CBN Introduces Stringent Guidelines to Thwart Money Laundering by Politically Exposed Individuals

In an effort to combat money laundering and prevent politically exposed entities and individuals from utilizing the banking system for illicit activities, the Central Bank of Nigeria (CBN) has recently released stringent guidelines for banks.

The apex financial institution has called for increased monitoring and restriction of transactions involving politically exposed persons (PEPs) to halt the flow of illegally sourced funds through the banking sector.

In a circular titled “Guidance note on politically exposed persons (PEPs),” issued on June 22, 2023, the CBN emphasized the importance of banks and other financial institutions implementing measures to mitigate the risks associated with conducting business relationships with PEPs and their affiliated entities.

The circular, signed by Chibuzo Efobi, the director in charge of financial policy and regulation, identified money laundering, terrorism financing, and proliferation financing as significant risks posed by high-risk customers, including politically exposed individuals.

One of the key requirements outlined in the 14-page guidance note accompanying the circular is for banks to establish in-house databases that facilitate the detection of suspicious transactions involving PEPs. If any information surfaces regarding potentially fraudulent activities linked to a politically exposed person, banks are instructed to promptly notify the fraud unit of the security agency.

The CBN highlighted the possibility of PEPs attempting to evade anti-corruption measures by utilizing intermediaries, legal entities, or legal arrangements to open accounts, establish business relationships, or conduct transactions. Consequently, the need for heightened vigilance and proactive measures is paramount.

However, the CBN also acknowledged that not all business relationships with PEPs necessarily present a higher risk.

Once a risk assessment determines that a domestic or international PEP poses no significant threat, they can be treated like any other ordinary customer. Nonetheless, the guidance note stressed the importance of continuous vigilance, urging banks to reassess the status of established customers regularly.

The CBN’s guidelines further emphasize the need for periodic reviews of PEP accounts in alignment with risk assessments. Banks are instructed to closely monitor transactions involving foreign PEPs as well as high-risk domestic or international organization PEPs.

Should any suspicion arise regarding the involvement of funds associated with criminal activities, banks are required to file a suspicious transaction/activity report with the Nigerian Financial Intelligence Unit (NFIU).