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The push by regulators globally to combat money laundering and the rising terrorism is causing anxiety in the Nigerian financial sector   as there are fears that correspondent banking services could be severely curtailed with untoward consequences, Osaze Omoragbon writes


As regulators globally continue to impose huge penalties on big international banks for one infraction or the other, following the global financial crisis, there are concerns that correspondent banking services could be severely curtailed with untoward consequences for global finance. Correspondent banking is an arrangement that allows a customer of a bank in one country to send money to someone in another country where the local bank does not have a branch.

Since the excesses of banks were revealed in the aftermath of the financial crisis, regulators especially in the United States have been aggressive in imposing severe sanctions on the big international banks. In the last few years, banks with international outlook such as Standard Chartered, Barclays, HSBC and ING among others, have received the American regulatory hammer. Barclays was fined $450million for the manipulation of Libor interest rate while Standard Chartered paid $327million fine for violating American sanctions on Iran. BNP Paribas, French bank, is expected to be fined up to $9billion for violating American sanctions on Sudan, Iran and Cuba. HSBC paid $1.9billion in fines for money laundering activities. Reports claim JP Morgan, the largest US bank by asset, is said to be reviewing its correspondent banking relationships and is set to discontinue providing services to 500 foreign banks out of a total 4,000 foreign correspondent-banking clients.

Back home in Nigeria, analysts are worried that the trend could severely hurt correspondent banking services with most African banks suffering the consequences. The global push to combat money laundering as well as rise in terrorism, according to experts, is giving renewed fillip to the action of regulators. “Regulators are trying to stay ahead of events,” says Robert Akhigbe, a financial analyst. Reports claim the international banks are curtailing their correspondent relationships for fear of falling foul of murky rules which yield little income. “There have been no severed relationship but definitely the structure of correspondent banking is changing,” says a top banker with Zenith Bank who pleaded anonymity. The international banks, according to the source, now demand more documentation as required by Know-Your-Customer (KYC) rules.

For fear of falling foul of international anti-money laundering laws, big banks now require disclosure of detailed information such as purpose of transfer, address of recipient among others. “Everyone is feeling the pressure. The burden of KYC rests on both the local and correspondent banks depending on whether the transfer is outbound or inbound,” says a staff of First Bank who prefers anonymity. The situation, according to industry watchers, has become tense just as outbound money transfer can be returned by the correspondent bank if the recipient fails KYC requirement or the bank is uncomfortable with the transaction. The danger, according to bank sources, is that it could stifle genuine transactions such as money transferred for school fees and other businesses. The real problem is that the correspondent bank now does things on whims. “A customer can meet the KYC requirements on both sides of the transaction but the correspondent bank can decline the transactions if it suspects the recipient on grounds of places visited or even  race,” the source claims. The rule is that any side to a transaction that fails to do due diligence is liable.

Though Nigeria has received favourable report from the Financial Action Task Force, the global anti-money laundering watchdog, for its resolve in combating money laundering, the Central Bank of Nigeria (CBN) is, however, not leaving anything to chance as it has moved to tighten the screw on money laundering activities. It has developed a guideline on international money transfer services in Nigeria. When finalised, the guideline is expected to reduce money laundering activities especially given the forthcoming 2015 general elections where politicians usually dole out stolen cash to buy vote or stash abroad.

Experts say that a key component of the new guidelines on international money transfer is the restriction on split transactions. According to the guideline on split transactions, “a money transfer service operator shall not allow or process a transaction that appears to have been deliberately split into small amounts to avoid the reporting requirements under the provisions of the Anti-Money Laundering/Combating Financing Terrorism Act 2013.” It used to be the case that criminals laundered money by splitting their transactions in order to circumvent the $10,000 daily reporting limit under the Act. Prior to this guideline, money transfer of $10,000 and above would be reported to the Financial Intelligence Unit (FIU), the agency responsible for the receipt and analysis of financial disclosure. The FIU was established in 2004 to coordinate the country’s anti-money laundering/combating terrorist financing regime. “Anyone genuinely transferring money doesn’t need to split the money otherwise this will draw attention,” a bank source said. It would be recalled that in 2008 UBA’s New York branch was fined $15million by American regulators for failing to comply with anti-money laundering rules.


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