Nigeria: Selected Issues

International Monetary Fund. African Dept.

doi:10.5089/9781484345481.002.A004

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Nigeria: Selected Issues

Author: International Monetary Fund. African Dept.

Publication Date:: 07 Mar 2018

eISBN:: 9781484345481

Language:: English

Keywords:: ISCR; CR; income; yield; Nigeria; revenue; a number of anti-corruption measure; anti-corruption agency; ICRG corruption index; government contract; anti-corruption effort; Public investment spending; Legal support in revenue administration; Anti-money laundering and combating the financing of terrorism (AML/CFT); Sub-Saharan Africa; government operation

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Selected Issues

Abstract

Selected Issues

Strengthening Transparency and Governance in Nigeria¹

Nigeria’s rankings with respect to governance and corruption—globally and regionally—are concerning. Cross-country estimates suggest that real GDP growth could be higher by ½ to 1½ percentage points if corruption in Nigeria was lowered to the level of sub-Saharan African or other peers; its tax revenue-to-GDP ratio could be 1½ percentage points higher, and the return from each dollar spent on public investment could rise by 12 percent. Cognizant of these weaknesses, the Nigerian Government newly elected in 2015 campaigned on anti-corruption, a key part of its agenda and Economic Recovery and Growth Plan. This chapter builds on recent progress—the new anti-corruption strategy and compliance measures—and focuses on additional reform priorities needed to strengthen the legal and institutional framework and prosecuting corruption cases.

A. Motivation and Overview

1. Corruption in Nigeria is higher than in other countries and perceived as one of the most important problems facing the country.

Corruption ranks third among issues that Nigeria’s population considers the most important problems in 2016, outranked only by high unemployment and the elevated cost of living, in line with current macroeconomic challenges that have kept inflation high and unemployment rising (Figure 1; Staff Report).
Indeed, various indicators highlight that perceptions of transparency, governance and corruption in Nigeria compare unfavorably with the majority of other countries, globally and regionally. In particular, Nigeria ranks 136, i.e. in the lower quartile, on Transparency International’s corruption perception index; its ranking is at the bottom of the Worldwide Governance Indicators’ control of corruption and rule of law indices—where it has moved little in the past two decades; the country only scores 1.5 points (out of 6) on the International Country Risk Guide’s corruption index (Figure 2, panels 1 to 4).² More than one fourth of firms indicate having received at least one request to bribe (Figure 2, Panel 5), and every third individual that had contact with a public official has paid or was asked to pay a bribe (National Bureau of Statistics; UNODC 2017). According to the Afro Barometer (2018), more than 90 percent of Nigerians still report that they perceive public officials as corrupt. Section B provides more details on the incidence, distribution, awareness and reporting of bribes.

2. High corruption levels are bound to distort the playing field for private agents and government operations. Corruption is likely impeding Nigeria’s macroeconomic performance by introducing a range of inefficiencies and disincentives into the economy and lowering the ability of the government to deliver on its inclusive growth objective. This is done through: (i) lowering the trust of the population in government effectiveness, therefore incentivizing firms to stay out of the formal economy, hence lowering tax revenues that are urgently needed to address Nigeria’s vast development needs; (ii) distorting project selection and the assignment of government contracts, therefore lowering public investment efficiency; and (iii) disincentivizing private sector activity by making firms’ operations costlier. Section C provides a quantification of the impact of corruption on growth, revenue collection, and public investment efficiency in Nigeria.

3. The approval of the National Anti-Corruption Strategy and other recent measures signal the government’s commitment to fight corruption.

However, The National Anti-Corruption Strategy (NACS) for 2017–20, approved by the Federal Executive Council on July 5, 2017, identifies priorities at the national level, including enhancing asset recovery and management, improving adjudication of corruption cases by the court system, strengthening investigation and prosecution of corruption, and enhancing coordination and collaboration among competent authorities. It also makes recommendations for the various anti-corruption agencies and sets out an implementation plan.
Pursuit of corruption cases. Since President Buhari took office, several senior officials, including recently the Secretary General of the Federation and the Director General of Nigeria’s Foreign Intelligence Agency, have been dismissed for alleged corruption. Around 20 “high profile” corruption cases prosecuted by the Economic and Financial Crimes Commission (EFCC) between 2007 and 2015 are currently awaiting court ruling.³
Initial efforts to establish requirements to disclose beneficial owners of companies involved in the extractive sector and publishing a monthly financial and operational report of the Nigeria National Petroleum Company (NNPC) are good first steps toward enhancing the transparency and integrity of the sector. The approval of the Petroleum Industry Governance Bill could also improve governance in the sector by allowing the national oil company to run on a commercial basis and creating independent regulatory bodies.
On the public financial management side, the establishment of a treasury single account (TSA), with 17,000 commercial bank accounts transferred under the Central Bank of Nigeria’s (CBN) control, helped increase the transparency of Ministries, Departments and Agencies (MDAs) cash management. The use of zero-based budgeting and of Government Integrated Financial Management Information System (GIFMIS) modules also helped strengthen the budget preparation and execution system while introduction of the Integrated Personnel and Payroll System (IPPIS) helped remove ghost workers from the payroll. Revenue generating agencies are audited, with updates to the National Economic Council.
Building up on existing efforts, the government’s Economic Recovery and Growth Plan (ERGP) also includes a range of additional measures to enhance anti-corruption efforts and improve transparency in the management of public reforms (Box 1). In particular, the Ministry of Finance approved a whistle blowing program in December 2015 and launched an online portal⁴ to allow for submission of tips and the establishment of a reward for “information that directly leads to the voluntary return of stolen or concealed public funds or assets”.
The Technical Unit on Governance and Anti-Corruption Reforms (TUGAR), with assistance of the United Nations Development Program, conducted pilot corruption risk assessments of selected government agencies⁵ to help target efforts to prevent and detect corruption at higher-risk agencies.
Finally, to further shed light on this issue, the National Bureau of statistics conducted a survey on corruption, laying out the incidence of bribery across different institutions.

4. Further reforms remain urgent, and actions in a number of aspects of the anti-corruption framework should be pursued as a priority. In particular, legal reforms are needed to ensure corruption is criminalized in line with the United Nations Convention against Corruption (UNCAC). A solid legal basis that will allow and facilitate effective coordination among investigative agencies is still missing. Initial efforts to establish requirements to disclose beneficial owners of companies in the extractive sector should be broadened by establishing a central register of beneficial owners of all legal persons, which will support a number of anti-corruption measures. The asset declaration regime and its enforcement need to be improved. The anti-money laundering (AML) framework should be further mobilized to help detect and trace the proceeds of corruption. Section D discusses these issues, and section E summarizes the main policy recommendations.

Box 1.

Measures Under the ERGP

The ERGP lays out a range of measures to increase transparency and governance, with the involvement of the Ministry of Justice, the Economic and Financial Crimes Commission, the Independent Corrupt Practices Commission, the Ministries of Interior, Finance, Budget and National Planning, Information and Culture, and the Central Bank of Nigeria (CBN).

To enhance anti-corruption efforts, it envisions: (i) a continuation of the anti-corruption campaign incorporating structured programs to encourage the use of hotlines, report incentives and offer whistle-blower protection; (ii) the more effective prosecution of corruption and other crimes; (iii) a strengthening of the capacity of anti-corruption agencies; and (iv) an enactment of the Special Crimes Act.

To improve transparency in the management of public resources, it targets: (i) the fulfillment of commitments to improve transparency under the Open Government Initiative; (ii) the continued publication of allocations to federal, state and local governments after each Federal Account Allocation Committee (FAAC) meeting; (iii) the publication of monthly state and local government receipts on states websites; and (iv) the CBN to verify the accuracy/authenticity of foreign exchange sales to end users by all deposit money banks and making them available to customs and the Federal Inland Revenue Service (FIRS).

B. Zooming in on Bribery: Public Experience and Perception

5. A detailed survey on corruption in Nigeria helps examine the incidence of bribery, and the population’s perceptions about the government’s effectiveness to cope with it. The 2016 Corruption Survey undertaken by Nigeria’s National Bureau of Statistics, the first nationwide household survey on corruption in Nigeria, is a representative household survey, based on almost 33 thousand completed interviews in all states. This section provides an overview of its main findings.

6. Experience with bribery in Nigeria is frequent, has many purposes, and is spread across most government operations.

Incidence. One third of people that had contact with a public official (which is about half of the population) has paid or been asked to pay a bribe. The prevalence of bribery varies somewhat across geographic zones, and is lowest in the South-East. Men, more highly educated persons, and better-earning individuals are more likely to be in contact with bribery (Figure 3, Panel 1). Most bribes are paid in cash.
Purpose. When bribes are paid, they often aim at speeding up (32 percent) or making it possible to finalize (10 percent) a procedure, avoiding the payment of a fine (18 percent) or averting the cancellation of public utilities (13 percent) (Figure 3, Panel 2). Services sought in relationship with the bribe include, among others, public utility services (every fifth case), services related to the issuance of an administrative certificate, document, license or permit (more than 13 percent), or medical services (almost 7 percent). While bribes related to the application to a position or promotion in the public sector constitute a small fraction of bribery experiences, the average amount paid for such services is relatively higher (almost 22 thousand Naira) (Figure 3, Panel 3).
Government function. The likelihood of contact with bribes varies by type of government officials and is particularly high in law enforcement, with almost every second contact with policy officers resulting in a bribery incident (average bribe of a bit more than four thousand Naira). About every third contact with a prosecutor (average bribe a bit more than 10 thousand Naira), judge, or magistrate (average bribe almost 19 thousand Naira) results in such an incident. Bribery of a customs officer is both likely (about one in four cases) and costly (almost 89 thousand Naira) (Figure 3, Panel 4).

7. Bribery is rejected in only few cases and remains mostly unreported as raising the issue is—rightly—perceived to likely have little or no consequences. One in five Nigerians that are confronted with bribery, refuses to pay the bribe (Figure 3, Panel 5). This refusal is often associated with negative consequences, in particular when facing the police, public utilities officers, or teachers and lecturers (Figure 3, Panel 6). Less than 4 percent of bribery cases get reported, with 43 percent of these cases being reported exclusively to official institutions (Figure 3, Panel 7). The perception that reporting would not make a difference or that bribery is common practice are the main reasons for not reporting the bribe (Figure 3, Panel 8). Indeed, in one third of reported cases, there is no follow-up and in one out of five cases the reporter receives advice to not go ahead with the report. In contrast, a formal procedure against the officer is initiated in only about one in six cases. In one in seven cases, the problem is solved informally (Figure 3, Panel 9).

8. The majority of the population considers corruption as not acceptable. Three out of five to two out of three people find that corruption is not acceptable, in particular when the bribe is related to a job application in a private company, with only 13 percent of the population classifying such a transaction as “always acceptable”. Acceptance rates, however, are generally higher in the area of transactions with the public sector, with every sixth to every fifth person reporting to find bribes in law enforcement or the use of family and other ties to be recruited into the public sector as “always acceptable” (Figure 4, Panel 1).

9. Perceptions about government effectiveness and awareness of anti-corruption agencies to tackle the issue vary.

While the majority of the population considers the government to be committed and effective in dealing with corruption, less than half of the population thinks so within the South-East and South-South regional zones, where business activity is higher and more than three thirds of the population also perceive corruption to have increased compared to two years ahead of the survey (Figure 4, panels 3 and 4).
With the exception of the National Police Force (NPF), the Economic and Financial Crimes Commission (EFCC) and the Federal High Court (FHC), the population is generally not aware of anti-corruption institutions. And, except for the EFCC (perceived as effective in fighting corruption by almost four in five persons) and the NPF (perceived as effective in fighting corruption by only less than two in five persons), institutions are considered to be effective in fighting corruption by only about three out of five persons that are aware of these institutions’ existence (Figure 4, Panel 5).

C. Quantifying the Cost of Corruption

10. A large body of literature has highlighted the adverse consequence of corruption and low governance and transparency on macroeconomic outcomes. Studies have shown that corruption impacts economic growth and therefore development through multiple channels, including through its impact on macro-financial stability, investment, human capital accumulation, productivity and its impact on the efficiency of government operations (IMF 2016, Figure 3, Panel 1). Corruption is also likely to undermine the inclusiveness of growth, increasing income inequality and poverty (Gupta and others 1998; Figure 3, Panel 2)—with negative feedback loops to the sustainability of growth (Ostry and others 2014). Indeed, participants in a qualitative survey on Nigeria consented that corruption in Nigeria is likely to impact the poor more than the rich (Ipadeola 2016).

11. One main channel through which corruption introduces inefficiencies into the economy is through its negative impact on government operations.

Most components of tax revenues relate negatively to higher levels of corruption, as they particularly undermine compliance (Baum and others 2017) because taxpayers escape tax or customs payments through payment of a bribe or other unofficial compensation, or companies do not join the formal economy when tax exemptions are perceived as the result of a bribe (IMF 2016, Dreher and Herzfeld 2005). In Nigeria, with about 5 percent of GDP in public revenues, low tax revenue mobilization is the main constraint to fiscal space for development financing. At the same time, the share of firms that are expected to pay a bribe when meeting with tax officials is higher than in peer countries (Figure 3 Panel 4).
Corruption can diminish the efficiency of public spending and investment. In countries with weak institutional quality, governments may use capital spending as a vehicle for rent-seeking leading to inefficient public investment (Albino-War and others 2014; Grigoli and Mills 2014; Gelb and Grassman 2010). Investment efficiency is likely to be lower as a result, because project and contractor selection is less likely to be merit-based, and the cost of projects are inflated based on improper procurement processes. In Nigeria, about one fourth of firms are expected to pay a bribe to secure a government contract, compared to one third in sub-Saharan Africa and even higher numbers in some emerging and developing countries (Figure 3, Panel 5). At the same time, Nigeria’s public investment efficiency, taking into account the quality and quantity of infrastructure, is 77 percent below the “efficiency frontier”—the level of infrastructure countries with similar characteristics can achieve for a certain level of inputs (Staff Report, Annex III).
Lower revenue mobilization and spending efficiency, in turn, shrink fiscal space and can therefore lead to fiscal dominance, that limits the independence of the central bank. Higher levels of corruption have therefore also been related to higher levels of inflation (Ben and others 2016; Figure 3, Panel 6).

12. In the case of Nigeria, reducing corruption to the level observed in peer countries could boost growth by ½ to 1½ percentage points annually. The cross-country evidence presented in IMF (2017b) suggests that an increase in the International Country Risk Guide’s (ICRG) corruption index (scale 0 to 6) by one unit may raise per capita GDP growth by about 1 percent. At a level of 1.5, the ICRG corruption index implies that corruption in Nigeria is higher than in the sub-Saharan African average, and other peers. A calculation based on these estimates therefore suggests that, other things equal, real GDP growth in Nigeria could be higher by ½ percentage points if set to the level of Mongolia, by 1 percentage point if set to the level of Malaysia or South Africa, and as much as 1½ percentage points if lowered to the level of Morocco.

13. With lower corruption, the tax revenue-to-GDP ratio could increase by as much as 1.4 percentage points. Results from a Panel of 149 countries over the period of 1995–2015 in IMF (2016) suggest a 0.4 percentage points increase in the tax-to-GDP ratio if a country’s transparency increases (corruption decreases) by 10 points, as measured by Transparency International’s Corruption Perception Index (scale 0 to 100). Using these estimates suggests, that Nigeria’s tax revenue-to-GDP ratio could be higher by 0.4 percentage points if corruption was lowered to levels perceived in Morocco or Mongolia, by 0.9 percentage points if set to Malaysia’s level, and 1.4 percentage points if lowered to the best performer by this measure in sub-Saharan Africa (Botswana).

14. Finally, lowering corruption could decrease the inefficiency gap of public investment by 12 percentage points. A quantification based on Panel regressions for a sample of sub-Saharan African countries (Barhoumi and others, forthcoming), implies that lowering Nigeria’s level of corruption, as measured by the Worldwide Governance Indicators’ control of corruption score, to that observed in South Africa, could reduce Nigeria’s public investment efficiency gap by 12 percentage points, therefore increasing the amount of infrastructure obtained from each dollar invested in public capital by 12 percent.

D. Strategies to Tackle Corruption: Recent Initiatives and Policy Recommendations

The previous sections motivated the policy actions to fight corruption by showing that the issue remains wide-spread in Nigeria and is impeding the country’s development outcomes. This section highlights main areas of legal and institutional reforms that need to be pursued as a priority: (i) criminalization of corruption and enforcement; (ii) asset declaration by public Officials; (iii) transparency of beneficial owners; and (iv) AML tools to detect and confiscate proceeds of corruption.

Criminalization of Corruption and Enforcement

15. Some acts of corruption are criminalized but improvements are needed to ensure comprehensive criminalization of corruption remain in line with the United Nations Convention against Corruption (UNCAC). In the absence of a unified criminal law at the national level,⁶ the offences of corruption are defined primarily in the Corrupt Practices and Other Related Offences Act 2000. Although the Act criminalizes certain acts of corruption such as bribe taking and bribery, some offences as defined in the UNCAC are not adequately criminalized, including embezzlement and illicit enrichment. The absence of the latter has contributed to difficulties in securing conviction in cases where the source of wealth cannot be established.⁷

16. Some measures have been taken in the judicial system to expedite trial of corruption cases, but significant challenges remain. According to prosecutors, it generally takes a few years for courts to hear corruption cases due to significant backlog across the federal court, which has contributed to the low number of convictions of corruption in recent years. The lack of capacity and integrity concerns regarding judges pose significant challenges in handling corruption cases effectively. Mechanisms were recently adopted in the court system to give trial of corruption cases greater priority. It, however, remains unclear how effective these will be over time. In addition, a bill to establish a special court for corruption has been submitted to parliament. An independent and sufficiently-resourced court with high integrity should help promote specialization and expertise, and facilitate the trial of corruption cases.

17. Asset recovery is high on the authorities’ anti-corruption agenda and should be vigorously pursued. A draft crime bill is currently being considered by the Senate to help provide an effective legal and institutional framework for the recovery and management of proceeds derived from unlawful activities. It also seeks to harmonize existing legal provisions regarding seizure and confiscation of proceeds of crime in various statutes. For non-conviction-based forfeiture, the authorities have, with the assistance of the Commonwealth, developed a Guidance Note and are training prosecutors and judges to facilitate its application. This mechanism, if applied judiciously, could potentially be a useful complementary tool to help deprive corrupt officials of their ill-gotten assets when a criminal conviction cannot be secured. The authorities are also actively engaging with foreign authorities to facilitate recovery of looted funds located abroad. A memorandum was signed in December 2017 that will, under the supervision of the World Bank, enable repatriation of $321 million illicitly acquired by the family of the late former President of Nigeria Sani Abacha from Switzerland.⁸

18. Overlaps in the mandates of investigative agencies have created duplication in investigating and prosecuting corruption cases. The Attorney General of Justice is the prosecutorial agency at the national level, which can delegate prosecutorial powers to investigative agencies, including the Independent Corruption Practices and Other Related Offences Commission (ICPC) and the Economic and Financial Crimes Commission (EFCC). The Corrupt Practices and Other Related Offences Act of 2000 establishes the ICPC and empowers it to investigate and prosecute (as delegated by the Attorney General) offences defined in the law, including certain acts of corruption. The mandate of the EFCC, as established in the EFCC establishment Act of 2004, includes investigation and prosecution of all economic and financial crimes, which is broadly defined to include, among others, corruption. This has created duplication and inefficiency in the investigation and prosecution of corruption.

19. Reforms are needed to prevent duplication and provide a solid legal basis that will allow and facilitate effective coordination among investigative agencies. The authorities identified the lack of effective coordination among anti-corruption agencies as a key weakness in the framework. Steps to improve the situation included developing a protocol for information sharing in corruption cases and a manual on corruption case management but legal reforms are needed to facilitate coordination. In line with international best practices, the authorities should designate one independent, capable and credible agency responsible for investigation and prosecution of clearly-defined high-level corruption cases. To this end, the authorities should—taking into account the level of capacity, integrity and resources of existing institutions—designate one agency to be responsible for investigation and prosecution of high-level corruption and define which cases will fall within this category. This could be done by amending the EFCC establishment Act of 2004 and Corrupt Practices and Other Related Offences Act to clearly set out each agency’s mandate and ensure their independence, integrity and resources. The legal framework should allow for joint investigations when needed.

20. Investigations of corruption have been mostly triggered by petitions and very rarely by financial intelligence. Petition is a common mechanism used by various anti-corruption agencies to receive complaints from citizens. In practice, most of the investigations carried out by the EFCC, and ICPC are triggered by petitions, and sometimes in duplication when petitions on the same matter are filed with multiple agencies.⁹ In comparison, few investigations were triggered by Nigeria’s Financial Intelligence Unit (NFIU)’s dissemination of financial intelligence to investigative authorities. This may in part be due to the relatively low number and quality of disseminations from the NFIU (also see under Section D below).

Asset Declaration by Public Officials

21. Nigeria has had a framework for asset declaration by public officials since 2004 but important improvements are needed. The Code of Conduct Bureau (CCB) and Tribunal Act requires a wide range of public officials to submit their asset declarations when taking office, every four years thereafter, and at the end of their terms. False declaration is subject to sanctions imposed by the Code of Conduct Tribunal (CCT). The sanctions include dismissal, disqualification from holding any public office for up to ten years, and forfeiture of “any property acquired in breach of the Act”. It is, however, unclear what constitutes “any property acquired in breach of the Act” in the context of asset declaration and this provision has been used very rarely.¹⁰ Moreover, declarations are shared with other anti-corruption agencies but cannot be accessed by the general public. To address these gaps, it is important to strengthen the legal framework by: (i) requiring that beneficially owned assets be declared, the implementation of which can be supported by the measures discussed below; (ii) prescribing proportionate and dissuasive sanctions for all types of breaches; and (iii) mandatorily publishing the declarations of senior officials online.

22. Enhancing implementation and enforcement of the asset declaration requirements, including among senior officials, should be pursued as a priority. The framework is not being implemented effectively and enforcement has been very weak. To date, the declaration forms have been submitted and handled by the CCB manually, which makes the system vulnerable to manipulation. Moreover, very few sanctions (e.g., only one in 2016) have been imposed even though the CCB reported that the compliance rate in 2016 was only 77 percent, which may be attributed to capacity and resource constraints of the CCT.¹¹ With the assistance of the United Nations Office on Drugs and Crime, the CCB has started digitizing the submission and management of the declarations—an effort to be taken forward to enhance the integrity and efficiency. To reduce non-compliance through sanctions, the CCB should focus its investigations on senior officials and those vulnerable to corruption (e.g., senior officials and executives of state corporations in the extractive sector).

Transparency of Beneficial Owners

23. The authorities have made ambitious commitments to enhance transparency of the extractive sector and, more broadly, of legal persons. The lack of transparency in the extractive industry has had implications for government resources. Diversion of government funds in the case of NNPC reaches several billions of dollars a year, and NEITI (2017) highlights that NNPC and the Nigerian Petroleum Development Company (NPDC) owe the Federation Account more than $20 billion. Nigeria has committed under the Open Government Partnership (OGP) to enhance transparency of the extractive sector including with respect to the government’s earnings, the bidding process and companies involved in the industry.

24. All key stakeholders should work together to design a harmonized legal framework on beneficial owner register and to ensure effective implementation. The authorities are committed to establishing a public register of beneficial owners of companies involved in the exploration, production and exportation of extractive sectors by January 2019, in line with the Extractive Industries Transparency Initiative 2016 standard. To this end, NEITI has launched consultations with various stakeholders including the Department of Petroleum Resources and Corporate Affairs Commission (CAC). The authorities are also considering extending such requirements to companies that participate in public procurement. Moreover, the authorities are committed to establishing by December 2019 a central beneficial owner register for all legal persons created in Nigeria (beyond the extractive industry), which would facilitate financial institutions’ and law enforcement agencies’ (including tax authorities) access to information when carrying out their respective responsibilities, and assist the CCB in verifying declarations of beneficially owned assets. This work will be coordinated by the CAC and should be taken forward taking into account the lessons learned in the establishment of the beneficial owner register for the extractive sector.

AML Tools to Detect and Confiscate Proceeds of Corruption

25. Targeted AML measures can be powerful tools to combat corruption and should be further pursued. Corruption proceeds are laundered to avoid detection so that the corrupt can benefit from their criminal activities. Effective AML measures when targeted at corruption can help detect corruption and trace its proceeds. The NACS emphasizes the important role that the NFIU plays in the fight against corruption through “gathering, analysis, processing and management of financial data and other intelligence sources”. In this context, asset declarations by public officials are an important source of intelligence for the NFIU. In addition to the transparency of beneficial ownership, other AML measures that should be pursued include: (i) requirements for the identification and enhanced due diligence of customers that are politically exposed persons (PEPs), and heightened scrutiny of their transactions; (ii) the supervisors’ focused attention on financial institutions’ control of money laundering risks associated with corruption; and (iii) other agencies, including the financial intelligence unit, giving priority to corruption in carrying out their respective AML mandates.

26. Policies need to be developed and implemented to address the identified money laundering and terrorist financing (ML/TF) risks. Nigeria concluded its first national ML/TF risk assessment (NRA) in 2017.¹² According to this assessment, corruption poses a high threat in terms of generating proceeds of crime to be laundered, and the main channels for laundering include the bureaux de change (BDC), banks and the real estate sector. An action plan to mitigate the risks identified is being developed. The authorities should finalize the action plan as a high priority and ensure its prompt implementation to allow prioritized policies and measures to address the risks including with respect to corruption.

27. The NFIU and its role in anti-corruption should be strengthened. A draft bill on the establishment of a financial intelligence agency is currently being considered by the National Assembly, and the authorities are pursuing its enactment in the near future. If enacted, this bill is supposed to transform the NFIU, which is now affiliated with the EFCC, into an independent agency. This would help restore NFIU’s membership in the Egmont Group, which was suspended in July 2017, and facilitate Nigeria’s pursuance of full membership of the Financial Action Task Force. Moreover, the NFIU’s own efforts should be more focused on the risks identified in the NRA, including by conducting the long-delayed strategic analysis on corruption, which aims to identify trends and typologies associated with laundering of proceeds from corruption, and focusing on corruption-related transactions in its operational analysis to improve dissemination of corruption cases for investigation (see also above).

28. The CBN’s AML supervision of banks should be sharpened to better support the government’s anti-corruption efforts. The CBN does not have an adequate legal basis for imposing sanctions on non-compliance with AML rules, which hinders its ability to promote effective controls by financial institutions of ML risks associated with corruption. The CBN believes that a regulation expected to take effect in the first quarter of 2018 would solve the issue. It carries out on-site AML inspections of all banks on a yearly basis, but needs to step up its efforts to implement risk-based supervision so as to target banks which are most at risk of being misused to laundering proceeds of crime. The CBN should also carry out thematic inspections on banks’ controls over politically exposed persons. This would help improve the quality of suspicious transactions related to corruption that are submitted to the NFIU.

29. An urgent policy response is needed to tackle the risks posed by the possible laundering of proceeds of corruption through BDCs. The CBN’s oversight of the BDC sector as well as the sector’s compliance with AML requirements should be further strengthened and provided with more resources. Currently, a unit that comprises 10 staff members is responsible for AML supervision of more than 4500 non-bank financial institutions, including 3432 BDCs. With the current level of resources, CBN staff can only carry out basic inspections on less than 10 percent of all BDCs per year. As BDCs have been identified as a high-risk sector in the NRA, an urgent policy response is needed to tackle risks associated with corruption.

E. Conclusion and Key Policy Recommendations

30. Building on recent initiatives implemented by the government to combat wide-spread corruption, more measures are needed on various fronts to reap the macroeconomic dividends from improved transparency. These include:

Modifying the existing legislation and institutional framework by: (i) clearly designating a single agency responsible for investigation and prosecution of clearly defined high-level corruption; (ii) improving coordination; (iii) reviewing/amending the legislation on corruption-related offences with a view to aligning it with the UNCAC, including with respect to illicit enrichment; and (iv) streamlining and strengthening the legal framework to facilitate asset recovery.
Strengthening the asset declaration framework and enforcement by: (i) requiring that beneficially owned assets are declared; (ii) prescribing proportionate and dissuasive sanctions for all types of breaches; and (iii) mandatorily publishing the declarations of senior officials online. The CCB should enhance enforcement of the asset declaration framework among senior officials and those vulnerable to corruption, such as senior officials and executives of state corporations in the extractive sector.
Transparency of beneficial ownership. Disclosing beneficial owners of companies involved in the extractive industry in line with the EITI standard will enhance transparency in the sector. Consideration should also be given to extend such measures to companies participating in public procurement. The authorities should push forward their plan to establish a beneficial owner register of all legal persons created in Nigeria that is accessible by law enforcement agencies (including tax authorities) and financial institutions.
Pursuing targeted AML/CFT measures. Finalizing the action plan to mitigate the ML/TF risks identified in the NRA and implementing it promptly is essential. Legislation to ensure NFIU’s operational independence should be enacted. The NFIU should conduct strategic analysis and increase disseminations on corruption. The CBN should strengthen AML/CFT risk-based supervision of banks paying closer attention to the risks associated with corruption and to tackle the ML risks in BDCs.

31. This chapter’s recommendations focus on areas of improvement in the legal framework to focus on corruption that should be complemented by ongoing initiatives aimed at strengthening:

Tax administration. In addition to the increased use of e-filing and data matching to close tax loopholes, measures to address transparency issues, such as increasing the number of risk-based tax audits with strengthened focus on large taxpayers, should be intensified (see chapter 1 on Revenue Mobilization).
Transparency in public financial management, which would require raising public investment efficiency through a better project identification and appraisal phase, comprehensive asset registers, a formal project evaluation process, and an efficient procurement process that would include a full roll-out of GIFMIs at the Federal level (see also Annex III on public investment efficiency in the report of the 2018 Article IV consultation with Nigeria).
Corporate governance, fiscal transparency and accountability of revenue generating agencies and state-owned enterprises, should be strengthened, including for NNPC. It will also be important to improve revenue accruing to the Federation account, including through reconciling the auditor general’s and NEITI findings on oil revenue.

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Prepared by Ke Chen (LEG) and Monique Newiak (AFR). This chapter benefited from helpful comments from the World Bank.

The rankings used in this chapter are subject to uncertainty around the point estimate. Rankings reflect the relative, not the absolute, performance of the country.

See: https://efccnigeria.org/efcc/public-notices.

See: http://whistle.finance.gov.ng/Pages/default.aspx

See: http://tugar.org.ng/?smd_process_download=1&download_id=530, http://tugar.org.ng/?smd_process_download=1&download_id=534

Two different criminal laws—the Penal Code and the Criminal Code – apply to the northern and southern parts of the Nigeria respectively, reflecting the different cultural and religious traditions.

PACAC Report, August 2016 – July 2017, see: http://pacac.gov.ng/pac/wp-content/uploads/august_2016%E2%80%93July_2017.pdf

See: http://www.worldbank.org/en/news/factsheet/2017/12/04/world-bank-monitoring-of-repatriated-abacha-funds

The authorities recently launched a consolidated online platform administered by the Presidential Enabling Business Environment Council (PEBEC), in which petitions to various agencies are brought together to avoid duplication of actions.

There is only one case in which the CCT ordered an undeclared parcel of land be forfeited.

The CCT currently comprises of only one chairman and a handful of staff members.

See: http://www.nfiu.gov.ng/images/Downloads/downloads/nrareport.pdf

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