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 proposal 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 (2010) 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 in stitution 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;
- Ascertain how Accounting firms help to reduce, and prevent money laundering in Nigeria
- Eliminate the constraint encountered by accounting firms in money laundering in Nigeria
- Determine the economy effect of money laundering in Nigeria
- Examine the effectiveness of the Anti-Money laundering laws and regulations used for prevention of money laundering in Nigeria
1.4 Research Question
The following research question were raised to guide the study
- Accounting firms help to reduce, and prevent money laundering in Nigeria?
- The constraint encountered by accounting firms in money laundering in Nigeria?
- Economy effect of money laundering in Nigeria?
- 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/accountant9someone 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.
- 2. 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.
- 4. 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