Money laundering: the Senate will ban transactions with shell banks

The Senate has taken steps to ban the establishment and operation of shell banks in Nigeria in order to strengthen the existing anti-money laundering system.

It also aims to prohibit the country’s banks and other financial institutions from having commercial relations with shell banks.

A shell bank is a bank that has no physical presence in the country in which it is incorporated or authorized, and is not affiliated with a regulated financial group subject to effective consolidated supervision.

Shell banks operate by using a postal address for mail and other correspondence or by having a representative or person who accepts mail on their behalf.

The Central Bank of Nigeria (CBN) in 2018 called for the enactment of a law that would ban shell bank operations in the country.

Mr. Godwin Emefiele, the governor of the CBN, made the call during a public hearing organized by the House Committee on Banking and Currency on a bill to amend the Law on Banks and Other Financial Institutions ( BOFIA) and other bills.

He said shell banks, in addition to being used for money laundering, distort the banking system and pose major problems for regulators.

Emefiele, who was represented at the event by Johnson Akinwumi, Director of CBN, Department of Legal Services, said: “We would like to propose the introduction of new paragraphs 3 (6 and 7) for the shell bank ban in response. to the latest recommendations of the Financial Action Task Force (FATF) on Money Laundering to read:

“Any bank or its subsidiaries without a physical presence in the country where it is incorporated and licensed and not affiliated with any financial services group subject to effective consolidated supervision will not be permitted to operate in Nigeria and any Nigerian bank or its subsidiaries. not establish or continue any relationship with this bank or subsidiary, ”he said.

On September 15, 2021, the Senate introduced a bill to repeal the 2011 Money Laundering (Prohibition) Law and enact the 2021 Money Laundering (Prevention and Prohibition) Law.

The new bill, sponsored by Senator Sadiq Umar (North Kwara), passed first reading in the Red Chamber.

The bill, according to the proponent, aims to provide an effective and comprehensive legal and institutional framework for the prevention, prohibition, detection, prosecution and suppression of money laundering and other related offenses in Nigeria.

The bill, a copy of which was obtained by our correspondent, aims to broaden the scope of money laundering offenses and provide for appropriate penalties; ensure the protection of employees of various institutions, organizations and professions likely to discover money laundering, and strengthen customer vigilance.

Important provisions

Clause 27 of the bill seeks to prohibit the establishment or operation of a shell bank in Nigeria.

It also stipulates that banks and other financial institutions in Nigeria must not establish a correspondent banking relationship with (a) a shell bank; or (b) another financial institution that has a business relationship with a shell bank.

Subsection 3 of this section requires financial institutions to end their business relationship with a shell bank within 14 days of becoming aware of such ties.

Subsection 5 states that any financial institution that knowingly enters into a relationship with a shell bank or does not terminate the relationship after realizing that it has entered into a banking relationship with a shell bank is guilty of an offense and is liable, upon conviction, to a fine of 100 N. million euros and withdrawal of its operating license.

The bill also states that an executive of a financial institution who facilitates a banking relationship with a shell bank faces a fine of N 10 million or a two-year prison term or both.

Subsection 7 states that a fine of N 10 million or two years imprisonment or both awaits a person who establishes or operates a shell bank in Nigeria.

The bill also seeks the creation of a department under the Economic and Financial Crimes Commission (EFCC) which will be known as the Special Unit for the Control of Money Laundering (SCUML).

Any bank that does not comply with this provision is liable, upon conviction, to a fine of N25 million or more.

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