Nigeria: Senate Bans Establishment and Operations of Shell Banks
The Senate is banning the establishment and operations of shell banks in Nigeria as an attempt to strengthen anti-money laundering systems in the country.
The Nigerian Senate has stepped up to ban any shell financial institutions in the country to combat money laundering and other criminal activities. It also aims at prohibiting the finance sector from maintaining any business relations with shell banks.
A shell bank has no physical existence in the country where it is licensed and it is not affiliated with a regulated financial group that is subject to consolidated supervision. These banks operate using post office box addresses and have representatives to accept mails on their behalf.
Back in 2018, the Central Bank of Nigeria (CBN) called for a law that can prevent shell banking entities from operating in the country. The CBN Governor, Mr Godwin Emefiele, said,
“We wish to propose the introduction of new subsections 3(6 and 7) for the proscription of shell banks in response to the latest recommendations of the Financial Action Task Force (FATF) on money laundering to read:
“Any bank or its subsidiaries without physical presence in the country where it is incorporated and licensed and is not affiliated to any financial services group that is subject to effective consolidated supervision shall not be allowed to operate in Nigeria and no Nigerian bank or its subsidiaries shall establish or continue any relationship with such bank or subsidiary.”
On September 15, 2021, the senate introduced a bill seeking to repeal the Money Laundering (Prohibition) Act 2011 and enact the Money Laundering (Prevention and Prohibition) Act 2021. The new bill was sponsored by Senator Sadiq Umar (Kwara North) and seeks to provide a comprehensive legal framework to prevent, prohibit, detect, prosecute, and punish financial criminals in Nigeria.
As per Section 27 of the Bill, establishing and operations of shell banks in Nigeria must be banned. Furthermore, no financial institution is allowed to maintain a relationship with a shell bank or a company that is in touch with a shell bank.
Subsection 3 of Section 27 states that financial institutions are obligated to terminate business relationships with a shell in 14 days after awareness. According to subsection 5, knowingly forming a relationship with the shell bank will result in a fine of N100 million and license withdrawal.
Any bank that fails to comply with all the laws of the bill is liable to a fine of N25 million or higher.