CHAPTER ONE

INTRODUCTION

1.1 OVER-VIEW OF THE STUDY

In the past few years, there has been an increased awareness in Africa and indeed Nigeria, of the crime of Money Laundering. This increase in awareness has arisen because of the step-up in the activities of agencies and governments involved in the monitoring, prevention and punishment of money launders and their activities. This in turn increased for two main reasons; first is the realization by the Nigerian government that money laundering has debilitating consequences on the economy and society. The second reason is that Nigeria, like other developing countries, have come under increased pressure by the developed world particularly after the September 11, 2001 incidence in America, to plug the holes in her systems that allow money laundering. This increased pressure had been tied among other things to aids, technical assistance and the channelling of foreign direct investment. The Nigerian financial services sector consists of

Banks, the Stock Exchange, the Securities and Exchange Commission, the Insurance companies and the Discount houses. The challenges in each country's financial sector are unique depending on the country's conditions. In any economy, the financial system is the hub of productive activity, as it performs the vital role of financial intermediation, the primary provider of payment services and the fulcrum of monetary policy implementation. The author tries to put together the approaches to address money laundering within our comprehensive governance framework. These include the main hypothesis which challenges such myths and orthodoxies about money laundering and economic crimes, the stages of the development and governance

framework. The various types of activity and sources of profits and funds, which may be legal or illegal. The funds may or

may not be channeled through money laundering transactions. The types of financial transactions and intermediations. The ultimate impact of the activity, does it favour development or discourage it?

The illegal and extra legal activities that generate funds for laundering vary from country to country and from region to region. Among the legal activities are good governance, legal business concern, legal financial transactions through bonafide financial institutions, legitimate consumption, investment and development use of funds. These activities are pro-development. The illegal activities are drug trafficking, arms trade, prostitution, corruption in government and in the political class, corrupt public officials and in procurement, regulatory and state capture by corporate and banks, insider trading, stock market, X-Rate and Trade prices manipulation, organized crime, racketeering, extortion and gambling, transfer pricing and tax evasion, charities and other front companies.

There are two basic types of money laundering. The first type occurs through banks and other formal financial institutions.

It is the most common type, or at least the most commonly covered in the press. Funds are placed, layered and integrated. Electronic funds transfer, or e-banking, plays an important role in money laundering and economic crimes. Growing in importance is money laundering through non banking financial institutions (NBFIs) -through real estate transactions, security brokers, derivatives, the exchange rate market, leasing, insurance companies and others.

The second type of money laundering occurs through haw alas and other informal financial institutions, which in some parts of the world play a very important financial role. As the

government enhances enforcement, supervision, and institutional development, notice should be taken of the substitutes to the formal financial sector. If the holes represented by those substitute are not plugged, they will grow in importance.

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