As regulatory guidelines strengthen in Nigeria, businesses must remain vigilant about their obligations regarding politically exposed persons (PEPs). In this article, we will explore the impact of new PEP updates on businesses in Nigeria, including the risks associated with unidentified PEPs, the importance of due diligence, and the challenges of managing PEP lists, with real-world examples.
Finally, we will delve into what your business can do to effectively mitigate PEP risk and stay up-to-date with regulatory requirements while operating in the emerging market that is the ‘Giant of Africa’.
Regulations and PEP Updates in Nigeria
In recent years, the Nigerian government has taken steps to strengthen its anti-money laundering and counter-terrorist financing frameworks with new laws and regulations, many of which address the risks posed by politically exposed persons.
In this section, we will discuss some of the regulatory guidelines and updates that your business needs to be aware of in order to operate in the country.
The Money Laundering (Prevention and Prohibition) Act, 2022 (MLA 2022) bill is the latest and most significant piece of legislation passed by the Nigerian government. This Act supersedes the Money Laundering Prohibition Act, 2011, and aims to provide a comprehensive legal and institutional framework for preventing and prohibiting money laundering.
Let’s now examine the current compliance landscape in Nigeria, considering the modifications and revisions introduced by the MLA 2022:
- Designated Non-Financial Business and Profession (DNBP): The previously defined Designated Non-Financial Institutions (DNFI), created by the 2011’s Act, is now called Designated Non-Financial Business and Profession (DNBP), and includes:
– automotive dealers,
– businesses involved in the hospitality industry
– clearing and settlement companies
– consultants and consulting companies
– dealers in jewely
– dealers in mechanized farming equipment, farming equipment, and machinery
– dealers in precious metals and precious stones
– dealers in real estate, estate developers, estate agents, and brokers
– high-value dealers
– legal practitioners and notaries
– licensed professional accountants
– mortgage brokers
– practitioners of mechanized farming
– tax consultants
– trust and company service providers
– pools betting.
- PEP: Financial institutions (FIs) and DNBPs must have enhanced mechanisms for determining whether a customer or a customer’s beneficiary is a politically exposed person, as well as verify and establish the source of wealth and funds of beneficial owners and customers identified as PEPs.
FIs need senior management approval before establishing business relationships with PEPs and must render monthly returns on all transactions with PEPs to the Central Bank of Nigeria (CBN) and the Nigerian Financial Intelligence Unit (NFIU).
Falling under the PEP definition are individuals who are or have been entrusted with prominent public functions domestically, by a foreign country, or by an international organization. For example, heads of government, politicians, senior government, judicial or military officials, senior executives of State-owned corporations, and important political party officials, or, in the last category, directors, deputy directors and members of the board, or equivalent functions and their family members and close associates.
- KYC: Strengthening the previous requirements, FIs and DNBPs are now required to conduct due diligence and verify the identity of customers, particularly people acting on behalf of customers, to make sure they are authorized and properly identified.
- Casinos: Online and ship-based casinos now fall under the compliance requirements. This means that businesses in this industry must verify the identity of customers by requiring valid documents and forwarding records of financial transactions to the Special Control Unit against Money Laundering (SCUML).
- Cash limit: The MLA 2022 preserves the limit value on cash payments and transactions at N5 million for individuals and N10 million for corporate bodies. However, it defines that transactions must be routed through a financial institution, and banks must report any lodgement of funds above of these limits within seven days.
- Cash movement: Physical cash or negotiable instruments transported in or out of Nigeria higher than $10,000 must be declared to Nigerian Customs within seven days. Failure to report may result in forfeiture or, two years imprisonment, or both.
- Transaction splits: Splitting a single transaction into two or more separate transactions to avoid reporting is prohibited.
- Virtual asset: Virtual assets have been included in the definition of funds. These are digital representations of value that can be digitally traded or transferred for payment or investment purposes.
- International funds and securities: International transfer of funds or securities to or from a foreign country exceeding $10,000 must be reported to the Nigerian Financial Intelligence Unit (NFIU) and the Securities and Exchange Commission (SEC) within one day of the transaction.
- Anonymity: Opening or maintaining of anonymous or numbered accounts by any person, financial institution, or corporate body is prohibited. The operation and establishment of a shell bank in Nigeria are also banned.
- Reporting time: In case of suspicion of criminal activities, such as money laundering or other crimes, all financial institutions (FIs) or DNBPs are now required to file suspicious transaction reports with the NFIU within 24 hours.
- Record-keeping: FIs and DNBPs must preserve and keep necessary records on transactions, both domestic and international, for at least five years after the completion of business transactions or relationships.
- Special Control Unit Against Money Laundering (SCUML): One of the key features of the MLA 2022 is the establishment of the Special Control Unit under the Economic and Financial Crimes Commission (EFCC). This unit is tasked with enforcing the provisions of the Act and ensuring that businesses comply with their obligations to prevent and detect money laundering activities. In case of failure to comply with the obligations imposed by the Act, SCUML is also empowered to suspend any license issued to a designated non-financial business and professional, and impose fines not exceeding N1 million.
How do these regulations affect businesses in Nigeria?
The Money Laundering (Prevention and Prohibition) Act, 2022 (MLA 2022) has a significant impact on how businesses operating in Nigeria should approach Politically Exposed Persons (PEPs). The new law introduces stricter requirements to conduct due diligence on PEPs and their relatives, close associates, and immediate family members.
Additionally, it mandates businesses to keep detailed records of their PEP customers and transactions, submit reports to the Nigerian Financial Intelligence Unit (NFIU), and ensure that their employees are adequately trained on AML (Anti-Money Laundering) procedures.
«Small businesses face resource challenges while Enterprises seize the opportunity to strengthen AML compliance.»
For small businesses, the MLA 2022 may present a challenge in terms of resources and expertise. Small businesses may lack the necessary resources to conduct proper due diligence and maintain the records required by the new law. Moreover, they may not have the expertise to train their employees on AML procedures. This may result in a higher risk of non-compliance and potential regulatory fines.
Small businesses in Nigeria should consider partnering with AML experts or outsourcing their AML compliance to third-party service providers to ensure compliance with the new law.
On the other hand, for Enterprises, MLA 2022 presents an opportunity to enhance their AML compliance processes. Enterprises are more likely to have the necessary resources to conduct proper due diligence and maintain detailed records of their PEP customers and transactions. Furthermore, they can afford to train their employees on AML procedures and invest in AML compliance technology.
Enterprises should take advantage of this opportunity to improve their AML compliance processes and demonstrate their commitment to anti-money laundering. This can help them build trust with customers and stakeholders, enhance their reputation, and avoid potential regulatory fines.
In summary, the MLA 2022 has significant implications for businesses operating in Nigeria, particularly in how they approach PEPs. While small businesses may struggle with compliance due to limited resources, enterprises can use the opportunity to improve their AML/CFT compliance processes. All businesses in Nigeria should ensure that they comply with the new law to avoid potential regulatory fines and safeguard their reputation.
AML Risks and Costs of Unidentified PEPs
The identification and management of Politically Exposed Persons (PEPs) is a crucial aspect of Anti-Money Laundering (AML) compliance for businesses operating in Nigeria.The risks and costs associated with unidentified PEPs and their activities can be significant and detrimental to a business.
PEPs often have access to substantial amounts of wealth and may leverage their positions of power to engage in illicit activities. This puts businesses at risk of inadvertently facilitating money laundering or other criminal activities, which can result in severe financial and reputational damage.
Moreover, failure to properly identify and manage PEPs can lead to multi-million dollar fines from the authorities, considering that regulators in Nigeria and worldwide are increasingly focused on preventing financial crimes such as money laundering.
It is crucial to note that news of regulatory fines and penalties can spread rapidly in today’s digital era. Businesses seen as non-compliant or involved in financial crimes risk losing market share and the trust of customers and stakeholders. Hence, it is imperative for businesses in Nigeria to take measures to identify and manage PEPs in line with regulatory requirements. Doing so can help protect your reputation, financial standing, and ensure compliance with applicable regulations.
How to Manage the Risks Associated with PEPs
Implementing a robust Anti-Money Laundering (AML) compliance program and effective risk management strategies is crucial for your business to stay ahead of potential threats and comply with regulatory requirements in Nigeria.
This involves customizing your screening process to address the unique risks tied to the products, services, and customer base of your financial institution.
The Importance of Customer Due Diligence
Customer due diligence is a critical component of managing the risks associated with PEPs in compliance with KYC and AML norms. It involves verifying the identity of the customer, their source of funds, and their intended purpose for the transactions.
Although challenging, due diligence is crucial for complying with regulations, building trust with customers, and preventing financial crimes such as money laundering and corruption.
To conduct due diligence on PEPs, your business can take the following steps:
- Identify the PEP: It’s crucial that your company implements processes to identify PEP’s, including conducting searches across relevant government and other databases.
- Gather information: Obtain information on the PEP’s identity, the source of their funds, the intended purpose for the transactions, and no history of criminal activity. This can be done through various sources, such as publicly available information, third-party databases, and customer documentation.
- Verify the identity: Confirm the customer’s identity using reliable and independent sources of information, such as government-issued identification documents, utility bills, or other documents.
- Find red flags and assess the risk: Review the customer’s profile, including their business history, financial transactions, and any other relevant information to determine the level of financial risk they represent. Search for unusual transaction patterns, transactions that are inconsistent with the customer’s known business, or that are conducted through complex structures.
- Document the due diligence process: Keep a record of the information gathered, verification steps taken, and any red flags identified. This documentation should be kept on file for at least five years and be made available to Nigerian regulators upon request.
Remember that due diligence is an ongoing process that should be periodically reviewed and updated to reflect any changes in the PEP’s status, transaction patterns, or regulations.
Following the Financial Action Task Force (FATF) international guidelines can help you secure this process. Additionally, partnering with a trusted verification platform like MetaMap can help you optimize and automate due diligence efforts and AML monitoring and screenings.
The Challenges of Managing PEP Lists
Politically Exposed Persons (PEPs) lists is a critical aspect of Anti-Money Laundering (AML) compliance that comes with several challenges.Here are some of the key challenges that your business may face when conducting PEP checks:
- Constantly changing PEP lists: PEP lists are frequently updated to reflect the political status of individuals.our business must ensure it is using the most recent lists to identify and manage PEP-related risks accurately.
- Inconsistent PEP lists: Different sources may have different PEP lists, leading to inconsistencies and confusion. Cross-referencing PEP lists from various sources is crucial to ensure all relevant PEPs are captured.
- High volume of PEPs: The number of PEPs on the lists can be overwhelming, making it challenging to screen and manage all PEP-related risks effectively.
- Manual screening processes: Manually researching, analyzing and processing the large amount of information from PEP screening is time-consuming and resource-intensive, requiring significant human resources, expertise, time and money, particularly considering third-party business dealings.
- False positives and false negatives: Screening processes can result in false positives and false negatives, leading to unnecessary costs, delays, and potential reputational damage.
- Lack of access to information: Lack of transparency and access to information in Nigeria or other countries can make it difficult for businesses to obtain reliable information about PEPs.
Despite the challenges, your business can leverage various resources to mitigate PEP risk effectively.
Key Strategies to Identify and Mitigate PEP Risks
Here some specific strategies that businesses can utilize to identify and mitigate risks related to Politically Exposed Persons (PEPs):
- Conduct enhanced due diligence: Effective due diligence can help to identify and mitigate PEP-related risks. However, it can be a resource-intensive process that requires a significant investment of time and expertise.
- Implement screening processes: Regularly screening customer databases and transactions against multiple PEP lists from various sources, including regulatory bodies and reputable databases, can help ensure that a business is up-to-date with any changes and properly identifies PEP-related risks.
- Establish risk-based controls: Conduct a risk assessment to determine the level of risk associated with a particular PEP, and implement appropriate controls to mitigate that risk. This may include implementing enhanced due diligence measures for high-risk PEPs, such as conducting additional background checks or requesting additional documentation.
- Develop training and awareness programs: Educate employees about the risks associated with PEPs and how to identify and manage those risks. This can be achieved through regular AML compliance training and PEP-related risk management training, as well as the development of clear policies and procedures to guide employee’s actions.
PEP screening tools
Technological advancements can be instrumental in facilitating effective compliance measures. To enhance your PEP screening process, minimize human error, and streamline the process, consider implementing the following tools:
- Automation: Automating PEP screening through a trusted verification partner can significantly reduce the time and costs associated with manual screening. This can help cover a larger volume of individuals and entities, minimize the risk of false positives and false negatives, and enable the establishment of risk-based controls for high-risk accounts.
- Artificial intelligence: Advanced analytics and AI tools can help you streamline your onboarding processes, allowing you to identify and manage PEP-related risks more efficiently.
- Biometric Authentication: Biometrics can help enhance your risk management processes, verify the identities of high-risk customers, and mitigate the risk of fraud and money laundering.
How to choose an AML monitoring and screening partner
Choosing the right vendor for your AML monitoring and screening needs can be a daunting task. With so many options available in the market, it can be challenging to determine which one is the best fit for your business. To ensure you choose the right partner, there are several factors you should consider before making your decision.
«Opt for an AML monitoring and screening partner with industry expertise, cutting-edge technology, compliant solutions, and stellar customer support.»
Firstly, it’s important to evaluate the vendor’s experience and expertise in the industry. Look for a company that has a proven track record in providing AML solutions and has experience working with businesses similar to yours.
Another important factor to consider is the vendor’s technology. You need to choose a vendor that offers robust and up-to-date technology that can handle large volumes of data and is scalable to meet your business needs.
It’s also essential to ensure that the vendor’s AML solutions are compliant with the latest regulations and requirements. This will help you avoid potential legal and financial repercussions.
Finally, you want to choose a vendor that offers excellent customer support and has a responsive team that can provide you with the assistance you need when you need it.
If you’re ready to streamline your customer screening process and ensure regulatory compliance, we encourage you to consider MetaMap as your AML monitoring and screening partner. Our powerful AI-driven platform allows you to easily check your customers against 1200+ global watchlists, including PEP lists, and receive real-time alerts on any matches.
Additionally, we offer advanced identity verification features like Document Verification and Face Recognition, which allows you to verify the authenticity of your customers’ identity documents and confirm that they are who they claim to be. With AML Watchlists, you can also check their source of funds, helping you detect and prevent money laundering.
Try MetaMap’s AI-powered customer identity platform today and get 300 free verifications. Sign up now and stay ahead of regulatory requirements while protecting your business from potential risks.
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