CHAPTER ONE

INTRODUCTION

1.1   Background to the Study

Money laundering poses a serious threat to individuals, businesses, financial systems, markets and governments as this financial crime affect and destruct the economy development of a country(both developed, developing and undeveloped), for example developing countries such as Nigeria loses billions every year to to Money launderers. Many international and regional government has begin to acknowledge that money laundering has become a continuous serious threat to the global economy development of the financial system as well as the global community. The  term, “Money laundering” is the concealment of the source, nature, existence, location and disposition of money and/or property obtained illegally or from criminal activities such as embezzlement, drug trafficking, prostitution, 419, corruption and large scale crime. The origin of this money laundering could not be ascertained by anyone, but there are several opinions that it started several thousand years ago with Chinese merchants, and also from mafia ownership of laundmarts, in the United states where they needed to prove their genuine source for their monies as they earned their cash from extorting, gambling, and bottle liquor. Due to the growing of organized crimes such as financial terrorism, tax evasion and others, money laundering is believed to be the third serious crimes by some academic researchers, with an estimated 60% to 70% of it occurrences in the world. Most of our financial institutions today fail to recognize that the phenomenon “fraud” can appear to be more dangerous when compared to other forms of problem like armed robbery attack which can only affect the institution within a short period of time, such may have no long term effect on their operations.

However, any significant fraud committed in an institution, not only undermines or shakes up it’s financial stability but can severely affect the reputation of the institution thereby resulting to investor’s loss of confidence. According to the United State Treasury Department “money laundering “ is the process of making illegally gained proceeds (i.e. dirty money ) appears legal (clean) and this involves three steps: placement, layering and integration. This is the more reason why many regulatory and governmental authorities issues estimates each year for the amount of money laundered, either worldwide or within the national economy. In 1996 the international monetary fund estimated that two to five percent of the world wide global economy involved money laundered. Furthermore, Osisoma (2009) refers to money laundering as a second-order financial crime which derives from an underlying criminal activity often called predicate offences. It generates proceeds which when laundered results in the offences of money laundering. i.e. money laundering is a cross border crime. Summers (2000), states that the observable fact of money laundering is a characteristic of organized crime with researcher and academic estimating that the money laundering generate about US$100 billion; while the British Intelligence estimated that the total amount being laundered annually is about US$500 billion. While firms operating in the same country generally have to follow the same AML laws and regulations, accountancy firms in Nigeria all structure their AML efforts slightly different. That is why, most financial institutions globally, and many non-financial institutions, are required to identify and report transactions of a suspicious nature to the financial intelligence unit of the country.

Furthermore, the international monetary fund working paper concludes that money laundering impacts financial behavior and macro-economic performances in different forms such as policy mistakes due to measurement errors in nationals account statistics, volatility in exchange and interest rates due to unanticipated cross border transfer of funds, the threat of monetary instability due to unsound asset structures, effect of tax collection and public expenditure allocation due to misreporting of income, misallocation of resources and contamination effect on legal structures due to the perceived possibility of being associated with financial crime. John and Gary (2001) explains that the exploit of money laundering and currency maneuvering can harmfully undermine currencies and interest rates, more predominantly in a developing economy like Nigeria.e.g. a developing country such as Nigeria roles on the acquisition of other currencies in order to fulfill the international obligations in satisfying local needs, thus inversely uncurbed money laundering practice into the system. As profit making is not only the stimulating factor for investing the proceeds of economic crimes in any business, it is always convenient for money launderers to move funds around as the situations may demands.

Accounting firms and professionals are deeply implicated in the global financial crisis of any country, due to their inability to carryout financial transaction with due diligence, transparency and inconformity/compliance with stated accounting guidelines and regulation which in turn create rooms for criminal and fraudulent activities such as money laundering, tax evasion, and others. The magnitutde of this financial crime(money laundering) calls for a reassessment of all areas of business and economic activities including accounting guidelines and standards, although the observable fact of money laundering has taken an increased attention from every country in the world, it is still a controversy in the criminal phraseology. In anticipation of the concept of money laundering phrase, which has almost been talked about and documented over the past seven (decades), it is extra-ordinary that this subject has been given in research studies, regardless of the fact that organized crime has been given fewer research studies and it has been part of the society for a longtime. The motivation for financial crime such as money laundering are usually built around some risk factor which include the incentive (or pressure), opportunity and rationalization surrounding the financial criminals, no doubts, money laundering has put accounting firms image in a negative state. This study will also provide a literature review in order to better understand the theories of money laundering and the roles and responsibilities of accountancy firms in combating the nemesis. This study will also provide the review of international and national policies and legislation frameworks designed to prevent and detect money laundering in Nigeria. It will also provide logical solution approach in dealing with financial crime such as money laundering in financial and non-financial sector in Nigeria.

1.2 Statement of the Problem

The role of accountancy firms in money laundering are difficult to enumerate but it is clear that such activity damages both the financial and economy sector of a country. Financial institutions, that are critical to economic growth reduces productivity in economy as a result of money laundering which in turn, slow economic growth and development in the country. Globally, and in Nigeria today, the UNODC report that (2014) two trends characterized money laundering in recent years, the first is the increasing involvement of professionals (Accountant) and the second is that Accounting firms are used not only to conceal the origin of the source of proceeds, but also manage subsequent asset and /or other legitimate business globally, and as a result of this tackling money laundering and the accountability of legal institution whether interdiction, enforcement, or disruption depends so much on the socio-economic environment within which they are conceived or operated. Money laundering constitute a threat to the continued existence of corporate organization as result of absence of concrete internal auditing procedure, non-compliance with relevant accounting standards due to the negligence of the accountants, inadequate book-keeping/accounting procedures which gives rise unhealthy meddlesomeness(presentation of distorting or misleading financial statement) though this money laundering has become a potential threat to the continue operation of capitalist economy.

Money laundering has been a major concern to the shareholders regulatory authorities, and the public at large especially the financial sector and this can be traced to the lack/inadequacy of credit administration by many financial institution as a result of their inability to properly appraised the loan granted which in turn result in increase volume of non-performing assets, putting any institution in precarious financial situations.  (Idowu and Obasan, 2012) Money laundering in Nigeria had worsened in recent times, covering the image of decent and hardworking people in the country  i.e. top management and opportunist ride on the back of various accounting firms and bank to carryout their illegal act, because of the confidence that the law in the country will protect them, to the disadvantage of decent people which in turn frustrate legitimate business. It is against this backdrop that this study seeks to examine the role of accounting firms in money laundering in Nigeria.

1.3 Objective of the Study

The Objectives of this study are as follows;

1.  Ascertain how Accounting firms help to reduce, and prevent money laundering in Nigeria
2.  Eliminate the constraint encountered by accounting firms in money laundering in Nigeria
3.  Determine the economy effect of money laundering in Nigeria
4.  Examine the effectiveness of the Anti-Money laundering laws and regulations used for prevention of money laundering in Nigeria.

1.4   Research Questions

The following research question were raised to guide the study

1.  Accounting firms help to reduce, and prevent money laundering in Nigeria?

2.  The constraint encountered by accounting firms in money laundering in Nigeria?

3.  Economy effect of money laundering in Nigeria?

4.  Effectiveness of the Anti-Money laundering laws and regulations used for prevention of money laundering in Nigeria?

1.5 Significance of the Study

Thus, criminal organisations are increasingly contracting the task of money laundering to accountants because the methods required to circumvent the law and avoid detection are complex. The growth of money laundering over the years has constituted a worrisome issue to individuals and corporate individuals. This is because majority of the stakeholders, retirees, customers, present employee e.t.c. rely on the both financial institution and accountancy firms for payment, thereby Stemming the tide of money laundering will go a long way in alleviating the economic hardship being experienced currently by these categories of citizens and would help again in reassuring the stakeholders and also raising their confidence level in the financial and economic system of the country.

This study will be of great importance to the government, corporate individual, financial and non-financial institution since it will help to determine the actual income of every companies and banks so as to pay the exact tax. It will also help to create responsibilities for all those in the regulated sector to disclose relevant information relating to money laundering to the authorities. It will also helps to set outs various money laundering offences and it consequences, and finally, It will also give them positive insight on how to fight this evil menace called money laundering in the country. It will also be of great benefit to the corporate world as the effective work of accountant and auditors in accountancy firms who in turn helps to prevent, reduce and detect money laundering in the country. It will also assist the investors and depositors to know the financial position of the institution they are investing in if it is going to be a profitable or not, and for all those in the regulated sector i.e. statutory auditors, a tax advisor, A forensic accountant, external auditor/accountant someone who provide accounting service to others) by providing them with fundamental legal rules as related to money laundering. Finally it will be of great significance to schools and students, it will serve as a reference point for future researchers who will want to research more on the topic.

1.6. Limitation of the Study

We were confronted with some problems when carrying out this research. These problems include.

·        Financial problems:- the success of our research work depends on the finance availability and this affected the researcher because the finance at his disposal was not sufficient to carry out the research effectively.

·        Time:- this has to do with the time-frame given for the completion of the study and also other challenges; activities and engagements forcing me as a final year student reduced my time-frame.

·        Data collection problems: as a result of the research study we were faced with problem of getting required source of data on time.

1.7  Definition of Terms

Accounting firms: This are specialized service providers run by experienced accountants who serve either business customers or consumers. Like individuals, accounting firms can choose to specialize in different areas of accounting, such as business startups or liquidations.

Audit accounting firms: These firms perform audit of companies, organisations, small business as annual audits are required for businesses in most places and these firms are always contracted to perform those audits.

Money Laundering: is the process of transforming the proceeds of crime into ostensibly legitimate money or other assets. Also it involve the misuse of the financial system (involving things such as securities, digital currencies, credit cards, and traditional currency), including terrorism financing and evasion of international sanctions.

Layering This is a process whereby the launderer engages in a series of conversions or movement of the funds to distance than from their source. Here layers upon layers of transactions are created, moving “dirty” monies between accounts or business or buying and selling assets on a local and international basis until the original source of the money is untraceable.

Structuring: Often known as smurfing, this is a method of placement whereby cash is broken into smaller deposits of money, used to defeat suspicion of money laundering and to avoid anti-money laundering reporting requirements.

Forensic Accounting: this is a special area of practice in accounting where accounting, auditing, and investigative skills are used to assist court in legal matters, forensic accountants are also known as forensic auditors, they investigate white collar crimes such as money laundering, embezzlement, fraud, and bankruptcy.

White-Collar Crime:- Edwin Sutherland in 1939 defines it as “a crime committed by a person of respectability and high social status in the course of his occupation. It is a financially motivated nonviolent crime committed for illegal monetary gain.

Fraud: this refers to a wrongful or criminal deception intended to result in financial or personal gain .i.e. it is an act or course of deception, omission or perversion of truth in order to gain unlawful or unfair advantage.

Corruption: This refers to the wrongdoing, on the part of an authority or those in power which is illegitimate. i.e. it is as complex social and economic phenomenon carried out by those in power for personal advantage.