Curbing funding of global terrorism: The role of the financial sector (II)

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Concluding part of text of a paper presented by Godwin Emiefele, Governor of Central Bank of Nigeria, at a 4-day International Seminar on “Managing Asymmetry Security Challenges in the 21st Century”, at the Nigerian Army Resource Centre, Abuja, on October 16, 2017.
The role of financial sector
The role of the financial sector in the national strategy of combating terrorism cannot be over-emphasized especially in this 21st century. There has been a paradigm shift in favour of using financial intelligence in detecting and preventing threats to national security. Financial sector supervisors have in consequence broadened the sphere of supervision by enfolding AML/CFT supervision as an integral part of the broader supervisory process.
Furthermore, in compliance with the Financial Action Task Force (FATF) Recommendations, preventive measures have been established to combat terrorism funding and financing. These include establishing concise guidelines that require financial institutions to take appropriate steps to identify, assess and understand the money laundering and financing of terrorism risks of their customers, products and services; geographic areas of operations and delivery channels.
At the foundation of each financial institution’s anti money laundering and counter terrorism financing compliance program is the conduct of customer due diligence (CDD) and enhanced due diligence (EDD) for higher risk clients. The identity of beneficial owners of legal entities and corporate vehicles are unveiled and verified with a view to preventing the misuse of such entities to finance terrorism.
Another preventive measure to curb the financing of terrorism in financial institutions is the deployment of robust analytical and sanctions screening software to forestall terrorist and terrorist organizations from channeling their transactions through our financial system.
Financial institutions are required by law to report suspicious transactions relating to money laundering as well as financing of terrorism to the financial intelligence unit. Other AML/CFT reports such as Currency Transaction Reports and Foreign Currency Transactions above stipulated thresholds are also reported to the financial intelligence unit.
Outlined below are other key actions undertaken by the Central Bank to curb the financing/funding of terrorism through the financial sector.
• Strengthening of the licensing requirements for banks and other financial institutions.
• Establishment of AML/CFT Division in the Financial Policy and Regulation Department, (focused on AML/CFT Policy formulation and regulation,) AML/CFT Divisions have also been created in other Supervisory Departments to supervise financial institutions under the regulatory purview of the CBN to ensure effective compliance with extant AML/CFT standards and to safeguard the financial system.
• Issuance of the CBN AML/CFT Regulations, 2013 for application by banks and other financial institutions. The Regulations provides AML/CFT operational guidelines in line with the FATF Standards, Money Laundering (Prohibition) Act, 2011 (as amended), Terrorism Prevention Act, 2011 (as amended) and other extant AML laws.
• Creation of the positions of Executive Compliance Officer (ECO) as a board function in order to ensure that issues relating to AML/CFT are elevated to the board of directors of banks.
• Continuous update of financial institutions under CBN’s regulatory purview with United Nations Consolidated Lists of persons/entities involved in terrorism financing or terrorist activities for appropriate action.
• Published AML/CFT Risk-based Supervision (RBS) Framework, consisting of AML/CFT RBS Examination Procedures Manual for Bank Examiners; and AML/CFT RBS Regulation for Financial Institutions to guide AML/CFT operations in financial institutions under the CBN’s supervision.
• Actively participated in the conduct of the Money Laundering/Terrorist Financing National Risk Assessment (NRA) exercise. The NRA Reports highlights the money laundering/terrorist (ML/TF) threats and vulnerabilities in the country.
• Developed a simplified Know-Your-Customer regime referred to as the Tiered KYC regime, which is aimed at enhancing financial inclusion. The Tiered KYC regime is based on the assessed risk level and established commensurate controls to mitigate the risks.
• Developed in 2012, Nigeria Uniform Bank Account Number (NUBAN) and standard account opening forms for Financial Institutions in conjunction with Committee of Chief Compliance Officers of Banks in Nigeria.
• Provided input to the Office of the National Security Adviser (ONSA) on the review of the Nigeria’s National Security Strategy/Plan and production of National Counter-Terrorism Strategy (NALTEST). The latter effectively address the security challenges in the nation, especially the growing acts of terrorism and strengthen strategies/measures for combating same.
• Issued a circular to financial institutions to ensure that designated non-financial institutions (DNFIs) supervised by Special Control Unit against Money Laundering (SCUML) of the Ministry of Trade and Investment, have evidence of registration before opening accounts with them. The measure is in line with the FATF new Recommendation 2 that requires inter-agency cooperation.
• Introduced the Cash-lite Policy to address the challenges of a predominantly cash-based economy. The payments system plays a crucial role in maintaining the stability of the financial system and a cash based payment system undermines the fight against money laundering and financing of terrorism. Some alternative payment system introduced includes mobile payments; Point of Sale Terminals; ATMs, Automated Direct debits; e.t.c.
• Introduction of biometric identification for bank account holders. On 14 February, 2014, the CBN launched a centralized biometric identification system for the Banking Industry tagged Banks Verification Number (BVN).
• Established a proportionate and dissuasive sanction regime as remedial actions for non-compliance to set out rules and regulations on anti-money laundering and combating terrorist financing.
In recognition of the threats of terrorist financing, the CBN carries out continuous on-site and off-site examination of banks and other financial institutions to ensure that the financial sector is generally in compliance with counter terrorism policies and guidelines.
• In addition to Risk-Based Prudential examinations carried out in 2016, AML/CFT Compliance checks were carried out by the Banking Supervision Department. Twenty banks were sanctioned for contravening various AML/CFT regulations.
• The Bank conducted AML/CFT compliance review of 1,622 Other Financial Institutions during the period of 2015 to 2016. A full scope stand-alone AML/CFT examination of 24 selected OFIs was carried out in December 2016.
• The CBN has increased its level of cooperation and collaboration with other stakeholders through exchange of information, conduct of joint examinations and organizing joint training programmes. The CBN signed a Memorandum of Understanding with the Nigerian financial Intelligence Unit (NFIU) in 2015.
• The CBN is an active member of the Inter-Ministerial Committee on AML/CFT (IMC) which was constituted in 2008 and re-inaugurated in March, 2015. It is a high level executive Committee which comprises the Ministers of the three (3) core Ministries (Finance, Interior and Justice) and other stakeholder agencies. It is the standing coordinating body of the country’s AML/CFT regime.
• The Bank established the AML/CFT Stakeholders’ Consultative Forum, which comprises representatives of various AML/CFT stakeholder institutions. Regulators in the financial industry and law enforcement agencies. It meets regularly to share ideas, knowledge and insight on how to enhance the fight against money laundering and combat the financing of terrorism. The Forum also addresses the problem of multiple and overlapping requirements of FATF Recommendations, establishes acceptable standards in respect of Politically Exposed Persons (PEPs) and carries out self-evaluation of Nigeria’s compliance with its AML/CFT regime.
• The Bank is an active member of various inter-agency Committees such as National Focal Point for Study and Research on Terrorism (NFPSRT), Inter-Agency Committee on Illegal Fund Manager and “Wonder Banks”, e.t.c which are established to ensure inter-institutional/agency collaboration and cooperation in line with FATF Recommendation No. 2.
• The Bank encourages operators to network and form groups, such as the Committee of Chief Compliance Officers of Banks in Nigeria (CCCOBIN) which engender exchange of information and cooperation.
The role of the financial sector under the lead of the CBN in curbing the funding of terrorism is no doubt challenging as terrorists continue to be innovative in undermining extant policies and guidelines.
Some of the challenges militating against the effectiveness of curbing the funding of terrorism by the financial sector include:

Existence of unregulated informal money value transfer services (mvts):
As captured in the GIABA Typology study, a major challenge in curbing terrorism financing is the use of informal money or value transfer services. In June 2014, the CBN issued a guideline for the international money transfer services in Nigeria and required such operators to register with it.

Innovation in virtual/cryptocurrency currency:
The emergency of virtual currency and other related web-based innovations pose the greatest challenge in combating the funding of terrorism by the financial sector. The rave of virtual currency and Blockchain is trending round the world with some jurisdictions outrightly banning the phenomenon while others have embraced it with caution
Mavrodi Mundial Moneybox (MMM) activities dominated the Nigeria financial landscape in 2016. The activities were not regulated and the uses of the funds could not be vouched for. The CBN issued a public notice on the dangers of patronizing such schemes and warned the banking sector on using its platform to promote such activities until a formal regulation was issued.
The CBN is collaborating with a national stakeholder group on block chain and virtual currency.

Insufficient spread of national unique identity:
Like in other developing countries, the absence of a unique identifier poses a challenge to entrenching proper customer due diligence. In response to this challenge the Central Bank of Nigeria in collaboration with the Bankers’ Committee introduced the Bank Verification Number (BVN), a biometric identity number for all bank account holders. This has tremendously assisted law enforcement in tracking all financial transactions related to persons of interest.
It is hoped that this would be fully integrated with the National Identity Management System and other biometric systems in the country.

Absence of a functional national sanction committee:
The Nigerian Sanction Committee is responsible for implementing the provisions of United Nations Security Council Resolutions (UNSCR) 1267 and UNSCR 1373 as well as coordinating comprehensive review of the National Terrorists List. This function has not been effectively carried out. This limits information available to financial sector

The financial sector has taken giant and proactive steps at curbing the financing of terrorism. It has made itself relevant in the global efforts against terrorism and has continued to be innovative in countering terrorism. No wonder terrorists and terrorists financing are exploring other channels other than the financial sector.
However, the dominance of cash transactions within the Nigeria financial system still provides huge incentives for funding of terrorism. It is hoped that the CBN cash-light policy in addition to reducing the huge cost of cash management would starve terrorist of funds.
Distinguished officers and participants, it true that the financial sector plays a crucial role in curbing the funding of terrorist but it also truism that no single sector can effectively contain the asymmetric security challenges facing the world in the 21st century.
Collaboration, collaboration, collaboration are the three keys that can lock terrorism and asymmetric challenges facing the world today.
I thank you for your attention and wish you a fruitful deliberation.


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