Nigerian EFCC Chair Farida Waziri is tasked with monitoring the financial system inside the West African state. The banking sector nearly collapsed in 2009 in a similar fashion as Wall Street almost did in the United States during late 2008., a photo by Pan-African News Wire File Photos on Flickr.
Caging PEPs: The fire next door?
Wednesday, 11 May 2011 00:00
By Enitar Ugwu
THE financial system in Nigeria and other countries is a sort of conduit pipe. It can either be used for good or bad. Based on this, it is always closely monitored by relevant government agencies in any county.
The abuse of the financial system is not limited to the run of the mills criminals.
In some cases, this abuse involves some highly placed public officers, known in financial circles as Political Exposed Persons (PEPs).
According to wikipedia , Politically Exposed Person, a term that describes a person who has been entrusted with a prominent public function, or an individual who is closely related to such a person. The terms Politically Exposed Person and Senior Foreign Political Figure are often used interchangeably, especially at international fora.
However, the term PEP is not used in FinCEN’s regulations. However, it is to a great extent similar to the definition of Senior Foreign Political Figure, as defined by section 312 of the USA PATRIOT Act. Neither the Financial Action Task Force on Money Laundering (FATF) definition nor the USA Patriot Act definition of this term are intended to include middle ranking or more junior individuals in the categories listed in the below definition or officials of local governments.
The term Foreign Official is used by enforcement agencies relating to persons who have similar characteristics as PEPs, but this term is used in all industries, not just by financial institutions, and is referenced in the Foreign Corrupt Practices Act in the United States.
By virtue of their position and the influence that they may hold, a PEP generally presents a higher risk for potential involvement in bribery and corruption. Most financial institutions view such clients as potential compliance risks and perform enhanced monitoring of accounts that fall within this category.
The process of screening for PEPs is usually performed at the beginning of account opening, called initial due diligence, and screening of accounts periodically is performed as part of ongoing due diligence. The process of due diligence to uncover PEPs can be time consuming and requires screening against a reputable database of known PEPs, usually close to 1 million profiles, against the names, dates of birth, national identification numbers and photos of clients.
Heavy fines have been imposed on financial institutions such as Riggs Bank for conducting business with PEPs without following adequate Know Your Customer procedures and enhanced due diligence processes. PEP-specific compliance legislation underlines the link between corrupt politicians, money laundering and the financing of terrorism. Since September 11, 2001, more than 100 countries have changed their laws related to financial services regulation, with the fight against political corruption playing a fundamental role.
The designation “Politically Exposed Person” dates back to the late 1990s in what was known as the “Abacha Affair.” Sani Abacha was a Nigerian dictator who organised (with his family members and associates) a network of massive theft of assets from the government. It is believed that the amount stolen was in excess of several billion dollars and the funds were transferred to bank accounts in the United Kingdom and Switzerland.
In 2001, in an effort to recover the money, the Nigerian Government that succeeded the Abacha regime lodged complaints with several European agencies, including the Federal Office of Police (FOP) of Switzerland, which, in turn, investigated close to 60 Swiss banks. In this investigation, the concept of “Politically Exposed Person” emerged, which was later included in the 2003 United Nations Convention against Corruption.
According to Canadian anti-money laundering legislation, it requires financial institutions to determine if clients are Politically Exposed Foreign Persons (PEFPs). This Canadian term shows a large degree of overlap with the politically exposed person (PEP) definition used in most other countries in the world, and is also comparable to the “senior foreign political figure” as outlined in the USA Patriot Act.
Interestingly, with general elections over in the country, banks are currently wooing first time governors elect as well as first time national assembly members with mouth watering unsolicited facilities running into billion of naira, The Guardian has learnt.
Unsolicited facilities in banking parlance means loans not applied for by the recipient.
A source in the banking industry revealed to The Guardian that the move started immediately after the national assembly elections were conducted.
He noted that almost all the banks are involved in this scheme, as they have set up high-powered team to actualise the dream.
Their targets, The Guardian was informed, are basically first term governor elects and first time National Assembly members
The reason behind this logic, according to the source, is that all the officials in the category, especially the governors elect would want to continue doing business with the banks used by their predecessors in the office.
The first time governors are: Umaru Tanko Al-Makura (Nasarawa), Rabiu Kwakwanso (Kano), Abiola Ajimobi (Oyo), AbdulFatah Ahmed (Kwara), Ibikunle Amosun (Ogun), Kashim Shettima (Borno) and Ibrahim Dankwambo (Gombe).
Ibrahim Gaidam (Yobe) is being elected for the first time as governor, having assumed office two years ago on the death of the former governor of the state, Senator Ali Mamman, to whom he was deputy.
The banks are dangling from N1 billions to N3 billion loan facilities before these new governors depending on the financial strength of their respective states.
According to the source, the offers are usually targeted at each state’s Internally Generated Revenue (IGR) accounts, Federal Allocation Accounts, and Value Added Taxation (VAT) accounts.
The arrangement, The Guardian gathered is for the state to handover the banking of these juicy accounts to the bank.
The bank in turn will be deducting these loans from these accounts, in case of the governors.
The life span of the loan is usually between one to two years. In case of the new National Assembly members, the tenor for the loan is similarly for two years.
It is usually without any form of collateral except that the legislator’s salary must be domiciled with the bank that extended such facility to him/her.
For the senators elect, the amount on offer is usually N100 million with a tenor of two years while for House of Representatives elect, the loan facility is usually N50 million for two years.
According to a publication by Consulate General of Nigeria, Atlanta Georgia, United States of America, in their website in 2009, the Central Bank of Nigeria (CBN) is working on a plan to make banks report suspicious cash transactions by politically exposed persons.
The proposed banking regulation, which is a draft manual on anti-money laundering, published on the CBN website, will require banks to report large movements of cash between accounts by PEPs.
The banking watchdog defines “politically exposed persons” as individuals who are or have been entrusted with prominent public functions both in Nigeria and foreign countries and those associated with them.
It listed examples of PEPs to include, but not limited to, heads of state or government; governors; local government chairmen; senior politicians; senior government officials; judicial or military officials; senior executives of state-owned corporations; important political party officials; family members or close associates of PEPs; and members of royal families.
The CBN said: “Financial institutions are required, in addition to performing Customer Due Diligence (CDD) measures, to put in place appropriate risk management systems to determine whether a potential customer or existing customer or the beneficial-owner is a politically exposed person.
“Financial institutions are also required to obtain senior management approval before they establish business relationships with a PEP and to render monthly returns on their transactions with PEPs to the CBN and Nigeria Financial Intelligence Unit (NFIU).
“Where a customer has been accepted or has an ongoing relationship with the financial institution and the customer or beneficial-owner is subsequently found to be or becomes a PEP, the financial institution is required to obtain senior management approval in order to continue the business relationship.
“Financial institutions are required to take reasonable measures to establish the source of wealth and the sources of funds of customers and beneficial-owners identified as PEPs and report all anomalies immediately to the CBN and other relevant authorities.”
According to the CBN, a financial institution in a business relationship with a PEP is required to conduct enhanced ongoing monitoring of that relationship.
“In the event of any transaction that is abnormal, FIs are required to flag the account and to report immediately to the CBN and other relevant authorities such as Economic and Financial Crimes Commission (EFCC)/NFIU,” it said.
Much Peps are major shareholders or directors in Nigerian banks. Under the regulations, the identities of both individuals and corporate institutions making a transaction above N500,000 and N1 million respectively must be checked.
Also commenting on the development, the Chairman of Economic Financial Crime Commission (EFCC), Mrs. Farida Waziri recently noted that the vigorous prosecution of Political Exposed Persons and top executives of banks through whom many fraudulent and corrupt activities had taken place enabled the rapid improvement of Nigeria’s rating in the global perception index of Transparency International.
From the second position bottom-up in 2003, Nigerian moved up to 134th position out of I78 countries assessed in 2010.
The UNODC in 2008 acknowledge that the EFCC is the lead anti-corruption Agency in Africa and had contributed significantly in improving Nigeria’s corruption rating.
Perhaps, one of the most profound of the EFCC’s achievement is instilling general consciousness of the public, generated through the Anti-Corruption Revolution (ANCOR) vehicle. This public/civil society partnership initiative launched in 2008 has galvanised the public to speak against and report corrupt practices. The initiatives have also helped enhanced credibility in the electoral process. The public was awakened to confront corruption through the political in the recent election by voting out or against person adjudged to be corrupt or who were standing trail in corruption cases.
This is significant because only credible persons can foster good governance that will in turn ensure sustainable development.
The investigation, prosecution, conviction and recovery of huge assets from public officials, Peps, bank executives and tax evaders is another EFCC milestone in fostering economic development. Besides, ensuring that rule of law (which is critical to economic development) prevails, this process helps to free resources illicitly acquired and channeling them for development purposes.
Over $9 billion worth of assets have been traced and recovered by the commission in the last six years from PEPs, bank executives and tax evaders.
The abused of public trust by senior public officials is a major drawback in the development efforts of any nation. The prevention of primitive acquisition of public wealth for private use is therefore a major challenge, which the EFCC is addressing.
In the on-going investigation of officials of the pensions office of the Head of the Civil Services of the Federation, the Commission has so far traced (besides landed properties and shares in blue chip companies) N1.2 billion and USD $2million to accounts of individuals and special purpose vehicles (SPV) created to launder stolen funds.