1. CUSTOMER DUE DILIGENGE: IMPLICATIONS FOR NFIU’s OPERATIONS PAPER PRESENTED BY MR. NORMAN WOKOMA, DIRECTOR, NIGERIAN FINANCIAL INTELLIGENCE UNIT AT CCCOBIN CONFERENCE ON CUSTOMER DUE DILIGENCE, 22 ND MARCH, 2012, LAGOS

2. OUTLINES Introduction Who is a customer What CDD entails When should CDD be Undertaken KYC: the foundation of AML/CFT KYC/CDD- legal and regulatory basis The Nigerian Financial Intelligence Unit – role CDD – centrality to NFIU’s operations CDD – Centrality to AML/CFT regime How KYC/CDD Impact on NFIU’s operations CDD – General implications on financial institutions How to improve CDD Conclusion

3. INTRODUCTION Nigeria’s approaches to maintaining effective anti-money laundering/combating the financing of terrorism (AML/CFT) regime is two-fold: – Preventive approach – Detection/enforcement approach The preventive approach is designed to deter or prevent the criminals from perpetrating the crime of money laundering and the whole range of predicate offences

4. INTRODUCTION cont’d Initiatives pursuant to the realisation on the preventive approach include Customer Identification or Know Your Customer / Customer Due Diligence Proper and effective procedure for identifying customers is intended to limit criminals from having access to the financial system Generally, CDD is central to NFIU’s operation and successful implementation of AML/CFT regime in Nigeria

5. WHO IS A CUTOMER? According to Basel Committee, a Customer is: – A person or entity who maintains an account with a financial institution or on whose behalf an account is maintained (i.e beneficial owners); – Beneficiaries of transactions conducted by professional intermediaries (e.g agents, accountants, lawyers); and – A person or entity connected with a financial transaction who can pose a significant risk to the bank.

6. KNOW YOUR CUSTOMER/CUSTOMER DUE DILLIGENCE Nigerian Financial Intelligence Unit (NFIU)07/06/2016

7. WHAT CDD ENTAILS Nigerian Financial Intelligence Unit (NFIU)07/06/2016

8. WHEN SHOULD CDD BE UNDERTAKEN? CBN AML/CFT Regulation 2009 (as amended in 2012), Par 1.3 Nigerian Financial Intelligence Unit (NFIU)07/06/2016

9. WHAT TO DO? Nigerian Financial Intelligence Unit (NFIU)07/06/2016

10. KYC: THE FOUNDATION OF AML/CFT Nigerian Financial Intelligence Unit (NFIU)07/06/2016 EDD KYC CDD

11. KYC/CDD: LEGAL & REGULATORY BASIS International Requirement – FATF Recommendations 10-23 covering: Customer due diligence Record keeping Politically exposed persons Correspondent banking Money transfer services New technologies etc – Basel Committee Customer Due Diligence for Banks—This paper provides extensive guidance on appropriate standards for banks to use in identifying their customers Nigerian Financial Intelligence Unit (NFIU)07/06/2016

12. KYC/CDD/EDD: LEGAL & REGULATORY BASIS cont’d Domestic Requirement: Section 3 of MLPA 2011 stipulates that: A Financial Institution and a Designated Non-Financial Institution shall- (a) verify its customer’s identity and update all relevant information on the customer- (i)before opening an account for, issuing a passbook to, entering into fiduciary transaction with, renting a safe deposit box to or establishing any other business relationship with the customer, and (ii)during the course of the relationship with the customer; (b) scrutinize all on-going transactions undertaken throughout the duration of the relationship in order to ensure that the customer’s transaction is consistent with the business and risk profile

13. KYC/CDD/EDD: LEGAL & REGULATORY BASIS cont’d CBN AML/CFT Regulation 2009 Paragraph 1.3-1.9 & part B: Financial institutions should not establish a business relationship until all relevant parties to the relationship have been identified, and the nature of the business they intend to conduct ascertained. Once an on-going business relationship has been established, any inconsistent activity can then be examined to determine whether there is a suspicion of money laundering.

14. THE NIGERIAN FINANCIAL INTELLIGENCE UNIT  The Nigerian Financial Intelligence Unit (NFIU):  Is the central national agency in Nigeria, responsible for the receipt and analysis of financial disclosure (STRs & CTRs) and dissemination of intelligence generated there-from, to competent authorities in order to counter money laundering and terrorism financing.  Establishment is in line with:  Articles 14 (Measures to Prevent Money Laundering) and 58 (Financial Intelligence Unit) of the United Nations Convention Against Corruption (UNCAC) and  Recommendation 29 of the FATF 40 Recommendations  Egmont Group Principles

15. ROLE OF THE NFIU Generally, the NFIU performs three core functions with respect to AML/CFT: – Receive STRs/CTRs & other forms of disclosures – Analyze STRs/ other forms of disclosures – Disseminate financial intelligence/information generated from STRs to competent authorities to facilitate investigation, prosecution and confiscation of proceed of crimes Other non-core functions exist

16. CORE FUNCTIONS OF THE NFIU: Receiving Statutory reports – STRs & CTRs NFIU (A national centre for receiving, analysing and disseminating STRs) RECEIVING FIU or other Competent Authority to issues guidance on manner and form of reporting Designated Non- Financial Business & Professions Financial Institutions Any other risk areas identified by the country (if any) REPORTING ENTITIES Suspicion of Money Laundering or the Financing of Terrorism

17. CORE FUNCTIONS OF THE NFIU: Analysis NFIU OTHER INFORMATION SOURCES ANALYSIS -Tactical -Operational -Strategic OTHER FIUs REPORTING ENTITIES Directly or indirectly obtain additional information Key : Directly or Indirectly Obtain Police, Customs Authorities Other Security and Intelligence Agencies Identity / Passport Agency Tax Land Registration Commercial / Credit Ref Agencies Company Registration Vehicle Registration Other Databases

18. CORE FUNCTIONS OF THE NFIU : Dissemination of intelligence NFIU DISSEMINATION DOMESTIC AUTHORITIES OTHER FIUs Tax Authorities Anti-Corruption Agency Supervisory Bodies Police, Drug Squad & other specialist LEA Customs Public Prosecutor Policy Makers Security & Intelligence Services

19. CDD: CENTRALITY TO NFIU OPERATIONS CDD CONFISCATION OF PROCEEDS OF CRIME AML/CFT INSPECTION INTELLIGENCE DESSIMINATION ML/TF INVESTIGATION NFIU ANALYSIS STR/CTR REPORTING GUIDAINCE & FEEDBACK

20. CENTRALITY OF CDD IN AML/CFT REGIME IN NIGERIA CDD ML/TF RISK ASSESSMENT CONFISCATION OF PROCEEDS OF CRIME AML/CFT INSPECTION NFIU ANALYSIS ML/TF INVESTIGATION RECORDS KEEPING STR/CTR REPORTING ROBUST AML/CFT REGIME

21. HOW DO KYC/CDD MEASURES IMPACT ON NFIU OPERATIONS? Proper KYC/CDD facilitates: Analysis – through unique identifiers; Identification of beneficial owners; Understanding of sources of income; Insight into the type of business/occupation of subject of analysis; Generation of robust intelligence – Operational – Strategic Nigerian Financial Intelligence Unit (NFIU)07/06/2016

22. HOW DO KYC/CDD MEASURES IMPACT ON NFIU OPERATIONS? Weak KYC/CDD results in the following challenges: Non-validation of reports at the NFIU portal Delayed turn-around time in analysis – frequent recourse to FIs for additional information/clarifications; Legacy data – incompatibility with NFIU database Difficulties in identifying beneficial owners of transactions; Quality of intelligence generated and disseminated; Frosty relationship with reporting entities due to sanction application for non-compliance Nigerian Financial Intelligence Unit (NFIU)07/06/2016

23. CDD: GENERAL IMPLICATIONS ON FINANCIAL INSTITUTIONS Promotes good business, governance, and risk management Maintains the integrity, reputation, soundness and stability of local and global financial system Helps financial institutions to meet legal & regulatory requirements as well as international standards Minimizes regulatory Sanctions & Adverse consequences of such sanctions on financial institutions

24. CDD: IMPLICATIONS cont’d Improves Quality of Statutory Returns – Qualitative renditions cannot be achieved without proper customer identification Prevents mis-use of financial institutions as well as reduce the incidences of fraud and other financial crimes Generally, enhances implementation of robust AML/CFT programme by financial institutions

25. HOW TO IMPROVE CDD MEASURES Collection of appropriate information when establishing relationship (e.g during opening of account) Deployment of an effective AML solution software that will enhance CDD efficiency and detection of anomalies Continuous training of staff for improved awareness in ML/TF matters Development of a robust database for PEPs etc Implementation of policies to enhance internal control etc Nigerian Financial Intelligence Unit (NFIU)07/06/2016

26. CONCLUSION CDD should be a continuous activity. This will enable FIs to: – Determine consistency of customers to available information about his business, particularly in relation to sources of funds. – to identify suspicious transactions, timely etc. On the whole, effective CDD enhances the operational efficiency of the NFIU and is indispensible to the successful implementation of AML/CFT regime in Nigeria

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