The controversy about how far global financial institutions should go to prevent grand scale fraud, corruption, and money laundering — especially when it involves public officers or high net worth clients — can be addressed in the coming weeks during a trial in the British Court system.
The Federal Government of Nigeria (FRN) sued the American financial Institution, JPMorgan Chase, for its role in facilitating grand scale fraud and money laundering in the OPL 245-Malabu Deal Case.
The government of Nigeria is seeking $1.7 billion in damages from JPMorgan for its role in enabling transactions of up to $1.1 billion allegedly used to pay bribes to Nigerian government officials and their affiliates as reward for facilitating the fraudulent purchase of an oil block identified as OPL 245.
This payment was allegedly made as part of a deal allowing Shell and Eni to purchase the oil block for $200 million from a company called Malabu Oil and Gas, a company owned by the Minster of Petroleum at the time, Dan Etete. The oil block was sold to Malabu Oil at only $2 million prior to the sale to Shell and Eni.
Recent investigations such as the “Panama” and “Paradise” papers, and “Congo Leaks” as well as the “FinCEN Files” draw attention to the indispensable role of certain professional industries (but especially financial institutions) in relation to international money laundering, financial fraud, corruption schemes, tax/sanctions evasion and criminal/terrorist financing.
To successfully commit financial crimes and move proceeds of crime for safe keeping and access by complicit actors, it requires professional assistance from intermediaries, most notably accountants, bankers, corporate service providers, lawyers, private wealth managers others outside the financial sector.
When such assistance is provided unknowingly, it is debatable how much stronger AML/CFT compliance systems as well as corporate leadership commitment should be to preventing transnational crime. However, when the assistance is provided knowingly or negligently, then it requires collective private sector attention and effort.
Through Global Witness’s exhaustive investigation into this deal and the lawsuits now at the appeal stage in Italian courts, the government of Nigeria is doing more than simply claiming JPMorgan Chase was negligent by facilitating a deal that had multiple red flags.
Rather, this case suggests, in essence, that implementing risk-based AML systems in designated institutions according to local and international regulations may represent the bare minimum companies should do. The government of Nigeria is joined by global civil society, law enforcement agencies in Nigeria and in multiple European countries, and professionals in the private sector. All have been involved in this investigation and prosecutions in a de facto imputation against the assumption that risk-based AML programs alone are a sufficient industry response to rising levels of transnational crime.
To successfully commit financial crimes and move proceeds of crime for safe keeping and access by complicit actors, it requires professional assistance from intermediaries, most notably accountants, bankers, corporate service providers, lawyers, private wealth managers others outside the financial sector.
If courts make clear how far financial institutions should go to prevent grand scale fraud and money laundering, global financial institutions could move in one of two directions. They would have to choose whether to become active gatekeepers or de facto enablers in transnational crime.
If, at the end of this trial, JPMorgan Chase is found to have done enough to prevent grand scale fraud and corruption in the OPL 245 case because it filed Suspicious Activity Reports and made the decisions it did even while seeing the red flags, that would suggest that the bare minimum is sufficient and global financial institutions may not be the most effective partners in protecting the financial system and preventing access to proceeds of crime by complicit actors including public officers and criminals.
Tackling illicit financial flows is as much a matter of survival as it is a national security priority for most of the developing world as well as the developed world. Africa loses up to 4% of continental GDP annually and 55% of these funds end up in developed countries. Industry attention and collaboration through strong commitment and leadership could make the difference in combatting transnational crime.
CIPE’s anti-corruption programs include projects supporting private sector-led advocacy and collective action in Africa, Europe & Eurasia with strategic initiatives like Ethics 1st and the Thai Coalition against corruption in Asia. Later this year, CIPE’s Anticorruption and Governance Center will be launching an internet-based resource center for collective action practitioners.
Published Date: February 24, 2022