In a bid to stay ahead of emerging risks, the apex bank has launched a pilot supervisory programme focused on selected Virtual Asset Service Providers (VASPs).

Behind this move lies a deeper concern: safeguarding the financial system from the shadows of money laundering, terrorism financing, and proliferation threats. With the digital asset space evolving at a rapid pace, the CBN’s initiative signals a proactive effort to understand and manage the risks shaping this new financial frontier.

The initiative, anchored on existing legal frameworks including the Money Laundering (Prevention and Prohibition) Act 2022 and the Banks and Other Financial Institutions Act 2020, signals a more structured regulatory engagement with operators in the virtual asset ecosystem.

CBN in a statement said the pilot forms part of its broader risk-based supervisory strategy designed to “strengthen financial system stability and market integrity oversight of virtual asset-related activities within the Bank’s mandate.”

It noted that the exercise is not a shift in policy direction regarding digital assets but rather a supervisory engagement to deepen its understanding of emerging risks and operational models.

“This pilot does not alter, replace or supersede the existing regulatory framework governing virtual assets in Nigeria or the mandates of other competent authorities,” the CBN stated.

Consequently, it selected industry players for the initial phase which include Flutterwave, Paystack, KuCoin, alongside cNGN, Juicyway and KoinKoin.

The central bank noted that the programme is designed to build “a structured understanding of AML/CFT/CPF risks, business models, and operational practices across participating entities,” while also supporting firms to strengthen compliance frameworks in line with global standards.

In particular, the pilot aligns with recommendations of the Financial Action Task Force, especially around the implementation of the Travel Rule, which mandates transparency in cross-border digital asset transactions.

Participants in the pilot are expected to submit monthly compliance reports and key performance indicators, undergo detailed reviews spanning governance, customer onboarding and transaction monitoring, and demonstrate readiness to implement global compliance standards.

The apex bank further stressed that “participation in the pilot is strictly supervisory and does not confer any regulatory status, approval, licensing right, or authorisation on participating entities,” underscoring its cautious approach to the still-evolving sector.

The pilot will run in phases, with subsequent cohorts already scheduled, as the central bank intensifies efforts to close regulatory gaps and align Nigeria’s financial system with international best practices.

The judgment, delivered on Monday, follows a prosecution by the Economic and Financial Crimes Commission (EFCC), which presented evidence linking Nwabuoku to the embezzlement of public funds during his tenure as Director of Finance and Accounts at the Ministry of Defence between 2019 and 2021.

Nwabuoku faced a nine-count amended charge, including conspiracy, money laundering, and conversion of public funds. The court, however, granted bail in the sum of ₦500 million with two sureties in like sum.

Appointed Acting Accountant‑General in May 2022, Nwabuoku was removed from the position weeks later amid ongoing investigations. The case highlights Nigeria’s intensified crackdown on corruption within the public sector.

The EFCC has said the conviction sends a strong signal that mismanagement and embezzlement of public funds will no longer be tolerated.

He said to wire the money through Ecobank. Then, Ecobank was the only bank in Nigeria with a presence in Ghana. Our partner would merely walk into any Ecobank branch in Ghana on the streets of Accra and cash the fund from a teller.

It worked as if I stretched a hand in Nigeria and placed the cash in his palm in his homeland Ghana. Quite interesting. However, the sacrifice was huge. Well, Ecobank held us in a stranglehold. We had no choice. We played along. The bank won. Our partner was happy. That was in the past.

On the one hand

It is easy and cheap to make such a transfer now. Many banks offer the same service. Besides, technology has simplified banking.

But this has also attracted the attention of criminals who are searching for ways to bypass the laws and perpetuate their illegal activities.

While cross-border payment is easy in 2024, criminals are taking advantage of this to destroy economies through money laundering.

If there were no banks, how would the drug dealers and money traffickers launder their funds? Funds would be ferried across land borders. Concealed in holdall bags in the trunks of SUVs. And dry-cleaned in the open market.

On the other hand

The existence of banks has made the trade easy for criminals. The banks have become drycleaners for illicit funds. They launder illegitimate funds, making the funds disappear into the system.

As such, the introduction of ISO 20022 Payment Standard, a common, global end-to-end standard, has come to prevent the illicit business of money laundering activity. Oh, is ISO 20022 the reason banks are investing heavily in technology upgrades?

In the long term

The Committee on Payments and Market Infrastructures (CPMI) adopted the standard to improve cross-border payments. The global adoption of the standard will end in 2025.

At its March 2024 meeting, the Swift Board re-confirmed the community’s commitment to ending the coexistence period in November 2025.

It emphasised that priority would go to payment instruction messages to ensure operational continuity and interoperability.

Banks around the world are migrating to ISO 20022 standard. Because corporate bodies are demanding richer, structured data to enhance their payments and reconciliation processes.

Besides, the G20 is promoting the harmonised use of the standard for enhancing cross-border payments.

For instance, NIBSS has deployed the ISO 20022 payment standard. NIBSS employed a foreign company, Payment Components, to implement the global standard. Payment Components has worked with over 65 banks and financial institutions in 25 countries.

The Central Bank of Kenya (CBK) has transferred the Kenya Electronic Payment and Settlement System (KEPSS) to the ISO 20022 platform.

Last month, Kenya’s banking industry regulator directed lenders, including microfinance institutions to start testing the upgraded system for messaging high-value financial transactions aimed at increasing the speed of transfers while heightening the checks against money laundering.

Kenya’s Real-Time Gross Settlement (RTGS) system is operated by CBK to process large-value and time-critical payments. It is the backbone of Kenya’s domestic and regional payment transactions.

The initiator of the standard, Swift, was founded in the 1970s, based on the ambitious and innovative vision of creating a global financial messaging service, and a common language for international financial messaging.

Swift and the Board have urged its members to reinforce their efforts to switch cross-border payment instructions to ISO 20022 in the next 18 months. It said it would continue to provide resources to support the community in achieving this important milestone.

Nicolas Stuckens, Head of ISO 20022 Adoption, and Data Quality at Swift explained that the standard helps the banks to reduce friction, enhance straight-through processing (STP), and better reconciliation.

The ISO20022 Standard will enhance interoperability between domestic and international payment systems, facilitating easier cross-border transactions, and increasing the ease of doing business globally.

In the short term

As a bank customer, what was your experience during this technology upgrade?

[Featured Image Credit]

*Rarzack Olaegbe, the co-founder/COO, eMaginations Comm. Ltd., wrote from Lagos

Money laundering is often associated with illicit weapons sales, smuggling, embezzlement, insider trading, bribery, and computer fraud schemes.

It is also prevalent in organised crime, such as human, arms, or drug trafficking.

According to a recent global anti-money laundering (AML) research conducted by SAS, the leader in analytics and AI, in partnership with ACAMS and KPMG, 57% of institutions have adopted AI and machine learning (ML) in their AML compliance department or plan to do so imminently.

For South African companies, the reality of the country potentially being grey listed by the Financial Action Task Force (FATF) in February next year is significant cause for concern.

The country received 20 negative ratings (out of a potential 40). While the FATF placed South Africa on enhanced follow-up which saw the task force performing a follow-up visit in October this year, there have not been many discernible changes made to policy and regulation to realistically see it avoid a grey listing.

The impact of this will see local businesses be subject to enhanced due diligence, which will mean more frequent and more invasive assessments for anti-money laundering and combatting of terrorism financing measures risks, amongst others.

The common denominator is that financial institutions need to act fast to stay compliant with the AML / CFT regulatory requirements. Compliance, however, poses three major challenges: extremely high false positives, a growing volume of cross-border transactions, and constantly changing AML / CFT regulations and business requirements.

As regulators around the world, including across Africa increasingly judge financial institutions’ compliance efforts based on the effectiveness of the intelligence they provide to law enforcement, it’s no surprise that 66% of SAS survey respondents believe regulators want their institutions to leverage AI and machine learning.

These technologies help reduce false positives, ease caseloads, streamline reporting and lower operational costs.

SAS Anti-Money Laundering takes a risk-based approach to help financial institutions uncover illicit activities and comply with AML and CTF rules.

With embedded AI, machine learning, and other advanced analytics techniques, such as deep learning, neural networks, natural language generation and processing, unsupervised learning and clustering, robotic process automation and more, SAS Anti-Money Laundering drastically bolsters AML and CFT efforts.

SAS has been named a Leader in anti-money laundering solutions in The Forrester Wave: Anti-Money-Laundering Solutions, Q3 2022 report, achieving an almost perfect score of 4.85/5 on its current offering.

“As money laundering methods get more sophisticated, financial organisations rely on ever-more advanced AML solutions to detect and combat financial crimes,” said Stephan Wessels, SAS Head of Customer Advisory for South Africa. “However, despite the promising results and billions spent yearly on basic regulatory compliance tasks, some have been slow to change. Our sophisticated anti-money laundering solution leverages AI, machine learning, intelligent automation, and advanced network visualisation, to deliver unprecedented prediction and detection capabilities, the lowest false positives, and reduced investigation times.”

Authorities in Kenya said Flutterwave’s transactions were suspicious resulting in non-compliance with the country’s financial regulations, The Star in Nairobi reported.

Amongst the seven businesses caught in the probe, Flutterwave appeared the largest and it alone had its accounts frozen to the tune of $56.7 million (6.7 billion Kenyan shillings) by the country’s Asset Recovery Agency, The Star said.

GTBank and Ecobank, amongst other financial services in Kenya, were also said to have provided their platforms to Flutterwave in the illicit transaction.

“Investigations established that the bank accounts operations had suspicious activities where funds could be received from specific foreign entities which raised suspicion. The funds were then transferred to related accounts as opposed to settlement to merchants,” prosecutors alleged in filings.

Investigations into Flutterwave began several months ago, and authorities obtained warrants to seize the firm’s accounts in April. The provisional seizure permit was granted for 90 days, and the matter will be heard on November 7.

The seizure order appears to coincide with a report published by journalist David Hundeyin, which exposed alleged financial, criminal, and ethical lapses against Flutterwave and Gbenga Agboola, Chief Executive in April 2022.

Agboola denied the allegations as reported by Hundeyin over at Subtack, but said he would make necessary changes to his management of the firm going forward.

In the indictment reported by The Star on Wednesday, Agboola was said to have conducted suspicious transactions to the tune of $101 million dollars (12 billion Kenyan shillings) before authorities caught wind of his activities.

The Kenyan daily also said Agboola and his partners in Nairobi hid under the shadows to exploit the country’s financial system, including conducting about 185 online card payments using the same identification number.

Several other suspicious transactions were also flagged by anti-money laundering detectives, including another instance in which Mr Agboola allegedly connived with another Nigerian national to launder cash through the Kenyan banking system.

“If indeed the Flutterwave was providing merchant services, there was no evidence of retail transactions from customers paying for goods and services. Further, there is no evidence of settlements to the alleged merchants,” Kenyan prosecutors added.