemic issue to financial integrity, governance, and international security. Lax banking standards have been mirrored in the scandals of late years in the developed world, including the Danske Bank and the FinCEN Files disclosures, and involve big banks helping rank institutions move illicit funds by passing money through Estonia, which held more than $230 billion worth of illicit money movements (Sharman, 2022). On the same note, in Germany, the Wirecard fraud case exposed administrative weaknesses in the supervision of online financial activity. Although they have strong regulatory frameworks, money launderers are known to use loopholes in their laws (both legal and technological), international dealings and even help of professional enablers to launder criminal money. The problem is even more serious in Sub-Saharan Africa. Other countries, such as South Africa, have had to deal with corruption and laundering scandals that make it to the headlines, e.g., the State Capture saga, whereas in Kenya and Ghana, the overuse of mobile money platforms and trade-based laundering schemes have demonstrated yet again the susceptibility of new financial systems (Mwangi & Abor, 2023). Nigeria is one of the main hotspots of illicit financial outflows in the continent due to the large share of the informal economy and complex issues of governance. Money laundering, as established by Levi and Reuter (2021), can be summarized as, the bundle of operations in which transgressors camouflage the initial possession and control of the revenue of illicit activity by having such very revenue to seem to have originated in a lawful source. These operations generally occur in three phases, which are: placement, layering, and integration whose purpose is meant to conceal the connection between the crime of origin and end utilization. The participants include organised crime cartels and corrupted political elites, colluding financial specialists and bio-geography mediators. The sources of money laundering target the gaps of the legal framework, inadequate enforcement, opaque names in a corporate structure, and digital monetary products to transmit funds across geographical borders. The sophistication and size of the laundering operations in modern society has posed threatening challenges to even the most sophisticated surveillance networks therefore making special financial intelligence structures in any nation particularly in those that are more prone to risk, such as Nigeria. The dynamic of the money laundering methods that started with traditional cash smuggling and now comprise complex schemes based on shell companies, trade-based money laundering, and even fintech systems- demands versatile intelligence models (OECD, 2022). The financing of dirty money is associated with other crimes because it serves money-laundering communities of organized crime, trade in drugs, tax fraud and grand corruption. Financial Action Task Force (FATF, 2022) estimates that 2-5 percent of the world GDP worth more than 2 trillion dollars get laundered annually. Although such illicit flows of finances are not a phenomenon in one geographical location, their effects are most detrimental to both the developed countries and the developing countries in which there are weaker institutions that enforce regulations and which financial systems are more vulnerable to exploitation. As per analysis (Adesina & Yusuf, 2023) criminals have started using blockchain technologies, digital wallets, and cryptocurrency exchanges that are anonymous, to transmit funds out of the jurisdiction of regulating authorities. In Nigeria, monetary laundering is widespread and indicates that there is structural corruption rooted in its political economy. These entail high levels of corruption in the public sector, misuse of office by the politically exposed persons (PEPs), well-established informal financial sector and poor implementation of financial legislation. Most of the tainted money is laundered through real estates, offshore schemes, shell companies and money service businesses that are not regulated. In its 2022 National Risk Assessment Report, the Nigerian Financial Intelligence Unit (NFIU) cited the real estate sector, cash-intensive enterprises and providers of professional services (lawyers and accountants) among the most vulnerable transaction receivers in the country risking being turned to cash sluices to launder money. Moreover, porous boundaries, unregulated money exchange mechanisms, and weak controls of digital financial systems have enabled criminals to transfer huge amounts of value across borders without much notice (NEITI, 2023; GIABA, 2023). Such vulnerabilities negatively affect the economic growth in the country and bring down the confidence of investors. Egwuonwu & Okoye, (2021) report that as the world has increasingly transformed into a digital financial service with non-traditional financial institutions becoming mainstream; there has been an emerging need to have a technological proficient proactive intelligence agency. Owing to these challenges, Nigeria instituted the Nigeria Financial Intelligence Unit (NFIU) in accordance with the international anti-money laundering (AML) arrangements. Although major convictions have been achieved by agencies like the Economic and Financial Crimes Commission (EFCC) and the Independent Corrupt Practices and Other Related Offences Commission (ICPC) it has been said by the critics that, enforcement sometimes, is selective and even politically swayed. When faced with the international pressure and the risk of being expelled on the Egmont Group of Financial Intelligence Units, Nigeria reorganized the NFIU in 2018, making it legally and operationally autonomous to be able to meet the FATF Recommendations and increase the transparency in the financial domain in the country (NFIU, 2021). The NFIU as the designated Financial Intelligence Unit in Nigeria has the mandate of receiving, processing and sharing the reports of suspicious transactions (STRs) with local and international agencies and helping to track illicit money across Nigeria or to any part of the world. This institutional re-subposition is projected to strengthen the anti-money laundering (AML) structure in Nigeria and offer an intelligence-led and results-driven methodology of disruption of the laundering networks. Theoretically speaking, there are two applicable frameworks to this research, namely Routine Activity Theory (RAT) and Institutional Theory. Routine Activity Theory, an idea depicted by Cohen and Felson (1979), states that when a motivated offender marries a situational offender, it results in the occurrence of crimes when there is a gap caused by the lack of a capable guardian. Considering the issue of money laundering, the NFIU is the institutional protector, blocks and track suspicious transfers. Institutional Theory, in its turn, clarifies the impact of the institutional design and norms of a formal organization as well as institutional legitimacy on behavior and performance (Scott, 2021). When it comes to NFIU, the given theory proposes that the regulatory backing, institutional independence, and policy consistency are the prerequisites of success. Collectively, these frameworks can provide a better idea on the role of organizational structure and operational capacity in determining whether the NFIU can effectively fight money laundering in Nigeria. 1.2 Statement of Problem In Nigeria, money laundering has been among the most recalcitrant threats to the economic and financial stability of the country with estimates of illicit financial flows reaching to over 18 billion US dollars per annum with a huge proportion being attributed to money laundering cleaning activities that skew capital utilization, undermine revenue collection and delivery of service. Such economic distortions are further augmented by the lowered confidence of investors, inflationary forces and also poor institutions in the society. In addition to the financial connotation, money laundering allows deep-seated corruption, lassitude in oversight, and hiding of criminal organization take profits. The Global Financial Integrity (2023) suggests that Nigeria is among the major countries in Africa which have been experiencing trade-based money laundering which in most cases are perpetuated by the under-invoicing, forged documentation as well as the issue of cross-border trade which takesplace without its due monitoring thus reeling back to an institutional vulnerability issue. Based on the international experience, it is indicated that financial intelligence systems are effective in finding and preventing sophisticated laundering networks. As an example, the Financial Intelligence Centre (FIC) of South Africa has extensively deteriorated illicit monetary systems by implementing real-time analysis, regulation technology, and interagency arrangements (Moyo & Ncube, 2022). Similarly, Canada has FINTRAC, which illustrates the connection between operational autonomy, GDTA, and its strategic relationships with the judiciary agents to increase the effectiveness and accessibility of financial intelligence (Adams & Rogova, 2023). But in the case of Nigeria, it is highly different. Nevertheless, the country has the significant gaps to counter effectively the processes of money laundering despite the existence of the Money Laundering (Prevention and Prohibition) Act of 2022 and the reconstitution of the Nigeria Financial Intelligence Unit (NFIU) in 2018 as an independent body. A gap exists between the submission of Suspicious Transaction Reports (STRs) by financial institutions and the subsequent attention that results in real enforcement actions- this is a gap that can point to the inefficiency in the intelligence-processing cycle. Though existing literature has attempted to cover extensively the general anti-corruption framework of Nigeria together with the functions of the EFCC and the ICPC, empirical literature on the NFIU is quite limited. Research work done by Ogbonna and Appah (2022) has mainly focused on legal arrangements and institutional issues in general rather than substantially analyzing the agent processing capability of intelligence, technology resources and collaborative activity among agencies. More to the point, the literature does not exhaustively test the question of how the NFIU evolves in order to keep up with the recent developments in methods of laundering money, especially the ones that are digitally oriented (through digital currencies, shell networks, etc.) and those that resort to using informal financial intermediaries. Such a gap is both policy and practice oriented, given that Nigeria has no chance to improve its financial intelligence approach due to the lack of evidence-based evaluations. Thus, it can be stated that the research project is interested in exploring the effective capability of the Nigeria Financial Intelligence Unit to combat money laundering by critically addressing their functional role, performance, and institutional constraints in regard to the changes in money laundering typologies and their performance in meeting their statutory requirements within the international laws of the Financial Action Task Force (FATF). 1.3 Objectives of the Study The main objective of this study is to examine the role of the Nigeria Financial Intelligence Unit (NFIU) in combating money laundering in Nigeria. Specifically, the study aims to: i. Assess the role of the NFIU in detecting transactions associated with money laundering in Nigeria. ii. Evaluate the NFIU’s role in analyzing and reporting suspicious financial transactions. iii. Determine the effectiveness of the NFIU in investigating money laundering-related activities. iv. Examine how the NFIU contributes to the prevention of money laundering in the Nigerian financial system. v. Identify the institutional and operational challenges faced by the NFIU in executing its anti-money laundering mandate. 1.4 Research Questions i. What is the role of the Nigeria Financial Intelligence Unit in detecting money laundering transactions in Nigeria? ii. How does the NFIU analyze and report suspicious financial transactions linked to money laundering? iii. What is the effectiveness of the NFIU in investigating money laundering activities in Nigeria? iv. In what ways has the NFIU contributed to the prevention of money laundering in the Nigerian financial system? v. What challenges does the NFIU face in combating money laundering in Nigeria? 1.5 Research Hypotheses H₀₁: Nigeria Financial Intelligent Unit do not play significant positive role in combatting money laundering transactions in Nigeria. H₀₁: Nigeria Financial Intelligent Unit significantly play positive role in combatting money laundering transactions in Nigeria. 1.6 Justification of the Study Money laundering continues to pose a significant threat to the Nigerian economy, eroding public confidence in the financial sector and deterring foreign investment. Despite the existence of a robust legal framework comprising the Money Laundering (Prevention and Prohibition) Act 2022 and other financial regulations—there remains a substantial gap in enforcement and institutional coordination. The Nigeria Financial Intelligence Unit (NFIU), as the central body responsible for receiving and analyzing financial intelligence, plays a pivotal role in bridging this enforcement gap. However, the effectiveness of the NFIU in detecting, analyzing, and disrupting laundering operations has not been sufficiently examined through empirical research. Therefore, this study is justified as it provides a comprehensive evaluation of the NFIU’s contributions, constraints, and opportunities for improvement in the fight against money laundering. This research is particularly relevant as Nigeria continues to face mounting international pressure to strengthen its financial regulatory system and meet FATF recommendations. The NFIU's strategic collaboration with other domestic and international institutions—including the Central Bank of Nigeria, the EFCC, and the Egmont Group—provides a unique lens through which institutional effectiveness can be analyzed. Moreover, the study’s findings will inform policy reforms and capacity-building strategies, support academic discourse in financial crime studies, and potentially guide international development partners in supporting Nigeria’s AML infrastructure. 1.7 Scope of the Study This study is limited in scope to the role of the Nigeria Financial Intelligence Unit (NFIU) in combating money laundering within Nigeria. The content coverage includes the detection, analysis, reporting, investigation, and prevention of laundering-related financial transactions. It also examines the challenges that impede the NFIU’s operations and the mechanisms through which they can be addressed. Geographically, the study focuses on the NFIU’s operations within Nigeria, with emphasis on the agency’s headquarters in Abuja and its collaborative network across Nigerian financial and regulatory institutions. 1.8 Definition of Terms Money Laundering: The process of concealing the origins of illegally obtained money by passing it through legitimate financial systems to make it appear legal. Financial Intelligence Unit (FIU): A national agency responsible for receiving, analyzing, and disseminating financial data related to suspicious transactions to prevent money laundering. Suspicious Transaction Reports (STRs): Financial reports generated by institutions flagging transactions that may indicate potential involvement in money laundering or other financial crimes. Anti-Money Laundering (AML): A set of procedures, laws, and regulations aimed at preventing and identifying money laundering activities. Egmont Group: An international consortium of Financial Intelligence Units that promotes global cooperation in the fight against money laundering and related financial crimes.