The lack of due diligence protocols by Fintech and the creation of multiple wallets with fake identities have allowed proceeds of crime to bypass regulators and tax agencies undetected.
These avenues, which criminals and politicians or Politically Exposed Persons (PEPs have exploited, the Nigerian Financial Intelligence Unit (NFIU) said, have aided illicit financial flows (IFFs) to flourish.
Speaking at the just-concluded IFF National Conference hosted by the Federal Inland Revenue Service (FIRS) with the theme, “Combating Illicit Financial Flows; Strengthening Nigeria’s Domestic Resource Mobilisation”, the Chief Operating Officer of the NFIU, Muhammad Jiya, noted that activities of Fintech and politicians have helped IFFs to prosper.
“Fintech helps stolen funds move through e-wallets in multiple countries within one hour, converting them into digital assets in the final steps”.
Regarding politicians or PEPs, Jiya said they receive undeclared earnings through proxy fintech accounts using falsified fake KYC documentation to bypass regulators and tax authorities.
IFFs are the movement of funds that are illegal in source, purpose or transfer across borders. These include proceeds of corruption, tax evasion, money laundering, fraud, smuggling, terrorist financing and other criminal economic activities.
The report of the AU/ECA High Level Panel on Illicit Financial Flows from Africa, also known as the Mbeki Panel, adopted by the African Union as the continent’s special declaration, estimated annual IFFs from Africa at USD50 billion, with cumulative outflows reaching $1 trillion over fifty years. The report, which highlighted how IFFs undermined development, security, and governance, noted that the highest tax losses were from West and North Africa, including Nigeria.
It detailed the losses as including commercial tax avoidance practices, which have caused 65 per cent of IFFs, with up to $407 billion lost from trade mispricing from 2001 to 2010, and also organised crime, which drove 30 per cent of IFFs, while 5 per cent of IFFs came from official government bribery.
Traditionally, IFFs involved cash smuggling, over-invoicing, and secret offshore bank accounts. However, with the digital era, criminals nowadays bypass traditional banks by operating entirely in loosely regulated digital platforms like mobile wallets, cryptocurrency exchanges, and online lending apps, allowing illicit funds to be layered and obscured in seconds, undetected across borders
While digital systems hold enormous opportunities, including financial inclusion and convenience, real-time payments, cross-border remittances, and generate valuable transaction data for intelligence, they come with immense risks whose consequences outweigh the advantages.
Risks include pseudonymous transactions through digital wallets, weak KYC/AML compliance in Fintech and VASPs and use of multiple, unlinked accounts to obscure identities, and speed and volume of transactions that outpace monitoring.
Jiya said IFFs can be tracked if NFIU and tax administrators adopt an adaptive approach due to the insufficiency of traditional tools, while real-time data access, cross-platform integration and predictive intelligence are required because IFFs are as fast as the technology aiding them.
To help in the battle against IFFs, he highlights that striking a balance, ensuring unfettered innovation, and uncompromised integrity are expected from policymakers, regulators and intelligence bodies.
Andrew Onyenakwe, an IFF consultant, who detailed Nigeria’s experience in measuring and tracking IFFs, noted that the country and others lack robust data collection mechanisms, stating that its knowledge is limited to data on partner country methods and the Price filter method used under the trade invoicing only.
“There is currently little or no access to comprehensive and reliable data on IFFs. Of the three main types of illicit and commercial IFFs, we only have some data on methods 1 and 2”, he said.
The three main types of illicit and commercial IFFs are Trade invoicing, Profit Shifting, and Tax evasion by individuals.
Onyenakwe believes there is still no reliable data on Profit shifting, which employs methods such as global distribution of Multinational Enterprises (MNEs) profits and the MNEs Vs Non-MNEs profit sharing, and Tax Evasion by individuals, which flourishes through undeclared offshore assets and offshore financial wealth methods.
Other challenges that have limited efforts to curb IFFs and allow the scourge to flourish, according to Onyenakwe, are a lack of trust among relevant agencies, which has made information sharing difficult, and inadequate investment in technology infrastructure to track IFFs. In addition, there are insufficient financial, human, and technical resources to conduct large-scale surveys and investigations, and the large size of the informal economy, which contains nearly 80 per cent of Nigeria’s population. This has created difficulties in tracking illicit flows.
Related Posts
Comments are closed.