Statistical challenges and ‘cash for penguins’ Jacqueline Helen Harvey November 20, 2019 No Comments Originally published on GI-ACE Across a range of macroeconomic measures, the years of 2015 and 2016 brought on marked changes in Nigeria’s public, political, and economic arenas. We focus on these years because more recent data is harder to locate. Observers familiar with the country will know that gross domestic product (and government fiscal revenue) is highly dependent upon oil prices and, thus, susceptible to oil price shocks. The most recent collapse in oil price in 2014 pushed the economy into recession in 2016. Given that 25% of bank lending is to oil and gas firms, there was a resulting rise in bank bad debts. At the same time, the Nigerian currency (naira) was devalued by approximately 40%, and domestic inflation rose to 18.5%. Despite best efforts to reduce reliance on cash, only 40% of adults have access to a bank account. Consequently, in excess of 2 trillion naira circulate within the economy. There have also been large volumes of declared cash (recorded by Customs) legally leaving the country through the border points, especially the airports. All sums of more than $10,000 have to be declared. The 2015 Nigeria Financial Intelligence Unit (FIU) Report indicates the highest volume declared was through Murtala Muhammed International Airport in Lagos, yet set against this the fact that FIU National Risk Assessment 2016 data indicate that in 2014 (when declarations were at $565 million) only $1.9 million was seized at Lagos airport for false or missing declaration. The FIU report notes the high level of compliance with the declaration regime in the country but that there are likely to be large movements that remain undetected. We remain mystified as to why such large volumes are being moved as cash rather than through the banking system. Which leaves us with no answer to the question of why, in 2015, two sums of $14,300 and $10,000 were ‘exported’ to Antarctica. What use do penguins have of cash? The argument made here is that it is not an easy task to interpret the data collected. Our project on beneficial ownership and corruption in Nigeria has been investigating financial data. This is because we are trying to locate something that is not apparently observable—laundering the proceeds of corruption through disguising the beneficial owner—by removing from the picture what might be explained legitimately. Illicit financial flows (IFFs) from Nigeria have been estimated to reach eye-wateringly high volumes. For example, a report by Partnership for African Social and Governance Research from May 2018, indicated that it lost $217.7 billion to illicit financial flows during the period 1970–2008 (6). We cannot directly observe these flows, but they travel across the financial system, ultimately ending up invested in assets located in a different jurisdiction. What we can observe, however, are the financial flows tied to and explained by international trade, foreign direct investment, remittances from abroad, and stocks held in the banking system. We are currently investigating the locational banking statistic data available from the Bank for International Settlements. While there are no specific data available since Nigeria is not one of the 47 reporting countries, we can look at the cross-border positions of Nigeria on the counterparties residing in more than 200 countries. In light of the IFF numbers, we had expected claims of legal entities from Nigeria on foreign banks to exceed their liabilities. This is not the case. The PASGR report indicates that the overwhelming majority of IFFs from Nigeria were associated with the oil sector, particularly illegal oil bunkering and oil theft. If correct, these volumes are huge. Yet the statistics for the Economic and Financial Crimes Commission indicate only one recorded conviction for illegal bunkering in 2013. While convictions were secured in 11 such cases in 2014, sentences indicate those apprehended to be operating on a relatively small scale. The most recently available report for 2016 lists just two cases. Again, we might have expected more activity in this area. The Financial Action Task Force (FATF) is very clear that the integrity of the international payments system can be protected through increasing transparency, particularly with respect to beneficial ownership. However, in practical terms and to be operationally effective, data on registers need to be accurate and accessible. The Nigerian Corporate Affairs Commission (CAC) has been supported by openownership.org to set up a register of beneficial ownership. While the CAC hoped to have the register available from the end of 2019, our understanding is that this is currently behind schedule. While it is impressive that Nigeria has been willing to create an open-access register, this does not necessarily ‘solve’ problems of poor data. A lot of hard work will still be needed if this information is to be useful and thus meet FATF recommendations that competent authorities (and hopefully others) will have timely access. With respect to data, FATF also recommends that attention be paid to the quality of statistics compiled and maintained (R33) by countries in order to demonstrate “effectiveness and efficiency of their anti-money laundering (AML) and counter-terrorism financing (CTF) systems.” That the statistics presented are accurate and (reasonably) up-to-date is implicit in FATF’s recommendation on compilation and maintenance. FATF’s 2015 report also flags the lack of reliability of national statistics, noting that data often are incompatible between agencies (collected by different stakeholders for different uses) and inconsistent between countries. Problems regarding data-sharing and recordkeeping also were discussed in the 2008 Mutual Evaluation of Nigeria. (The country has just completed another mutual evaluation, but no documents are yet in the public domain.) So, should we have been surprised by the problems we encountered in obtaining data for our project? Jacqueline Helen Harvey Professor of Financial Management and Director of Business Research, Newcastle Business School Coming from the school of critical scholars, Jacqueline Helen Harvey‘s evidence-based work challenges existing frameworks and approaches. Her overall contribution to the discipline is around two main themes: anti-money laundering policy / asset recovery and the criminal interface with internal organisational structure. Harvey is on the editorial board for the European Cross-Border Crime Colloquium that brings together researchers from across Europe. Harvey received her Ph.D. in Taxation Policy from the University of Bradford. Leave a Reply Cancel replyYour email address will not be published. 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