Fraud as economic terrorism: the efficacy of the Nigerian Economic and Financial Crimes Commission

DOIhttps://doi.org/10.1108/13590790510624981
Publication Date01 April 2005
Pages144-164
AuthorCharles A. Malgwi
SubjectAccounting & finance
Journal of Financial Crime Ð Vol. 12 No. 2
Fraud as Economic Terrorism: The Ecacy
of the Nigerian Economic and Financial
Crimes Commission
Charles A. Malgwi
INTRODUCTION
Nigeria occupies an important position in sub-
Saharan Africa economically and politically and in
the Western world in many respects. Her pride as
the most populous black nation on earth is evident in
her people, found virtually in every country's nook
and cranny. Nigeria is endowed with rich mineral
resources, especially crude oil. Nigeria has large oil
and natural gas reserves and a good potential for
more discoveries. These reserves fetch between $7bn
and $8bn a year in foreign direct investment, more
than any other country in sub-Saharan Africa.
According to the United Nations Industrial Develop-
ment Organisation (UNIDO), by 1999 Nigeria had an
estimated $107bn of its private wealth held abroad.
However, a recent study by the Nigerian Trade and
Investment Centre in London indicates that the total
assets of two million Nigerians who are resident in
the UK alone are worth £94bn (£84bn in real
estate, £7bn in vehicles and £3bn in stocks and
shares).
1
Unfortunately, some government ocials
are driven by greed and corruption, such as the
former military dictator, General Sani Abacha, who
stashed away about $13bn in 42 accounts during his
four years of presidency from 1996 to 2000.
2
To some people, Nigeria is synonymous with the
word fraud, while others feel that that is an exaggera-
tion. Fraud has been de®ned as `a generic term, and
embraces all the multifarious means which human
ingenuity can devise, which are resorted to by one
individual to get an advantage over another by false
representations. No de®nite and invariable rule can
be laid down as a general proposition in de®ning
fraud, as it includes surprise, trickery, cunning and
unfair ways by which another is cheated. The only
boundaries de®ning it are those which limit human
knavery'.
3
Similarly, the International Standards on
Auditing refer to fraud as `an intentional act by one
or more individuals among management, employees,
or third parties, which results in a misrepresentation of
®nancial statements'.
4
The pervasive nature and inces-
sant level of fraud and corruption in most societies
today has become global economic terrorism, posing
a grave economic and societal concern. These
wanton acts of callous economic greed and sabotage
are perhaps more lethal than the conventional
weapons of mass destruction seen in physical
warfare. If a dirty bomb is scary, fraud and corruption
(if they could be seen with the naked eye) are terrify-
ing. This is an economic and social war that calls for a
global coalition of allies to position themselves strate-
gically in order to launch an oensive. Unlike the case
of suicide terrorism where the terrorist dies in the act,
which is dicult to prevent, fraud can be prevented to
a great extent, although not totally eradicated, since
the perpetrator lives on to strike again.
As the economy becomes more and more global,
through free trade, technological connectivity, the uti-
lisation of knowledge management systems, expert
systems, a universal language for the electronic
communication of business and ®nancial data such
as the eXtensible Business Reporting Language
(XBRL) are clear indications of a new economic
world order. The corresponding and asymmetrical
development of this new economic system is the
advent of a new and increased sophistication in cyber
fraud and identity theft. Fraud can be guaranteed as a
transient state wherever there are human institutions.
No economic entity or state is immune from it. It trans-
cends all organisations, cultures, tribes and nations.
Like carbon monoxide, fraud is a deadly disease that
cannot be seen, touched or smelled, yet is alive and
wellin almostevery imaginableorgan isationor institu-
tion. Although it cannot be eradicated completely, it
can be signi®cantly reduced. It can eectively be
detected by experts and prevented through a coherent
application of a strong internal control system, but
seldom by chance or mistake. However, according to
the 2004 `Report to the Nation', occupational frauds
are much more likely to be detected by tips rather
thanthrough othermeans.
5
Wheredoes Nigeria,there-
fore, stand in her eort in beating the odds?
This paper is intended to build upon and update
an earlier paper by Chukwuemerie.
6
Additionally,
the paper seeks to shed light on Nigeria's eorts,
particularly through the Nigerian Economic and
Page 144
Journalof Financial Crime
Vol.12,No. 2, 2004,pp.144± 164
#HenryStewart Publications
ISSN1359-0790
Financial Crimes Commission (EFCC), in trying to
meet the requirements of the global Financial Action
Task Force (FATF) on money laundering and other
®nancial crimes.
A REVIEW OF THE RELATED
LITERATURE
The establishment of the US Sarbanes-Oxley Act, the
US Statement of Auditing Standards No. 99 and the
Nigerian EFCC all occurred in 2002 for one purpose
Ð to ®ght the pervasive nature of fraud that seemed
to have grown out of control. A mere mention of
the preponderance of the evidence of growing fraud
in the last few years, especially among multinational
corporations, is an understatement. For example, the
degree and eect of fraud on individuals, organisa-
tions, societies and governments arising from cor-
porate scandals such as Adelphia Communications,
AOL Time Warner, Arthur Andersen, Bristol-
Myers Squibb, Enron, Global Crossing, Halliburton,
Kmart, Tyco, WorldCom, Xerox, to mention a
few, are devastating and may never be fully quan-
ti®ed. Nor can the top ten most corrupt govern-
ment leaders who betrayed their ®duciary duties
(Table 1), where millions and billions of dollars were
reported to have been stolen.
7
No nation, country or
organisation, whether private or public, is free from
this endemic disease called fraud. When multinational
corporations and public ®gures of government
agencies begin to perpetrate fraud, everyone suers
as victim.
A ®nancial crime such as money laundering is
quintessential to terrorist activities and has become a
global concern that must be fought collectively. This
consensus is echoed through the Financial Action
Task Force (FATF) on Money Laundering. The
FATF was established by the G7 Summit held in
Paris in 1989 when it recognised the threat posed to
the banking system and to ®nancial institutions. The
initial composition of the FATF was the G7 member
states, the European Commission, and eight other
countries represented by either the G7 heads of state
or government and the President of the European
Commission. Membership has expanded from the
original 16 to 33, representing major ®nancial
centres all over the globe.
8
The current mandate of
FATF is (1) to spread the anti-money laundering
message to all continents and regions of the globe.
This would foster the establishment of a worldwide
anti-money laundering (AML) network based on
appropriate expansion of its membership, the
development of regional anti-money laundering
bodies in the various parts of the world, and close
cooperation with relevant international organisations;
(2) to monitor the implementation of the 40
Recommendations by FATF members. Monitoring
of the 40 Recommendations is done annually
Table 1: Top ten most corrupt government leaders
Rank Name of head of
government
1
Country
1
Amount in US
dollars (approx.)
2
GDP per capita
(2001)
2
1 Mohamed Suharto President of Indonesia (1967±1998) $15±35bn $695
2 Ferdinand Marcos President of the Philippines (1972± 1986) $5 ±10bn $912
3 Mobutu Sese Seko President of Zaire (1965 ±1997) $5bn $99
4 Sani Abacha President of Nigeria (1993± 1998) $2±5bn $319
5 Slobodan Milosevic President of Serbia/Yugoslavia (1989± 2000) $1bn n/a
6 Jean-Claude Duvalier President of Haiti (1971± 1986) $300± 800m $460
7 Alberto Fujimori President of Peru (1990± 2000) $600m $2,051
8 Pavlo Lazarenko Prime Minister of Ukraine (1996±1997) $114±200m $766
9 Arnoldo Aleman President of Nicaragua (1997± 2002) $100m $490
10 Joseph Estrada President of the Philippines (1998±2001) $78±80m $912
1
De®ned as former political leaders who have been accused of embezzling the most funds from their countries over the
past two decades.
2
All sums are estimates of alleged embezzlement.
Source: Transparency International Global Corruption Report 2004. www.transparency.org/pressrelease_archive/
2004/2004.03.25.gcr_relaunch.html
Page 145
The Ecacy of the Nigerian Economic and Financial Crimes Commission

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