The role of financial intermediaries in elite money laundering practices. Evidence from Nigeria
| DOI | https://doi.org/10.1108/13685201211194736 |
| Date | 30 December 2011 |
| Published date | 30 December 2011 |
| Pages | 58-84 |
| Author | Olatunde Julius Otusanya,Solabomi Omobola Ajibolade,Eddy Olajide Omolehinwa |
| Subject Matter | Accounting & finance |
The role of financial
intermediaries in elite money
laundering practices
Evidence from Nigeria
Olatunde Julius Otusanya, Solabomi Omobola Ajibolade and
Eddy Olajide Omolehinwa
Department of Accounting, Faculty of Business Administration,
University of Lagos, Lagos, Nigeria
Abstract
Purpose – One of the most pervasive economic crimes in the world today is money laundering. It has
been estimated that some $2 to $3.6 trillion of hot money is laundered through the financial market
each year. Such huge amounts of money cannot be successfully laundered without the involvement of
financial intermediaries (such as bankers and lawyers) who used their expertise to conceal and obscure
illegal activity. However, broader accounts of the role of financial intermediaries in corrupt practices
are relatively scarce. The purpose of this paper is to examine some predatory activities of financial
intermediaries in facilitating money laundering practices in Nigeria.
Design/methodology/approach – The paper locates the role of financial intermediaries within the
sociological theory of profession to argue that these professionals facilitate money laundering despite
their professional and ethical claims. The paper uses publicly available evidence to illuminate the role
played by financial intermediaries in elite money laundering.
Findings – The evidence shows that, in pursuit of organisational and personal interest, the financial
intermediaries create enabling structures that support illicit activities of political and economic elite in
Nigeria. The paper concludes that the establishment of money laundering laws and the creation of
anti-money laundering agencies had not brought about professional transparency and ethical conduct.
Practical implications – The paper therefore suggests that Nigeria needs to reform its financial
institutions to promote integrity, accountability and ethical professional conduct to curb money
laundering and to build trust in the Nigerian financial system.
Social implications – The social, economic and political effects of financial intermediaries’
anti-social practices are significant as huge amounts, often dwarfing the gross domestic product (GDP)
of many nation states, are involved. These questionable practices by financial intermediaries increase
profits, but harm citizens.
Originality/value – The paper is a general review of literature and evidence on contemporary issues.
Keywords Nigeria,Money laundering, Intermediaries,Financial intermediaries,Lawyers, Local banks,
Elite
Paper type General review
1. Introduction
Money laundering has traditionally been considered to be a process by which criminal s
attempt to hide the origins and ownership of the proceeds of their criminal activities.
In the era of electronic transfers of money and easy mobility of capital, money
laundering is considered to be a major challenge as it has the capacity to finance
corruption, narcotics, crime, pervert democracy and fuel inequalities (Sikka, 2008).
Money laundering is facilitated by banks, financial services companies and network
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JMLC
15,1
58
Journal of Money Laundering Control
Vol. 15 No. 1, 2012
pp. 58-84
qEmerald Group Publishing Limited
1368-5201
DOI 10.1108/13685201211194736
of business advisers (AAPPG, 2006; Lankhorst and Nelen, 2004). Modern financial
systems, in addition to facilitating legitimate commerce, permit criminals to transfer
large amounts of money instantly using personal computers and satellite facilities
(Imah, 2003). A comprehensive analysis of such matters is beyond the scope of this
paper. Instead, it explores some predatory activities of financial inter mediaries in
facilitating money laundering practices in Nigeria, a mineral rich country of 148 million
people located in Africa.
It has been argued that due to the stricter controls on financial transactions by
government and financial institutions, criminals increasingly tend to call on the
assistance of financial and legal experts (Lankhorst and Nelen, 2004). Professionals[1]
are associated with money laundering activities. This study focuses on two professional
groups: the bankers and lawyers and banks. Banks, professional bankers and lawyers
(hereafter referred to as “financial intermediaries”) may be expected to combat money
laundering by enhancing transp arency and accountability and by de veloping
techniques for curbing illegal money transfers. However, an emerging body of
literature argues that finance professionals including lawyers increasingly use their
expertise to conceal and promote money laundering and corrupt activities (Lankhorst
and Nelen, 2004; Sikka, 2008; US Senate Permanent Sub-Committee on Investigations,
2005; Bakre, 2007; Otusanya, 2011). The vulnerability of the financial system has
become more obvious because crime has become global, and the financial aspects of
crime have become more complex, due to rapid advances in technology and the
globalisation of the financial services industry (Imah, 2003; Imala, 2004). Private
banking facilities, offshore banking, shell corporations, free trade zones, wire systems,
and trade financing all have the ability to mask illegal activities (Imah, 2003; Sikka, 2008;
Palan et al., 2010). Thus, professionals use these technologies and structures to derive
private economic gain for themselves and their clients to the detriment of the public
interest they claim to be protecting (US Senate Sub-Committee on Investigations, 2006;
Bakre, 2007; Sikka, 2008; Otusanya, 2011). Bingham, The Honourable Lord Justice (1992)
quoting from Mitchell et al. (1998, p. 590) argued that:
Those knowledgeable enough or aided by experts are able to transmit “illicit funds through
the banking system in such a way as to disguise the origin or ownership of the funds” and
thus clean or launder the sum involved.
Despite their claims to be acting in a professional manner, financial intermediaries
(such as bankers and lawyers) and banks have been implicated in facilitating the flow
of public funds stolen from developing countries through structures in Western
countries (AAPPG, 2006; Bakre, 2007). Offshore tax havens[2] providing secrecy and
low regulation have been identified as key vehicles for the movement of hot money
(Palan, 2002; Tax Justice Network, 2006; Christian Aid, 2005; Palan et al., 2010).
Despite spending vast sums of money on law enforcement and economic
surveillance, it has been estimated that the cross-border illicit money flows are on the
order of $1-$1.6 trillion annually (Baker, 2005). The IMF estimates the magnitude of
money laundering worldwide at 3-5 per cent of the world’s gross domestic product
(GDP), thus giving us $2.17-$3.61 trillion laundered per annum (INCSR, 2008). To
combat the threat of money laundering, most governments have devised anti-money
laundering laws which require banks and financial services to implement suitable
system of internal controls and policies to identify their customers and suspicious
The role
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intermediaries
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