• Tuesday, February 27, 2024
businessday logo

BusinessDay

Politically exposed persons and enhanced due diligence in Nigeria

Politically exposed persons and enhanced due diligence in Nigeria

Politically Exposed Persons (PEPs) are high-risk customers in Nigeria’s financial sector and designated non-financial businesses and professions – they undergo enhanced due diligence.

Background

The Financial Action Task Forces (FATF), the global money laundering and terrorist financing watchdog identified Nigeria among countries that have strategic regime deficiencies in AML/CFT/CPF (Anti-Money Laundering, Combating of Financing of Terrorism, and Combating of Proliferation of Weapons of Mass Destruction).

FATF found Nigeria has a high level of corruption, despite Nigeria’s legislative improvements which include the Money Laundering (Prohibition and Prevention) Act 2022, Anti-Money Laundering, Combating the Financing of Terrorism and Countering Proliferation of Weapons of Mass Destruction in Financial Institutions Regulations 2022, Customer Due Diligence Regulations 2023, and Guidance Notes on Politically Exposed Persons 2022.

Read also: Lack of due diligence worsening Nigeria’s economic woes — Yakubu

Other legislation includes Terrorism (Prevention and Prohibition) Act 2022, Proceed of Crime (Recovery and Management) Act 2022, Companies and Allied Matters Act (CAMA) 2020, Mutual Legal Assistance in Criminal Matters Act 2019, Nigerian Financial Intelligence Unit (Establishment) Act 2018, Capital Market Operators Anti-Money Laundering and Combating the Financing of Terrorism Regulations 2022, and Rules of Professional Conduct 2023.

AML/CFT/CPF policies include the National Counter-Terrorism Strategy 2016, National Strategy for Countering the Financing of Terrorism 2021, National Anti-Corruption Strategy 2022-2025, National Drug-Control Master Plan 2021-2025, National Strategy to Counter Wildlife and Forestry Crime, National Policy on Confiscation, International Cooperation Plan and Strategy, Complex Casework Group, Central Authority Unit, and National Counter-Terrorism Coordination Centre.

Indeed, Nigeria is not short on legislation or policies, and the CBN led the AML/CTF/CPF regulatory pack when it issued the Guidance Notes on Politically Exposed Persons 2022.

Like the FATF Recommendations 15, and the Money Laundering Act 2022, the Guidance Notes on Politically Exposed Persons 2022 categorized politically exposed persons as domestic PEPs, foreign PEPs, or International Organizations PEPs.

Who are Politically Exposed Persons

Politically Exposed Persons are high-risk customers who enjoy enhanced due diligence because they are most likely to launder money, finance terrorism, finance the proliferation of weapons of mass destruction, receive corrupt or illegal funds, or commit fraud.

The Money Laundering Act 2022 defines foreign PEPs as people who were or are entrusted with important public functions by a foreign country. For example, the Head of State or Government, senior politicians, senior government, judicial or military officials, senior executives of State-owned corporations, and important political party officials.

Domestic PEPs are Nigerians who are or were entrusted with important public functions, such as the President, senior politicians, senior government officials, judicial or military officials, senior executives of government-owned entities, and important political party officials.

Foreign PEPs are or were members of senior management such as directors, deputy directors, and members of the board or equivalent functions in an international organization and their family members and close associates.

Ike Wole, who lost the federal legislative election in 2023, is a PEP. The prominent lawyer whose clients include senior politicians is a person connected to a PEP under the Money Laundering Act 202.

Family members and persons connected to politically exposed persons are the primary channels of receiving or transferring illicit funds in Nigeria’s private and public sectors.

Politically Exposed Persons are not limited to the financial and capital markets. Every designated non-financial business and professional must perform enhanced due diligence on customers who are PEPs.

Designated non-financial businesses and professions include automotive dealers, hospitality and tourism, casinos, clearing and settlement companies, consultants and consulting companies, jewellery shops, machinery, metals and precious stones, real estate, estate developers, estate agents, brokers, licensed professionals, supermarkets, lotteries, and betting.

Enhanced Due Diligence for a PEP

Financial institutions and designated non-financial businesses and professionals must apply enhanced due diligence on low or high-risk politically exposed persons.

Because PEPs enjoy enhanced due diligence, politically exposed persons are screened during the onboarding process, periodic customer reviews, when there are transactions that warrant a simple due diligence or customer due diligence review, and when notified or tipped off by reliable sources.

Financial institutions and designated businesses and professionals should adopt FATF’s recommended red flags as triggers for screening and monitoring PEPs in Nigeria.

Such red flags include the use of corporate vehicles (legal arrangements) to obscure ownership or involved industries or countries, a PEP’s inquiries about the institution’s AML policy or PEP policy, general reluctance to provide information about the source of wealth or source of funds, data disclosed are inconsistent with other publicly available information, unable or reluctant to explain the reason for doing business, inaccurate or incomplete information, funds repeatedly moved to and from countries to which the PEPs does not seem to have ties and visa denial.

A CBN-supervised entity must apply the Customer Due Diligence Regulations 2023, and the enhanced due diligence regime under the Guidance Notes on Politically Exposed Persons 2022.

Enhanced due diligence must be administered on PEPs, connected persons, family members, and beneficial owners, such as individuals, shareholders, and directors.

For a PEP, no data is trivial. Source of funds, contents on the internet, personal disclosures, review of internal customer databases, public searches that should include Embassies and account monitoring for suspicious or fraudulent transactions are relevant.

Paying ransom to kidnappers is an offence under the Terrorism Act 2022, and monitoring of PEPs, and connected persons’ account may assist law enforcement’s efforts to fight crime in Nigeria.

Conclusion

Although the United Kingdom domestic PEPs enjoy low-risk enhanced due diligence at home, foreign or International PEPs are categorized as low-risk in Nigeria.

While Nigeria’s domestic PEPs are high-risk and require enhanced due diligence. Nigerian PEPs doing business abroad or in Nigeria undergo high-risk enhanced due diligence.

Being a PEP is a stricture because Banking financial institutions, capital market operators, and designated non-financial businesses and professionals must confirm information about PEPs’ relationship with other financial institutions, data on board members and beneficiaries, definite source of funds, and purpose of the transactions.

Yet, lifting Nigeria from FAFT’s table of countries that have strategic AML/CFT/CPF regime deficiencies, depends on bridging the AML/CFT/CPF knowledge gap, financial institutions, designated businesses and professionals, and regulators.

Enwe is a partner, in fintech, education, and retail at SRJ Legal