Combating Illicit Financial Flows (IFFs) in Nigeria: A Tailored Multi-Sectoral Solution

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By Idris Muhammed Abdullahi

Illicit financial flows (IFFs) pose a critical threat to Nigeria’s economic stability, draining public resources, facilitating crime, and undermining national security. These flows occur through trade mispricing, tax evasion, smuggling, money laundering, corruption, and financial technology loopholes.

To effectively address IFFs, Nigeria must adopt a multi-pronged strategy that integrates expertise in trade and contract negotiations, transfer pricing, asset tracking, extractive industries, and cross-border financial monitoring. This report outlines targeted solutions across key sectors contributing to IFFs.

Strengthening Trade and Contract Negotiation Expertise

Weak contract terms in trade, procurement, and extractive industries create loopholes that facilitate IFFs. To prevent financial leakages:

Deploy trade and contract negotiation experts to review all high-value agreements and procurement deals.
Establish a Contract Review and Integrity Unit to ensure fair pricing and prevent contract manipulation.
Enforce transparent contract disclosure requirements, particularly in the oil, gas, and mining sectors.

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Enhancing Transfer Pricing Enforcement

Multinational corporations exploit transfer pricing loopholes to shift profits and evade taxes. Nigeria should:

Expand the capacity of the Federal Inland Revenue Service (FIRS) with more transfer pricing specialists and forensic auditors.
Deploy AI-powered transaction monitoring tools to detect pricing anomalies in intra-company trade.
Mandate comprehensive transfer pricing documentation to justify related-party transactions.

Strengthening Oversight of Hawala and Informal Money Transfers

Hawala systems facilitate IFFs by enabling cross-border value transfers outside the formal banking sector. To mitigate risks:

Require all hawala operators to register with the Central Bank of Nigeria (CBN) and Nigerian Financial Intelligence Unit (NFIU).
Implement real-time transaction reporting and biometric identity verification for hawala transactions.
Monitor cross-border cash courier movements and impose stricter currency declaration rules.

Deploying Precious Metal Experts at Airports and Borders

Nigeria’s gold, diamond, and mineral resources are frequently smuggled abroad. To curb this:

Station precious metal valuation experts at airports and land borders to assess undeclared minerals.
Implement real-time tracking systems for precious metal exports and enforce stricter customs checks.
Strengthen collaboration with artisanal mining associations to prevent illicit sales.

Monitoring and Combating IFFs in the Extractive Industries

The extractive industries, particularly oil, gas, and solid minerals, are major sources of IFFs in Nigeria due to under-reporting, mispricing, and illicit exportation. To strengthen oversight:

1. Implementing Real-Time Revenue Tracking Systems

Develop an automated royalty and tax tracking system to monitor payments from extractive companies.
Ensure real-time linkage between FIRS, NNPC, NEITI, and the CBN to track revenue inflows.
Mandate third-party verification of tax and royalty payments to detect discrepancies.

2. Enhancing Beneficial Ownership Transparency

Require public disclosure of beneficial owners of oil, gas, and mining licenses.
Enforce strict KYC procedures for all entities applying for extractive industry contracts.
Collaborate with global financial intelligence units to track offshore accounts linked to Nigerian extractive firms.

3. Strengthening Export Oversight and Pricing Controls

Deploy commodity pricing specialists to detect trade mispricing in crude oil, gas, and minerals.
Implement AI-driven price benchmarking tools to compare declared export values with global market rates.
Enhance customs monitoring at ports to detect misdeclarations and illicit shipments.

4. Enforcing Contract Integrity and Reducing Revenue Leakages

Establish a central extractive contract database accessible to regulatory agencies.
Mandate regular contract audits to detect revenue losses and corruption risks.
Collaborate with the Extractive Industries Transparency Initiative (EITI) to improve reporting standards.

Halting Cross-Border Livestock Smuggling for Money Laundering

Criminal networks use livestock trade to move illicit funds, buying animals in Nigeria and selling them for cash abroad. To counter this:

Deploy biometric tracking for livestock to ensure traceability.
Work with livestock trade associations to establish digital transaction records for cross-border sales.
Implement stricter movement regulations requiring transaction documentation before livestock crossings.

Monitoring Real Estate Transactions to Prevent IFFs

Real estate is widely used to launder illicit money, particularly in Lagos, Abuja, and Port Harcourt. Nigeria should:

Enforce mandatory title registration and ownership disclosures to track beneficial owners.
Require large cash transactions in real estate to be reported to the NFIU.
Develop a centralized digital land registry, linking financial intelligence databases.

Enhancing Oversight of Car Importation to Block IFFs

Luxury car imports serve as a common vehicle for money laundering. To address this:

Mandate disclosure of the source of funds for high-value car purchases.
Deploy AI-powered anomaly detection to flag under-invoicing and over-invoicing.
Work with car dealerships to track cash transactions above a certain threshold and report suspicious activities.

Tightening Regulation of Virtual Asset Service Providers (VASPs)

Cryptocurrencies provide anonymity for illicit fund transfers. Nigeria should:

Grant law enforcement access to real-time monitoring dashboards of cryptocurrency exchanges.
Mandate VASPs to comply with AML/CFT regulations, including KYC and transaction monitoring.
Work with global blockchain analytics firms to trace illicit crypto movements.

Strengthening Border Security and Financial Monitoring

IFFs thrive on weak enforcement at Nigeria’s borders. To tighten control:

Deploy AI-powered surveillance at major border points, particularly in Sokoto, Katsina, Borno, and Adamawa.
Establish a National IFF Task Force integrating FIRS, EFCC, NFIU, NCS, CBN, and SEC for intelligence sharing.
Develop a whistleblower protection and reward program to expose illicit financial activities.

Enhancing Legal and Regulatory Frameworks

Legal loopholes enable IFF perpetrators to operate with impunity. Nigeria must:

Amend AML/CFT laws to impose stiffer penalties for tax evasion, trade mispricing, and asset concealment.
Establish special financial crime courts to fast-track IFF-related prosecutions.
Mandate automatic financial disclosures for politically exposed persons (PEPs) and high-risk sectors.

Conclusion

Illicit financial flows continue to undermine Nigeria’s economic development. A comprehensive, sector-specific strategy encompassing financial intelligence, technology-driven oversight, and inter-agency collaboration is crucial to combating IFFs effectively.

By strengthening contract oversight, trade transparency, transfer pricing enforcement, cryptocurrency monitoring, border security, and extractive industry monitoring, Nigeria can significantly reduce revenue losses and enhance its financial integrity.

Idris Muhammed Abdullahi is an Anti-Corruption, AML/CFT, Beneficial Ownership, Illicit Financial Flows, Tax Evasion, Asset Recovery, and Proceeds of Crime Investigator and Expert for Nigeria.