Financial Crime World

Financial Institutions Must Adopt Customer Due Diligence Measures to Combat Money Laundering and Terrorist Financing

The Central Bank of Nigeria (CBN) and the Nigerian Financial Intelligence Unit (NFIU) have issued guidelines requiring financial institutions to adopt robust customer due diligence measures to prevent money laundering and terrorist financing. The measures aim to ensure that financial institutions have a clear understanding of their customers, including beneficial owners, and are able to identify and report suspicious transactions.

Eligible Entities

The guidelines apply to the following entities:

  • Financial institutions subject to anti-money laundering (AML) and combating the financing of terrorism (CFT) requirements
  • Public companies listed on a stock exchange or similar platforms
  • Government ministries and parastatals/enterprises
  • Life insurance policies with annual premiums or single monthly premiums within a specified threshold
  • Insurance policies for pension schemes without surrender value clauses
  • Pooled accounts held by Designated Non-Financial Businesses and Professions (DNFBPs) subject to AML/CFT requirements

Simplified CDD Measures

Financial institutions may apply simplified CDD measures to customers in countries that have effectively implemented the Financial Action Task Force (FATF) Recommendations. However, these measures are not acceptable when there is suspicion of money laundering or terrorist financing or specific higher-risk scenarios.

Risk-Sensitive Approach

Financial institutions must adopt a risk-sensitive approach to customer due diligence, considering factors such as:

  • The type of account
  • Transaction volume
  • Geographic location

Institutions must also establish procedures for ongoing monitoring and reporting of suspicious transactions.

Failure to Complete CDD

If a financial institution fails to comply with the guidelines, it will not be permitted to:

  • Open an account
  • Commence business relationships
  • Perform a transaction

The institution must also render a suspicious transaction report to the CBN and NFIU.

Existing Customers

Financial institutions are required to apply CDD requirements to existing customers on a materiality and risk basis. Institutions must conduct ongoing due diligence at appropriate times, such as when:

  • A significant transaction takes place
  • There is a change in account operation

Politically Exposed Persons (PEPs)

The guidelines define PEPs as individuals who are or have been entrusted with prominent public functions, including:

  • Heads of state or government
  • Governors
  • Senior politicians
  • Members of royal families

Financial institutions must put in place appropriate risk management systems to determine whether a potential customer or existing customer is a PEP.

PEP Risk Management

Financial institutions must obtain senior management approval before establishing business relationships with a PEP. Institutions must also render monthly returns on their transactions with PEPs to the CBN and NFIU.

The guidelines aim to enhance Nigeria’s AML/CFT framework, ensuring that financial institutions are better equipped to detect and prevent money laundering and terrorist financing activities.