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Effects of Economic Crimes and Money
Laundering in the Nigerian Financial Services Sector
Chapter One
Introduction
1.1 Background of the Study
In the past few years, there has been an
increased awareness in Africa and indeed Nigeria, of the crime of Money Laundering.
This increase in awareness has arisen because of the step-up in the activities
of agencies and governments involved in the monitoring, prevention and
punishment of money launders and their activities. This in turn increased for
two main reasons; first is the realization by the Nigerian government that
money laundering has debilitating consequences on the economy and society. The
second reason is that Nigeria, like other developing countries, have come under
increased pressure by the developed world particularly after the September 11,
2001 incidence in America, to plug the holes in her systems that allow money
laundering. This increased pressure had been tied among other things to aids,
technical assistance and the channeling of foreign direct investment. The
Nigerian financial services sector consists of
Banks, the Stock Exchange, the
Securities and Exchange Commission, the Insurance companies and the Discount
houses. The challenges in each country's financial sector are unique depending
on the country's conditions. In any economy, the financial system is the hub of
productive activity, as it performs the vital role of financial intermediation,
the primary provider of payment services and the fulcrum of monetary policy
implementation. The author tries to put together the approaches to address
money laundering within our comprehensive governance framework. These include
the main hypothesis which challenges such myths and orthodoxies about money
laundering and economic crimes, the stages of the development and governance
framework. The various types of activity
and sources of profits and funds, which may be legal or illegal. The funds may
or
may not be channeled through money
laundering transactions. The types of financial transactions and intermediations.
The ultimate impact of the activity, does it favour development or discourage
it?
The illegal and extra legal activities
that generate funds for laundering vary from country to country and from region
to region. Among the legal activities are good governance, legal business
concern, legal financial transactions through bonafide financial institutions,
legitimate consumption, investment and development use of funds. These
activities are pro-development. The illegal activities are drug trafficking, arms
trade, prostitution, corruption in government and in the political class,
corrupt public officials and in procurement, regulatory and state capture by
corporate and banks, insider trading, stock market, X-Rate and Trade prices
manipulation, organized crime, racketeering, extortion and gambling, transfer
pricing and tax evasion, charities and other front companies.
There are two basic types of money
laundering. The first type occurs through banks and other formal financial
institutions.
It is the most common type, or at least
the most commonly covered in the press. Funds are placed, layered and
integrated. Electronic funds transfer, or e-banking, plays an important role in
money laundering and economic crimes. Growing in importance is money laundering
through non banking financial institutions (NBFIs) -through real estate
transactions, security brokers, derivatives, the exchange rate market, leasing,
insurance companies and others.
The second type of money laundering
occurs through haw alas and other informal financial institutions, which in
some parts of the world play a very important financial role. As the
government enhances enforcement,
supervision, and institutional development, notice should be taken of the
substitutes to the formal financial sector. If the holes represented by those
substitute are not plugged, they will grow in importance.
Laundered money is put to many uses,
among them terrorist activity, where laundered funds supplement financing
received from legal commercial activities and from state sources. A similar
pattern can be seen in illegal political campaign funding. Funds that may well
have been generated legally go through laundered transactions. When financial
activity is legal it is quite likely to contribute to growth and development.
The opposite is true of illicit activity, which usually compromised growth and
development. Money
laundering and other types of illegal
activities have significant socio-economic development and financial costs. In
addition, the complex links among grand corruption, money laundering and
economic crime needs to be better understood. They vary from setting to
setting.
The work is divided into five chapters.
Chapter one contains the introduction. In chapter two, we review the available
literature on the subject matter. Chapter three discussed the methodology of
the research as well as management of money laundering and economic crimes in
the Nigerian economy and the effects in the financial services sector. Chapter
four contains the analysis of new methods to launder money and illicit
financial flows, their effects on financial institutions and the economy of the
host country. Chapter five contains the summary findings, conclusion and
recommendations.
Effects of Economic Crimes and Money Laundering in the Nigerian Financial Services Sector
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