As Presented by the chief Executive Officer of the NFIU Mr Hamman Tukur at the L G News two day seminar in Abuja.
THE LEVEL OF COMPLIANCE TO GUIDELINES ON FINANCIAL TRANSPARENCY IN COUNCILS AND GOVERNMENT MDAS
MR. HAMAN TUKUR
NIGERIAN FINANCIAL INTELLIGENCE UNIT (NFIU)
BEING A PAPER PRESENTED AT THE SEMINAR ON POLITICS, ACCOUNTABILITY AND EFFICIENCY IN PUBLIC ADMINISTRATION 2020 ORGANISED BY
VENUE: GREEN MINDS HOTEL UTAKO DISTRICT, ABUJA
DATE: 5TH- 7TH FEBRUARY, 2020
THE LEVEL OF COMPLIANCE TO GUIDELINES ON FINANCIAL TRANSPARENCY IN COUNCILS AND GOVERNMENT MDAS
MR. HAMMAN TUKUR
I wish to start by thanking the organizers of this conference- LGNEWS Academy and our dear Host, Tunde Jakande and all who contributed in the organization of this conference for extending an invitation to NFIU to be amongst the resource persons for the summit. I am equally heartened to see the high number of Stakeholders in the Local Government Administration and other professionals gathered to share their perspectives on the topical issue of local government governance in Nigeria. I have no doubt in my mind that this gathering will provide a veritable forum for exchange of ideas on the issue.
The topic of our presentation is such that will give me an opportunity to discuss the NFIU guidelines on local government funds and the process of monitoring compliance. My paper will focus on the impact of the guidelines on the current structure of local government administration in Nigeria, its relationship to the present security challenges facing the nation and its implication to the financial system vis-à-vis the Local Government Area Account Reporting Systems. I will then end with a note on the current level of compliance to the guideline so far and matters arising.
It is of general knowledge that the constitutionality or otherwise of the guidelines is presently a subject of litigation in two separate suits at the Federal High Court. Thus, this presentation will steer clear of issues already submitted to court for adjudication.
Since the NFIU has only recently been fully granted independence as a stand-alone agency it’s become even more and more urgent that at fora like this, we present a background on the legal remit and objective of Unit. This is why I must seize a minutes of the time for this paper to quickly rundown on the premises of the NFIU in order to ensure that members of the public have better and clearer understanding of the role of the Unit in the Nigerian Financial System.
The Nigerian Financial Intelligence Unit (NFIU) was established in 2005 and domiciled within the Economic and Financial Crimes Commission (EFCC).
It was made autonomous and independent in 2018 pursuant to the NFIU Act of 2018 which was signed into law in June, 2018.
The Act established the Nigerian Financial Intelligence Unit as the central body responsible for receiving, requesting, analyzing and disseminating financial intelligence reports and other information to law enforcement, security and intelligence agencies and other relevant authorities and for related matters.
Essentially, the Unit is empowered to receive financial intelligence and disseminate same so as to curb money laundering, terrorism financing and proliferation of weapons.
The Unit is empowered by Section 1(d) of its Act to strengthen existing system for combating money laundering and associated predicate offences, financing of terrorism and proliferation of weapons of mass destruction.
The functions and powers of the Unit were clearly spelt out in Sections 3 and 4 of the NFIU Act, 2018.
Both Sections 3(d) and 4(h) empowered the Unit to do such things that are necessary or expedient for the attainment of the objectives of the Unit under the Act, any other laws, rule or regulations.
Section 23(2) (a) of the Act further empowered the Unit to provide Guidelines to mitigate the risks of money laundering, terrorism financing and proliferation financing.
Essentially, the NFIU draws its powers from;
i. NFIU Act, 2018
ii. EFCC(Establishment) Act, 2004
iii. Money Laundering (Prevention) Act, 2011(As amended)
iv. Terrorism (Prevention) (Amendment) Act, 2013
It also draws powers from all relevant laws on ML/TF and relevant Regulations such as;
i) Central Bank of Nigeria, Anti Money laundering/Combating the Financing of Terrorism (AML/CFT) Regulations, 2013
ii) Terrorism Financing (TF) Regulations, 2011
iii) Similar regulations of Securities and Exchange Commission (SEC), National Insurance Commission (NAICOM), Federal Ministry of Industry, Trade and Investment (FMTI), (DNFBP)
In summary, the NFIU is a centralized national agency charged with the responsibility of receipt, analysis and dissemination of financial intelligence to competent authorities with a view to fighting money laundering and terrorism financing. It is part of the global effort to combat money laundering, terrorism financing and proliferation financing.
THE LOCAL GOVERNMENT SYSTEM
Let me dovetail to the local government system as a prelude to contextualizing the recent intervention of the NFIU to the financial system as it concerns the Local Governments in Nigeria.
The local Government councils are constitutional creations to bring governance closer to the grassroots. The concept of local government consists of a socio-political commitment to institute democratic participation in the governing process at the grassroots level.
Our concept of federalism entails a 3 tier level of government that is the Federal Government, State Government and Local Government with both legal and administrative devolution of authority, power and resources.
Section 7 of the 1999 Constitution guarantees a system of democratically elected executives at the local government while the 4th Schedule to the Constitution enumerated its powers and functions.
The National assembly prescribed The Allocation of Revenue (Federation Account, Etc.) Act, Cap A15, Laws of the Federation of Nigeria providing for the sharing of the allocation between the Federal Government, State Government and Local Government in the following manner;
i) Federal Government -56.68%
ii) State Government -26.72%
iii) Local Government-20.60%
iv) Oil Producing States-13% derivation
Section 261 (6) of the 1999 Constitution provides that each state shall maintain a special account to be called “State Joint Local Government Account” into which shall be paid such allocations to the local government councils of the State from the Federation Account and from the Government of the State.
MANAGEMENT OF STATE/LOCAL GOVERNMENT JOINT ACCOUNT PRIOR TO THE GUIDELINES:
Prior to the issuance of the Guidelines by the NFIU, most State Governments treat the State Joint Local Government Account as a transactional account from which payments are made to contractors and other sundry expenses.
The funds accruing to the local governments from the Federation account and State account into the State Joint Local Government Account were retained in the State Joint Local Government Account and spent by the State Government on behalf of the local governments.
Salaries of local government staff were paid by the State Ministry of Local Government and Chieftaincy matters so much so that most local governments have no bank accounts while this with bank accounts were dormant as at the commencement of the guidelines.
Very few local governments in Nigeria have staff payroll as at the commencement of the Guidelines as the local governments had become desolate.
The State Joint Local Government Account was subjected to various and obnoxious deductions after which nothing remains for the administrators to run the local government.
FACTORS THAT GAVE RISE TO THE ISSUANCE OF THE GUIDELINES:
The Unit detected from intelligence analysis that cash transactions from state joint local government account was beginning to pose huge money laundering threats to the country’s financial system through unleashing huge amounts of cash into the streets and also flooding Bureau de Change with cash which terrorists, kidnappers, bandits and illegal arms dealers exploit as an opportunity to convert criminal proceeds into hard currency because the cash foreign exchange market is sustained.
The Unit also noted the observations on illicit financial flows from the Economic Commission for Africa, an agency of the United Nations stating that over invoicing in form of foreign trade malpractices is the main vehicle used to launder monies from the African Continent and Nigeria contributes to the loss. However, the Bureau de Change evidently adds heavily than any other scheme to this bad business.
The Unit also has clear statistical evidence from analysis of financial information across the country which proves that cash withdrawal in States hit by terrorism and other violent crimes are far higher than states without such violent attacks. Invariably, huge cash withdrawals by individuals and agents of Government end up fueling or actualizing criminal agenda at the grassroots instead of developments.
There were also complaints on the weakness of the country’s counter measures to combat money laundering, financing of terrorism and proliferation of weapons from the international Community so much so that the nation’s financial system was at the risk of been blacklisted.
The Unit worked jointly with other international bodies to reverse the black list and showed what Nigerian has done in criminalizing money laundering and terrorist financing in line with the Vienna and Palermo Conventions, increased due diligence, record keeping and reporting of suspicious transactions, the enhanced powers and procedures of competent authorities for purpose of AML/CFT and particularly the existence of dissuasive, proportionate and effective sanctions against the misuse of the financial system.
The use of the State Local Government Joint Account (SLGJA) as a transactional account contrary to the constitutional stipulation was seen as a major vulnerability and unless this vulnerability is mitigated, the fight to combat money laundering, terrorism financing and proliferation of weapons will be a mirage. It is therefore imperative that an effective step be taken to curb this vulnerability.
Essentially, it was within this context, that the NFIU Guideline was issued, to maintain the integrity of the financial system and ensure that the financial system is not misused in furtherance of illegal purposes such as money laundering, terrorism financing and proliferation of weapons.
The NFIU has a range of tools and instruments at its disposal to help it achieve the stated objective of government to maintain the stability and integrity of the financial system. The current guideline is one of such tools and operational measures for combating money laundering, terrorist financing and the financing of proliferation of weapons and other related threats.
The NFIU prior to the issuance of the guidelines carried out a risk assessment in order to identify and understand the particular risks and the vulnerabilities to which the country is exposed and developing policies to mitigate the risks and apply preventive measures. The Local Government financing structure came out as one of the core vulnerable points in the system for money laundering, corruption and terrorism financing.
In a situation where there is high risk of misuse of the financial sector to expose the country to vulnerabilities, it takes a focused approach or enhanced measures to mitigate the risk.
PROVISIONS OF THE GUIDLEINES:
The Guidelines entitled
NFIU ENFORCEMENT AND GUIFLINES TO REDUCE CRIME VULNERBILITIES CREATED BY CASH WITHDRAWAL FROM LOCAL GOVERNMENT FUNDS THROUGHOUT NIGERIA, EFFECTIVE 1ST JUNE, 2019
was issued by the Unit pursuant to Sections (3) (1) (a) and 23 (2) (a) of the NFIU Act and other provisions of the Money Laundering (Prohibition) Act, 2011 (as amended).
The Guidelines released to financial institutions and designated non-financial institutions on the 6th of May, 2019 as we all know became effective as from the 1st of June, 2019. The level of compliance is also over whelming so also the reception from stakeholders as well as their co-operation.
The NFIU Guidelines have nine provisions and an interpretative note. The latter informed relevant stakeholders and concerned citizenry that the Observations of the European Union, the letter from the Economic Commission for Africa and the NFIU financial matrix and analysis were made available to Chief Executive Officers of MDAs of the Federal Government and to Courts of competent jurisdiction.
Provision 2 reasserts the provision of Section 262 (6) of the Constitution to the effect that State Joint Local Governments Account is a collection/distribution account from which each local government in any state shall receive its allocation as provided in subsection (7) of that Section. In other-words, the only transaction that is done in the Account is the disbursement of the allocations of Local Governments to the individual Local Government accounts, and not for any other transaction or purpose.
Provision 3 provides that no withdrawals unless it is going to the account of a local government council shall be allowed from June 1, 2019.
Provision 4 encourages Local Governments to maintain Single Revenue Account, Single Salary Account and a Single Running Cost Account for all payments related to the purpose of each account and discourages the maintenance of any additional accounts in order to mitigate money laundering, and help investigations and accountability.
Provision 5 specifies that with effect from June 1 2019, the cumulative maximum daily cash withdrawal allowable for a Local Government Account is Five Hundred Thousand Naira (N500, 000.00). All other transactions that may be done shall be through cheques or electronic funds transfer.
Provision 6 enjoins any State Government that is of the view that the Guidelines constitute an inconvenience to the management of that State, a scenario the NFIU does not envisage, the State may work with the NFIU and/or the Central Bank of Nigeria (CBN) for economic advice.
Provision 7 encourages the CBN, State Governments and Local governments to work together so as to increase electronic cash services and automated teller machines transactions in the remote parts of the Country.
Provisions 8 and 9 provide Sanctions where the Guidelines are flouted. Provision 8 states that any withdrawal done in violation of the provisions as enunciated above shall attract a penalty of 100% refund of the amount withdrawn in contravention. This sanction is targeted specifically to financial institutions, designated non-financial institutions or their agents.
Provision 9 warns that any public officer in the country and/or any private citizen found undermining or violating the Guidelines shall be investigate and prosecuted under the various applicable laws, including the NFIU Act, the ICPC Act, the EFCC Act and the Money Laundering (Prohibition) Act.
IMPLICATION OF THE GUIDELINES ON THE FINANCIAL SYSTEM AND BODY POLITY:
It is pertinent to state that money laundering, financing of terrorism and proliferation weapons has many facets which are all of economic consequences to the financial system. The Guidelines which was targeted at an identified vulnerability occasioned by the wrong use of the State Local Government Joint Account several positive implications;
i) National Security Aspect;
Intelligence report has shown that with the commencement of implementation of the Guidelines, there have been a steady decline in criminality within the grassroots as young men who hitherto take to crimes out of idleness are now gainfully and meaningfully employed.
There is now audit trail and accountability in the system of managing State Joint Local Government Account as the huge cash withdrawals previously the case are no longer allowed.
The huge cash from the Account usually plunged into the foreign exchange market thereby booming the parallel foreign exchange market which also fuels money laundering through forex speculation has reduced drastically.
Issues of kidnapping, terrorism and banditry are now been addressed as their source of funds and members has greatly dwindled.
ii) Governance Issues;
The previous mode of administrating of the State Joint Local Government Account made it difficult for the Local Government Councils to deliver governance to the grassroots which has resulted in total absence of effective and operational local government system but this is now changing with the commencement of the Guidelines.
Most local Government councils are now preparing payrolls and payment of staff salary is now less cumbersome as a result of the present fiscal structure of the local government councils arising from the implementation of the Guidelines.
The Guidelines has also embolden the local government councils to embark on developmental projects funds meant for each local government from the State Joint Local Government Account ae now paid into the account of the respective local government for the sole benefit of the local government and no other.
The Guidelines has also ensured compliance with the Constitution as the constitutional breaches whereby local governments are made to fund projects that are not listed in the 4th Schedule of the 1999 Constitution like State Universities has stopped.
iii) Development and Economic Growth Issues;
Local Government Councils now carry out their primary function of provision of infrastructures like markets, boreholes, dispensaries, motor parks and slaughter slabs in their areas of influence as provided in the 4th Schedule to the 1999 Constitution which were previously not the case due to their inability to access their funds from the State Joint Local Government Joint Account.
The rural-urban migration which peaked during the period of decimation of local government system is gradually reducing economic development and growth of the local communities and villages has picked up.
Small scale businesses and unskilled workers who hitherto ran to the cities due to absence of jobs are now returning as the economy of the local government councils are now energized by the funds which trickle down to them through the local government council expenditures thus making crimes like kidnapping, terrorism, banditry and cattle rustling now easier to tackle now.
It ensure strict compliance with section 262 (6) of the 1999 Constitution which provided for the maintenance of the State Local Government Joint Account into which shall be paid all allocations to the local government councils of the state while Section 262(7) mandates each state to pay to local government councils in its area of jurisdiction such proportion of its total revenue on such terms and in such manner as prescribed by the National Assembly.
The Guidelines did not stipulate any restriction or prescribe the terms and in such manner the funds shall be distributed rather it merely insisted that the Constitution must be strictly complied with by treating the State Joint Local Government Account as the warehouse of the funds to be distributed to the local government councils in line with Section 262(8) of the Constitution and not to be used as a transactional account.
Local Government Account Reporting Systems:
It need o be restated that the Unit is empowered by law to receive renditions and the types of renditions it receives are;
i) Suspicious Transaction Report (STR) –s.6 MLPA (2011 (as amended), s. 14 TPA, 2011
ii) Suspicious Activities Report (SAR) s.6 MLPA 2011(as amended)
iii) Currency Transaction Report (CTR) s.10 MLPA 2011(as amended)
iv) Foreign Currency Transaction Report (FTR),S.2 MLPA (as amended)
v) Currency Declaration Report (CDR) S.2 MLPA, 2011(as amended),
vi) Spontaneous Disclosure (Counterpart FIUs)
It is through these renditions/reports that the Unit monitors compliance of its guidelines. However, it also receives information from other sources including;
i) Reporting entities like Financial Institutions
ii) Corporate Affairs Commission
iii) Law Enforcement Agencies
iv) Tax Authorities(FIRS)
v) Nigeria Customs Service
vi) Nigeria Immigration Service
vii) Other domestic Stakeholders such as land registries, FRSC etc
viii) Counterpart FIUs
ix) Federation Account Allocation Committee
x) Open Source.
The Unit also undertakes the monitoring of compliance with the Guidelines and the Local Government Account Reporting System by invoking its powers under Sections 16 & 17 NFIU Act for account surveillance as well as Database of reporting institutions-S.15 of the NFIU Act, Disclosure of Confidential Information S.18, Joint Inspections by the Unit and relevant Supervisory Authorities- Ss. 19-21.
The NFIU in a bid to optimally ensure compliance with the Guidelines and the discharge of its duties under the law is undergoing restricting and in furtherance has created the department/Unit dealing with Public Account Analysis and Reports. This Department monitors the disbursement to the 3 tiers of government from the Federation Account and ensures compliance with the Guidelines.
The Department also directly monitors the disbursement of the allocations to local government councils from the States Joint Local Government Account using such payment platforms that ensures it adequately follows the disbursement.
The measures put in place by the Unit in monitoring compliance with the Guidelines have also strengthened the Local Government Account Reporting Systems. To address the complaints of practitioners arising from compliance with the Guidelines, the NFIU recently issued an Advisory to provide further explanation to the contents of the Guidelines.
LEVEL OF COMPLIANCE TO GUIDELINE SO FAR
The NFIU has continued to monitor the level of compliance to the Guideline issued. So far, we are encouraged by the fact that the level of adherence has remained upward and positive. We have seen a trend that shows that with more understanding of the guidelines more and more Local Governments and Financial Institutions gravitate towards obedience and compliance.
From our latest review, the compliance level has reached 70% and continues to climb. The implications of this has also not been hidden as more and more Local Governments are now more than ever before engaged productively and are impacting on the lives of their locals.
There is greater penetration of governance at this level with the concomitant effect of boasting the economies of our local people and generating economic activities. It is clear to us that this guideline have come to stay and we will be strengthening it for better performance.
To those who are yet to key in and who require collaboration, engagement and support to enhance capacity to comply, our doors remain open. We will help those who need help. But to those who have remain recalcitrant and unyielding, there is a severe price to pay. The sanction scheme for noncompliance is going to become fully operational in a very short time and it will be severe.
In all, what the NFIU has directed financial institutions and designated non-financial institutions to do is not to post any debit directly from the State Joint Local Government account; it is to, first, credit individual local governments before any debit is effected. This is to ensure audit trail and compliance with the constitutional provision thereby mitigating the vulnerability detected in the management of the Account.
The Guidelines did not take away the funds from the States. It did not bypass the State Local Government Joint Account. All it did is to postulate, specify and direct that funds meant for each local government from the Account be paid into the respective local governments for the sole benefit of the Local Government.
The purpose of the Guidelines is to shield the financial system from being flooded with cash which criminals use to escape transparency, accountability and criminal investigation and thereby destabilize our country.
The NFIU Guidelines simply reinforced the existence of Local Governments as an independent tier of government established by the Constitution with elected officials and who derive revenue from similar sources as the Federal and State Governments, and that the intendment of the Constitution is that such revenue should reach them.
The Guidelines only gave voice to that constitutional provision.
Once again I thank you for inviting me to this epochal event and for the audience.