Dangers of N385b in informal sector, by CBN
By Bukky Olajide
A N examination of the nation's financial system was undertaken by the Central Bank of Nigeria (CBN), which, in exasperation, described the estimated N385 billion in the informal sector as unhealthy for the economy.
At the 2004 conference on financial and economic crimes organised by the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos yesterday, the CBN Governor, Prof. Charles Soludo, said that the presence of such huge financial resources outside the formal financial system should be discouraged.
He said that the trend posed a great risk, both to the economy and the stability of the nation.
"In economic terms, it makes nonsense of macro-economic projects," he said.
The governor who was represented by the Deputy Governor, Financial Sector Surveillance, Mr. Tunde Lemo, noted that the economy, society and ultimately the security of countries used as money laundering bases are all imperilled.
Soludo also observed that money laundering and the diversion of public funds to foreign banks could be linked with poor governance and corruption in both the public and the private sectors.
His words: "Politically, therefore, we have to tackle money laundering as part of a commitment to improving governance in general and fight corruption within the public, private and financial sectors."
Soludo listed the main sources of laundered funds, to drug trade and cartels, arms trade, abuse of the political process, inflation of procurement contracts, budgetary corruption, tax evasion and insider trading, noting that all the activities were common in Nigeria.
He added that illicit financial flows affect the economy and have far reaching effects on the financial institutions that were used as conduits.
Such funds, he said were highly volatile, stressing that financial institutions that accept illegal funds could rely on them as stable deposit base. "Large amounts of laundered funds are likely to be suddenly transferred to other financial markets as part of the laundering process, thus threatening the institution's liquidity and solvency," he said.
Soludo further observed that a financial institution's reputation and integrity could be irrevocably marred through its involvement in money laundering or financing terrorism.
"This could lead to loss of confidence and the withdrawal of funds by investors and depositors. In some cases, it could result in suspension or freezing of funds by the regulatory authorities while awaiting clearance from investigators, he said.
The CBN Chief explained that money laundering might distort some economic sectors and create instability in their markets as launderers might channel funds to sectors or areas where they were unlikely to be discovered, whether or not such investment is needed or real returns were offered.
"The often sudden departure of investment from those sectors has the potential of impairing the industries involved", he said.
The governor said that the loss of investor confidence that follows revelations of large-scale involvement in such activities sharply diminished opportunities for growth.
Soludo remarked that "once a country's reputation is tarnished, it takes a lot of effort to repair as has been the experience in Nigeria. The challenges, therefore, remain enormous and daunting and call for the adoption of a collaborative approach by all stakeholders" he said.
To him, for the banking system, the activities of money launderers challenge standards of accounting, auditing and control, and the quality of the overall regulatory and supervisory framework.
"Developing an anti-money laundering compliance regime, therefore, requires that enhanced due diligence procedures and risk sensitive measures in dealing with all customers and transactions be put in place," Soludo said.
