In recent years, and especially since the events of September 11, 2001, World wide efforts to combat money laundering and economic crimes have assumed heightened importance. Money Laundering and economic crimes are global problems that not only threatened security, but also compromise the stability, transparency, and efficiency of financial systems, thus undermining economic prosperity. The success of a criminal enterprise is based on its ability to sanitize its ill-gotten gains by moving them through lax or corrupt national financial system. The laundering allows criminals and terrorist to operate freely, using their financial gains to expand their criminal pursuits and fostering illegal activities such as corruption, drug trafficking, arms trafficking, smuggling and financing of terrorism. Money laundering and economic crimes can have devastating economic and social consequences for countries, especially those in the process of development and those with fragile financial systems. The economy, society and ultimately the security of countries used as money laundering platforms are all imperiled.

Money laundering and other types of illegal activities have significant socio-economic development and financial costs. This is true of illicit activities, which usually compromises growth and development. We need to access the links between the complexity in grand corruption, money laundering, corruption in government, the political class, and corruption in procurement, and the challenges in a country's financial sector. Does it favour development or discourage it.


In the past few years, there has been an increased awareness in Africa and indeed Nigeria, of the crime of Money Laundering. This increase in awareness has arisen because of the step-up in the activities of agencies and governments involved in the monitoring, prevention and punishment of money launders and their activities. This in turn increased for two main reasons; first is the realization by the Nigerian government that money laundering has debilitating consequences on the economy and society. The second reason is that Nigeria, like other developing countries, have come under increased pressure by the developed world particularly after the September 11, 2001 incidence in America, to plug the holes in her systems that allow money laundering. This increased pressure had been tied among other things to aids, technical assistance and the channelling of foreign direct investment. The Nigerian financial services sector consists of Banks, the Stock Exchange, the Securities and Exchange Commission, the Insurance companies and the Discount houses. The challenges in each country's financial sector are unique depending on the country's conditions. In any economy, the financial system is the hub of productive activity, as it performs the vital role of financial intermediation, the primary provider of payment services and the fulcrum of monetary policy implementation. The author tries to put together the approaches to address money laundering within our comprehensive governance framework. These include the main hypothesis which challenges such myths and orthodoxies about money laundering and economic crimes, the stages of the development and governance framework. The various types of activity and sources of profits and funds, which may be legal or illegal. The funds may or may not be channeled through money laundering transactions. The types of financial transactions and intermediations. The ultimate impact of the activity, does it favour development or discourage it?

The illegal and extra legal activities that generate funds for laundering vary from country to country and from region to region. Among the legal activities are good governance, legal business concern, legal financial transactions through bonafide financial institutions, legitimate consumption, investment and development use of funds. These activities are pro-development. The illegal activities are drug trafficking, arms trade, prostitution, corruption in government and in the political class, corrupt public officials and in procurement, regulatory and state capture by corporate and banks, insider trading, stock market, X-Rate and Trade prices manipulation, organized crime, racketeering, extortion and gambling, transfer pricing and tax evasion, charities and other front companies.

There are two basic types of money laundering. The first type occurs through banks and other formal financial institutions.

It is the most common type, or at least the most commonly covered in the press. Funds are placed, layered and integrated. Electronic funds transfer, or e-banking, plays an important role in money laundering and economic crimes. Growing in importance is money laundering through non banking financial institutions (NBFIs) -through real estate transactions, security brokers, derivatives, the exchange rate market, leasing, insurance companies and others.

The second type of money laundering occurs through haw alas and other informal financial institutions, which in some parts of the world play a very important financial role. As the government enhances enforcement, supervision, and institutional development, notice should be taken of the substitutes to the formal financial sector. If the holes represented by those substitute are not plugged, they will grow in importance.

Laundered money is put to many uses, among them terrorist activity, where laundered funds supplement financing received from legal commercial activities and from state sources. A similar pattern can be seen in illegal political campaign funding. Funds that may well have been generated legally go through laundered transactions. When financial activity is legal it is quite likely to contribute to growth and development. The opposite is true of illicit activity, which usually compromised growth and development. Money laundering and other types of illegal activities have significant socio-economic development and financial costs. In addition, the complex links among grand corruption, money laundering and economic crime needs to be better understood. They vary from setting to setting.

The work is divided into five chapters. Chapter one contains the introduction. In chapter two, we review the available literature on the subject matter. Chapter three discussed the methodology of the research as well as management of money laundering and economic crimes in the Nigerian economy and the effects in the financial services sector. Chapter four contains the analysis of new methods to launder money and illicit financial flows, their effects on financial institutions and the economy of the host country. Chapter five contains the summary findings, conclusion and recommendations.

Nigeria finds herself at the verge of being sanctioned by the Financial Action Task Force (FATF) for lack of seriousness in the fight against money laundering. The truth is that money laundering is injurious to the global economy and the damage it does to the economy can easily spread to other economies. Besides, money laundering is capable of undermining the efficacy of a country's monetary policy through arbitrary changes in money supply and distortion of resource allocation in the economy. The enormity of the resources involved in money laundering calls for serious concern. Armed with the purchasing power acquired through illegal activities, the money launderers are capable of penetrating perceived obstacles or hurdles in an effort to hijack economic, social and political power. They mobilize their ill-gotten wealth to penetrate both the law enforcement and judicial systems with incredible ease. They have access to the most advanced technological equipment in perpetrating their nefarious activities. Such activities undermine public confidence in the judicial system and this in turn projects a negative image of the country to the outside world-a disincentive to prospective foreign investors.

There is no doubt that money laundering activities can corrupt parts of the financial system and undermine governance of the banks. If bank managers are corrupted by the sizeable sums involved in money laundering, unethical behaviour can spread and that can create risks for the safety and soundness of the banks in general and indeed the economy.

The main objectives of this study is to appraise the economic costs of criminal abuse of financial systems, particularly money laundering and economic crimes in the financial services industry. The practical means of sustaining economic development and financial market integrity in the face of such threats. What are the current challenges for regulators.
What is the appropriate institutional structure for Nigeria in implementing an effective program to fight money laundering and economic crimes.

1                    There is a strong relationship between money laundering and economic crimes.
2.                  There is no relationship between money laundering and economic crimes.
3.                  Laundered money is put to many uses.
4.                  Laundered money is not put to many uses.
5.                  Legal financial activity is quite likely to contribute to growth and development.
6.                 Legal financial activity is not likely to contribute to growth and development.
7.                 The country needs assistance from International Organizations to fight money laundering and economic crimes.
8.                 The country does not need assistance from International organization to fight money laundering and economic crimes.

After the September 11, 2001, attack on the world Trade Centre, United States of America, the global efforts at surveillance increased, with the financial Action Task Force (FATF) setting guidelines for identification, monitoring and tracking anti-money laundering activities. The FATF and the United States Department of Treasury's financial crimes Enforcement Network (FINCEN) came up with detailed strategies for addressing the menace.

Based on these facts, the author provided a broad definition of money laundering and X-rayed the numerous manifestations and verifications of the phenomenon. The existing legislations and other legal instruments that relate to financial crimes in general and money laundering in particular in Nigeria. He also identified the major institutions whose activities have a direct bearing on the phenomenon of money laundering as banks, insurance companies, discount houses and savings and loans syndicates, the securities and exchange commission and the stock exchange. Similarly, the author identified the police, the Nigerian Drug Law Enforcement Agency (NDLEA), the judiciary and the Economic and Financial Crime Commission (EFCC) as the major agencies and instruments for the enforcement of anti-money laundering laws and initiatives.

Almost any business organizations is susceptible to money laundering but financial services industry is most vulnerable for obvious reasons. Due to the fact that the soundness and confidence of the financial system as a whole could be seriously jeopardized if perceived to be laundering criminal proceeds, the extent of risks faced by it can only be imagined. Financial institutions in general and banks in particular are thus the focal point for anti-money laundering initiatives. Individual financial institutions are often at risk when they intentionally or non-intentionally launder money. Financial institutions implicated in money laundering are most likely to face costs associated with the subsequent loss of business, legal costs and lack of confidence. In the US and EU, the legal onus of reporting suspicious transactions is placed on banks' Directors. Flouting this not only lead to the right of take-over of the affected institutions operations by the US authorities but also imprisonment of Directors and imposition of fines on the institutions. E-money transactions literally could be carried out anywhere in the world as Cyber Systems offering instant onerous transfer of funds over a network that is not subject to any jurisdictional restrictions. In effect, with the aid of just a personal computer, the three basic traditional steps of money laundering, i.e., placement, layering and integration can be completed at an incredible speed.

The study of the effects of economic crimes and money laundering in the financial services sector Nigeria is an attempt to analyze the new methods to launder money and their effects on a country's economy. We have, however, chosen Nigeria for our analysis. All references therefore, relate to Nigeria and some efforts of the board of the World Bank and International Monetary funds (IMF). Relevant data from the Central Bank of Nigeria, the World Bank and IMF Global Dialogue series will be used for comparative analysis where necessary.

In the course of this study .practical constraints that limited its scope and analysis included:

a)                 Time constraints: The time limit allowed for this study constrained to the extent that collection of data from Central Bank of Nigeria, NDLEA & EFCC, especially in Lagos and Abuja was on appointment basis which would last one to two months for each appointment.

b)                 Financial constraints: This study was bank rolled from only the wage earnings of the researcher which consequently constrained the researcher's ability to run trial analysis to improve on the significance of models.

C}       Paucity of Research Materials: Books, reports were consulted and discussions on the subject matter gathered together from relatively old materials.

To ensure that this study was not marred by the above mentioned problems, the following were put in place to allow for a detailed and thorough study:

a} A lot more time out of the researchers employment hours were devoted to this work to complement the six-hour requirement.

b}        The researcher had to look out for cheaper out fit to run the analysis and the use of official computer to typeset this thesis.

The major limitations to this study is the unavailability and near absence of the necessary data to back up the claims of the author. This is majorly due to the fact that the Nigerian economy is cash transactions based which makes it difficult to keep tracks of dubious data and transactions. Cash transactions enable fraudsters and money launderers to erect a parallel cash economy independent of the official recognized financial system. Closely related to this is the lack of adequate information technology infrastructure in the country. These almost hampered and made data collection difficult.

MONEY LAUNDERING: Simply defined, money laundering implies hiding, moving and investing the proceeds of criminals' conducts.

Rigorously defined - Money laundering generally involves a series of multiple transactions used to deceive government authorities as to the origin, existence, application of illicit sources of income and the eventual processing of such income to give it a Tog of legitimacy. Financial Action Task Force (FATF) on money laundering defines money laundering as "The Conversion or transfer of property knowing that such property is derived from a criminal offence for the purposes of concealing or disguising the illicit origin of the property or assisting any person who is involved in the commission of such an offence or offences to evade the legal consequences of their action.

The concealment or disguise of the true nature, sources, location, disposition, involvement, rights with respect to or ownership of property knowing that such property is derived from a criminal offence. The acquisition, possession or use of property at the time of receipt that such property was derived from a criminal offence from an act of participation in such offence.

PLACEMENT: This is the stage where the bulk cash is disposed off in such ways as to avoid detection by law enforcement agents and government officials. The proceeds at this stage enter the financial system with small amounts being placed in several accounts to avoid detection. Instruments such as travelers' cheques, drafts, etc can also be bought and in some cases single premium life assurance policy.

LAYERING: This is a situation in which series of transactions are designed to distance the money from the initial criminal activity. It may involve multiple transactions, multiple transfers, purchases and sales of stocks and shares. Layering entails conducting series of financial transactions which in their frequency, volume and complexity resemble legitimate transactions. This is done to distort the appearance and origin of the initial cash lodgments.

INTEGRATING :- Integration allows money to be used as though legally earned. This may involve sale of property purchased with criminal proceeds, securing credit facilities through criminally funded asset and even redemption of life policy. The funds at this stage appear to be derived from a clear honest and legitimate livelihood.

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Item Type: Project Material  |  Size: 60 pages  |  Chapters: 1-5
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