CBN targets money launderers, corrupt officials with new fx rules
By Oludare Mayowa
The latest move by the Central Bank of Nigeria (CBN) to reform the process of foreign exchange allocations to importers by streamlining approval for documentation linked to trade finance transactions may have been informed more by the need to curb money laundering, tax evasion and attempt to commit fraud through the manipulations of such trade documents.
The CBN on Tuesday issued a circular prohibiting banks from opening trade finance documents, Forms M for importers who route their bills through third parties.
Though the regulatory bank said the move was to “forestall over-pricing and/or mispricing of goods and services imported into the country,” from available information, the CBN may also be targeting criminals and corrupt government officials using the process to carry out money laundering activities and fleecing the country of huge resources.
According to Aamar Ahmad, managing director of London based Sigma Risk, organised criminal networks across the globe are exploiting various means such as phantom shipments, false description of goods, misrepresenting the actual beneficiaries and making payments to unrelated parties to launder money from one jurisdiction to another.
In an article published on Monday in KYC360, Ahmad said a number of scandals have been exposed over the last few months involving organised criminal groups attempting to launder substantial sums of illicit funds through over/under-pricing of underlying products and attributing the price disparity to a significant shift in supply and demand.
The CBN said in the latest communications with commercial lenders that it will introduce a Product Price Verification Mechanism as part of measures to check over-pricing and wrong pricing of goods and services imported into the country.
The regulatory bank said that hence banks should ensure verifications of importer’s payment documents before approving Form M and other trade payment documentation using its regular price monitoring mechanism to check over-invoicing for goods and services imported into the country.
The bank said the measures were part of efforts to ensure prudent use of the country’s foreign exchange resources and eliminate incidences of over-invoicing, transfer pricing, double handling charges, and avoidable costs that are ultimately passed to the average Nigerian consumers.
But Ahmad cited the recent arrest of Bolivia minister of health, Marcelo Navajas on suspicion of money laundering and over-invoicing to justified the present move by financial institutions across the globe to tighten regulations around trade finance.
Navajas was arrested in May for authorising the purchase of medical equipment (ventilators) at the price of €27.6k per unit through an intermediary, who had bought the ventilators for €9.5k per unit from the manufacturer. The payment totaled nearly €5 million–three times higher than the actual value of goods–and was allegedly intended to benefit the intermediary, which is based in a foreign country.
Ahmad said among the biggest challenges created by Covid-19 is the limited access to trade documents for physical inspection. He said in response to social distancing guidelines, paper documents have been replaced by their electronic counterparts.
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“Yet most of the important documents linked to a trade finance transaction require physical inspections, including checking watermarks and wet-ink signatures on bills of lading, certificates of origin and inspection certificates.”
He also raised the possible hindrance to the implementation of the CBN new policy, which may include a limited number of financial institutions staff available as a result of the Covid-19 protocol which compels many bankers to work from home and also lack of technical know-how among some of the banking staff on what to do to detect such manipulations.
He also said staffing issues also apply to the offshore centres typically based in developing countries. A number of large financial institutions have thousands of staff members in offshore operations centres that do not have comparable technological resources, including work-laptops and access to high-speed Internet connectivity.
He said in addition to the hurdle of limited staff, their ability can hinder crucial documentary checks. Due to the large volume of trade transactions, staff in developed countries (who represent a small fraction of total staff that are located in offshore jurisdictions) may not be able to perform all applicable checks on the legitimacy of trade transactions.
“It is of paramount importance for financial institutions to raise awareness among their staff members around emerging typologies of financial crime through global trade. Whether firms choose to engage in bespoke training or take other precautions, mitigating the risks of criminal exploitation is a goal we all should share,” Ahmad wrote in the article.