The Egmont group reportedly plans on expelling Nigeria’s Financial Intelligence Unit (FIU) at its meeting, scheduled for the 2nd-7th of March 2018 at Buenos Aires, Argentina.

The initial suspension placed on Nigeria in July 2017 was billed to last until January 2018. In response, the Senate passed a bill granting autonomy to the Nigerian Financial Intelligence Unit (NFIU).

What is the Egmont Group?

The Egmont Group is a united body of 155 Financial Intelligence Units (FIUs). The group provides a platform for the secure exchange of expertise and financial intelligence to combat money laundering and terrorist financing. Nigeria joined the organization in 2005 but was granted full membership in 2007.

Why Nigeria may be expelled

The Egmont Group is unconvinced that Nigeria’s Financial Intelligence Unit (NFIU) has sufficient independence from the Economic and Financial Crimes Commission (EFCC). The EFCC has been alleged to have used critical information it had obtained to arm-twist individuals that had cases. The body had also requested from a proper legal framework, in addition to a physical relocation.

Reps and Senate bicker

The bill is yet to be harmonized with the House of Representatives which is insisting on the NFIU being domiciled with the EFCC. The difference of opinions between both chambers has led to a delay in the bill being submitted to President Muhammadu Buhari for approval.

A section of the Reps’ version of the bill places the collation of all reports relating to suspicious financial transactions, analysing and disseminating them to all relevant government agencies on the EFCC. This then means the body will be under the supervision of the EFCC.

The Reps are of the opinion that the laws granting legal autonomy are more important than the physical location of the NFIU.

In theory, the EFCC has granted the body autonomy, but in practice, this has not happened.

Why has this taken so long to settle?

Typically, Nigeria tends to leave critical issues to the last minute. Therefore, it is not surprising that no action has been taken just yet. The Senate has also had a running battle with the EFCC Chairman, who has not yet been confirmed (by the Senate). Had the two arms had a cordial relationship, this may have been resolved in time.

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Implications of an expulsion

On the country

The country’s war against corruption would also be affected as an expulsion would mean it will not have access to financial intelligence from sister agencies outside the country. The political elite in the country often launder huge sums of money to European countries. An absence of such information from financial intelligence units abroad makes it difficult to recover such funds.

The Muhammadu Buhari administration had picked the war against corruption as a key agenda. while his commitment to fighting corruption is largely debatable, an expulsion also gives a negative impression internationally, as regards Nigeria’s seriousness with the war on corruption.

On banks

If the expulsion goes through, Nigerian banks would be unable to issue ATM cards by Mastercard and Visa.The banks’ card income will also take a hit, coming at a time when yields on money market instruments are dropping

Banks may also have to access foreign trade lines and loans at a premium, making such funds slightly more expensive for them. This added cost will be in turn passed to businesses and customers.

On businesses

E-commerce firms will also be affected since their business models are largely online. They would be forced to rely on cash for transactions, which comes with higher processing costs. The expulsion could also throw a spanner in the Central Bank of Nigeria’s bid to improve financial inclusion.

Many goods sold on such sites are imported. Hence a restriction on card usage means businesses would have to find alternative ways of purchasing goods. This then makes them more expensive, as most consumers would prefer to buy directly than using a Nigerian e-commerce site.

Manufacturers in the country are will also be affected as a large proportion of their raw materials are imported. At the peak of the foreign exchange crisis in 2016, many were forced to rely on the parallel market, to meet FX needs. An increase in raw materials cost leads to an increase in the price of the goods sold.

How it affects you

You may be forced to rely on cash for transactions abroad in the absence of cards. This could then push you to the parallel market, as official markets limit the amount of cash one can buy per quarter. Parallel market rates are more expensive than official rates.

Nigerians spend a large proportion of foreign exchange on upkeep for their wards schooling abroad, hospital bills, and personal travel allowance.

Pressure on the parallel market then leads to a depreciation in its rates. Parallel rates will become more expensive. This then makes regular transactions even more expensive for the average Nigerian.

Onome Ohwovoriole has a degree in Economics and Statistics from the University of Benin and prior to joining Nairametrics in December 2016 as Lead Analyst had stints in Publishing, Automobile Services, Entertainment and Leadership Training. He covers companies in the Nigerian corporate space, especially those listed on the Nigerian Stock Exchange (NSE). He also has a keen interest in new frontiers like Cryptocurrencies and Fintech. In his spare time, he loves to read books on finance, fiction as well as keep up with happenings in the world of international diplomacy. You can contact him via onome.ohwovoriole@nairametrics.com