Foreign NGOs, fintech firms linked to terrorist financing

The federal government has said foreign non-governmental organizations, banks, financial technology firms and point-of-sale operators have been linked to terrorist financing in the country.

It identified the affected NGOs to include those operating in terror-prone areas and engaged in humanitarian, service delivery and faith-based activities.

These were contained in the 2022 National Inherent Risk Assessment of Terrorism Financing in Nigeria report. The report assessed the level of terrorism financing risk the nation was exposed to.

According to the report, investigations conducted by security agencies have revealed constant interactions between the use of cash by terrorist actors and financial institutions, exchange offices, fintech firms and designated non-financial businesses and professions.

After the outbreak of insurgency in the Northeast, many foreign non-profit organizations started operations in the country, but the assessment report said many of them were accused of TF.

The assessment, obtained by our correspondent on Monday, was based on data from intelligence, security, law enforcement agencies, Central Bank of Nigeria, Department of State Services, Economic and Financial Crimes Commission, Nigeria Financial Intelligence Unit and various regulatory and supervisory agencies.

Other contributors to the report include the Corporate Affairs Commission, Defense Intelligence Agency, Federal Ministry of Justice, Nigerian Army Intelligence Corps, Nigeria Customs Service, Nigerian Extractive Industries Initiative, Nigeria Immigration Service, Nigeria Police Force, Nigeria Security and Civil Defense Corps, Office of the the national security adviser and the special control unit against money laundering.

It said investigations indicated that current account products linked to BDCs and NGOs’ corporate clients were observed to be associated with terrorist financing activities.

The government observed that the abuse of the country’s financial system included the movement of large sums of money in high-risk locations, the use of illegal currency traders to carry out currency exchange and the use of multiple non-governmental organization providers.

Overall, the report concluded that the inherent TF risk of NGOs in Nigeria is assessed as high.

The assessment said: “The findings of this report indicate that TF in Nigeria is generally associated with the use of cash. Despite this, field information flowing from police investigations and financial data has revealed constant interactions between the use of cash by terrorist actors and financial institutions, the Bureau de Change, fintech firms and designated non-financial businesses and professions.

”The inherent vulnerabilities of each sector were assessed based on the extent to which products and services offered are found in domestic surveys or STRs in relation to TF. Current account products linked to Bureau De Change and NPOs/NGOs corporate clients have been observed to be linked to TF activities.

”The use of bank accounts in the movement of TF funds has been prominent in both intelligence and investigations related to TF.

“Financial data has also shown that the illegal money changers make transactions on their personal accounts as well as entity accounts held and controlled by them with BDC activities.”

Suspects maintain bank accounts

In a special investigation, the FG revealed that almost all of the people profiled on suspicion of having links to the TF have at least one bank account.

It noted that illegal money changers primarily conduct their financial transactions through bank accounts.

The report further confirmed that the number of people engaged in illegal currency exchange business is very high, as revealed by a recent TF investigation involving a large number of money changers.

This, it said, has been brought to the attention of regulators and law enforcement agencies, adding that ”transactions through agent banking products, mainly Point of Sale payments and ATM payments have also been linked to TF.”

The government noted that a greater percentage of transactions related to terrorist financing were initially conducted in cash that was obtained from both legitimate and illegitimate activities.

“However, cash collected is usually placed in the financial system directly through bank deposits and indirectly through POS transactions and transactions with DNFBPs,” it said.

19 companies indicted

Investigations by security agencies had also indicted 19 firms linked to illegal money changers believed to be linked to terrorism financing.

The report added, ”Illegal money changers have been featured in several TF investigations. Within a three-year period starting in 2019, around 19 companies linked to these illegal money changers have used their companies to fund funds believed to be linked to TF.

”Illegal money changers are not subject to any kind of regulation and as such they implement some preventive measures. The activities of the illegal money changers provide a channel for moving illegally obtained funds to TF.”

Although the government has strengthened the legal system with the passage of the Terrorism (Prevention and Prohibition) Act, 2022 which expanded the terrorist financing offenses including a framework to implement targeted financing sanctions against TF, the NIRA report admitted that terrorists regularly adapt how and where they raise and move funds and other assets to circumvent security measures that jurisdictions have put in place to detect and disrupt their activity.

It explained that an understanding of TF risk would inform national counter-terrorist financing strategies and assist in the effective implementation of a risk-based approach to CFT measures.

In an effort to deepen financial inclusion, the report observed that the past two years have witnessed a huge increase in money transfers involving the use of POS linked to fintech firms, noting that the growing volume of transactions, however, raises concerns about the purpose of the cash transfer.

”For example, in 2021, Nigeria recorded a total POS transaction of N6.43 trillion. These POS machines are issued by deposit banks and Fintech firms. However, the narrative of the transactions is obscured, which raises concerns. Fintech POS hides the identity of the sender of the funds at the receiving point, thus creating vulnerability. More so, investigations have revealed that the POS operators have been used by kidnappers and their associates to move ransom money collected from relatives of the victims.

“In Nigeria, the banking sector, virtual asset service providers, designated non-financial businesses and professions, other financial institutions, insurance, NGOs and the capital market sectors are the sectors that were assessed as particularly vulnerable to TF,” the study further stated, stressing that the cross-border nature of TF can pose further challenges for the identification of risks.

Arms trade donations

Apart from ransoms, the report noted that terrorist groups derived funds from arms trade, donations from sympathizers, trade in dried fish, income from seized farms and livestock as well as human and drug trafficking, including the sale of tramadol.

It further noted: ”For example, two arrested Boko Haram kingpins who led the tramadol trafficking ring had visited Zinder market in Niger Republic for their nefarious activities. They specifically traded tramadol from Lagos, Nigeria to Libya, where they exchanged the drug consignment for weapons.

”The estimated annual income for the group during the reporting period cannot be determined due to insufficient data. However, ransom paid to Boko Haram and its affiliates in the North-West by victims of kidnappings was estimated at about $19 million during the period (2019 – 2021).”

The NIRA report also said that law enforcement sources showed that an estimate of N91m was raised by a few communities in a state in the North West and presented to a terrorist group as protection fees in the last quarter of 2021 alone.

Between 2019 and 2021, another law enforcement source documented ransoms including fees/taxes levied on communities totaling N364 million.”

In 2019, the NFIU was said to have received a suspicious transaction report involving an NGO paying a total sum of N166 million to a supplier company and its director.

The report added: ”Within one and a half years, the company received a total infusion of N99 million from five different NGOs operating in the North-East. The director of the company received the sum of N67m. The account of the supplier company was dormant for over 10 years. The account had no financial activity before the transfer.

The director’s account was also dormant for five years. A profile of the directors of the company showed that they were in their thirties.”

The government said over the past three years, 15,307 bandit and kidnapping attacks occurred, while 411 and 204 terrorist attacks were recorded in 2019 and 2021, respectively, resulting in the deaths of over 1,693 civilians.

”This has undoubtedly affected the national economy as it has affected business and investment activities. A state like Borno has lost over 9.5 billion dollars in the last three years on the re-integration of internally displaced persons.

“Investors avoid making investments where money laundering/TF is significant, which may ultimately harm the FDI trends in the country. Consequently, these threats have deterred foreign investors because most foreigners are kidnapped, some killed in recent years. The situation has worsened trade investment and contributed to reducing the revenue stream,” it concluded.

Experts react

Commenting on the development, a security expert, Jackson Ojo, said: “Terrorism financing has been going on for a very long time. But you see, in our country, when the high profile personalities are involved, it is not against the law. But if it is the low the personalities involved in it, it is against the law.

“This current government does not have the willpower to fight any level of insecurity because most of their high profile personalities are part of it. It starts with such arrests or investigations but it ends later or never heard of and that is why that these illegal businesses continue to flourish in the country.”

Another expert, Hassan Stan-Labo, said: “The government has not been able to adequately deal with the insecurity situation in the country because of its way of dealing with basic issues that concern ordinary people on the street. Elections are approaching and the government is looking after all sorts of excuses to distract the public. Nigerians have lost hope in the present government.”