Money laundering and the duties of directors

A trader walks into ten bank branches in one day and pays in ₦4.9m cash at each. None of the deposits looks large. Together they are ₦49m of money from a source nobody can explain. This is how criminal money is cleaned, and it is why banks, accountants and other professionals have legal duties to watch for it.

Directors have their own legal duties too, and a financial manager who does not know them can put the company and the directors at risk.

This topic covers money laundering and the Nigerian rules against it, the role of the Financial Action Task Force, the duties of directors under CAMA 2020, and the regulation of the securities market by the Securities and Exchange Commission (SEC) and the stock exchange. The previous topic covered stakeholders, agency and ethics. The next topic covers the economic environment and international institutions.

Neither the May 2014 nor the November 2014 Pathfinder sets a stand-alone question on this topic, but it is part of the syllabus and ties to the ethics and governance questions.

Key terms in plain English

Syllabus check

This topic is in the regulatory background to syllabus areas A and D. It covers:

• the meaning of money laundering and the main Nigerian rules against it;
• directors’ responsibilities under Nigerian law;
• the role of the SEC and the stock exchange in outline.

CAMA 2020 and directors’ duties

The Companies and Allied Matters Act 2020 (CAMA 2020) is the company law of Nigeria.

Money laundering

Money laundering covers any activity that changes the apparent source and ownership of the proceeds of crime so that they appear legitimate. It often happens in three steps:

1. Placement: cash enters the financial system.
2. Layering: complex transactions hide the illegal source.
3. Integration: the wealth appears to come from legal sources.

Common methods are structuring or smurfing (small deposits), bulk cash smuggling to places with bank secrecy, cash-intensive businesses that mix legal and criminal cash, and buying property with illegal money and then selling it.

The Financial Action Task Force

FATF was formed in 1989 by the G7 countries. It is an inter-governmental policy body that promotes laws and regulatory reform against money laundering and the financing of terrorism.

Its recommendations include that countries criminalise money laundering; that secrecy laws must not block the recommendations; that no anonymous accounts are kept; that institutions carry out customer due diligence when they start a relationship, for occasional transactions over a threshold and for wire transfers, when there is suspicion, or when earlier identification data are doubtful; that unusual and complex transactions get special attention; that suspicion is reported promptly to the financial intelligence unit; and that institutions run programmes with internal policies and controls, staff screening and training, and an audit function.

FATF assesses countries and can subject poor performers to sanctions.

The Nigerian rules

The Money Laundering (Prevention and Prohibition) Act 2022 repealed the 2011 Act. It applies to financial institutions and to designated non-financial businesses and professions (DNFBPs), which include accountants and audit firms, and puts DNFBPs under the Special Control Unit against Money Laundering (SCUML) in the Economic and Financial Crimes Commission (EFCC).

• Offences: to conceal or disguise the origin of, convert or transfer, move out of the country, or acquire, use or hold funds or property that you know, or ought reasonably to know, are the proceeds of an unlawful act. Unlawful acts are wide and include tax evasion and securities fraud.
• Cash limit: a cash payment of more than ₦5,000,000 by an individual or ₦10,000,000 by a company must be made through a financial institution. The 2022 Act kept these limits.
• Foreign transfers and cash carried across borders (s. 3): a transfer of funds or securities to or from another country above US$10,000 (or its equivalent) must be reported in writing to the NFIU, the Central Bank of Nigeria and the SEC within one day. Cash or negotiable instruments above US$10,000 carried in or out of Nigeria must be declared to the Customs Service, which reports to the Central Bank and the NFIU.
• Customer due diligence: identify customers and any beneficial owner with reliable independent documents; carry out due diligence when starting a relationship, for occasional transactions above the threshold and wire transfers, on suspicion, or when earlier data are doubtful; keep monitoring and keep the records up to date, especially for higher-risk customers.
• Internal controls: a compliance officer at management level at the head office and every branch, regular staff training, centralised information and an internal audit unit.
• Politically exposed persons: a proper risk system and senior management approval.
• Suspicious transactions: a transaction is suspicious if its frequency is unjustified, it is unusually complex, it has no apparent economic or lawful purpose, it looks like terrorist financing or it is inconsistent with the account pattern. The institution must ask for the origin and destination of funds, the purpose and the beneficiary, and report to the NFIU within 24 hours. The NFIU or the EFCC may place a stop order of up to 72 hours.
• Large transactions: single transactions above ₦5m (individual) or ₦10m (company) are reported to the authorities.
• Prohibited: numbered or anonymous accounts and shell banks. Bank secrecy cannot be used to block the measures, and courts can order surveillance of accounts and access to records.

Duties of directors

A director is in a fiduciary relationship with the company and must observe utmost good faith (CAMA 2020, s. 305). A fiduciary is someone trusted to manage another’s property and who must act for that person’s benefit. The duty can also arise when a director acts as agent for a shareholder or when a shareholder deals in the company’s securities.

• Best interests: act in what he believes are the best interests of the company as a whole, to preserve its assets, further its business and promote its purposes, as a faithful, diligent, careful and ordinarily skilful director would, and have regard to employees as well as members.
• Proper purpose: use powers for the purpose for which they exist and not for a side aim. An exercise for the right purpose is no breach even if it incidentally hurts a member.
• No abdication: a power may be delegated where the Act allows, but not in a way that gives up responsibility. For example, the directors may ask an accountant to prepare the statements, but remain responsible for them and must pick a competent person.
• No contracting out: a director’s legal responsibilities cannot be removed by the articles, a resolution or a contract.
• Agent and trustee (s. 309): a director is an agent of the company and a trustee of its assets and powers, must account for money he controls, refund money wrongly paid, and act with honesty for all shareholders, not for his own or sectional interests.
• Conflicts (s. 306): personal interest must not conflict with duties. A director must not make a secret profit. If he discloses his interest at the board (s. 303), the profit is no longer secret and he may be entitled to keep it. Inside information must not be misused, even by a former director, who can be stopped by an injunction.
• Care and skill (s. 308): the care, diligence and skill of a reasonably prudent director in the same circumstances. This applies to executive and non-executive directors. Failure is a ground for an action for negligence and breach of duty. Each director is individually responsible for the actions of the board in which he took part, and absence without good reason is no excuse.

Regulating the securities market

The SEC registers securities offered to the public and approves the timing of new issues, supervises dealings, registers exchanges and capital market operators, and protects the market from manipulation and insider dealing. The Investments and Securities Act 2025 repealed the 2007 Act and confirms the SEC as the apex regulator.

The stock exchange (now Nigerian Exchange Limited, NGX) provides the platform for buying and selling, gives investors liquidity, regulates its brokers, encourages new issues and helps spread promoters’ risk.

Methods of listing

As ICAN teaches:

• offer for subscription (invitation to the public at a fixed price)
• offer for sale (shareholders sell, proceeds go to them)
• placing (sale by a broker to clients)
• rights issue (to existing shareholders in proportion, usually at a special price)
• capitalisation (bonus) issue
• tender (bidding)
• introduction (listing shares already widely held)
• conversion and options

Listing requirements (as ICAN teaches)

The application must be sponsored by a dealing member; the company must be a public company; securities must first be registered with the SEC; the prospectus is sent to the exchange at least seven working days before the completion board meeting; the company signs a general undertaking to give information; it meets the minimum public float; the subscription list stays open for no more than 28 working days; no more than 10% of an offer goes to staff; a listing fee is paid; restrictions on transfer of fully paid shares are removed from the articles; notice of the AGM is advertised in at least two widely read newspapers at least 21 days before the meeting; and subscription money pending allotment is held in a designated account.

These figures match the older NGX Listing Requirements (the Green Book). The current Rulebook of the Exchange sets listing standards by board and requires a public float of between 10% and 20% of each class of equity.

The rules in more depth

Why accountants are covered

Accountants set up companies, handle money and advise on structures, so criminals can use them to hide funds. The law treats licensed accountants as DNFBPs and requires them to know their client and report suspicion.

Why disclosure matters

The conflict rule does not ban a director from doing business with the company. It requires that the interest is disclosed so that others can decide. Secrecy is the wrong, not the deal.

Why directors cannot delegate away responsibility

Shareholders trust the directors personally. A competent delegate is a tool, but the directors must supervise.

Effect on analysis

In a scenario, state the rule, apply it to the facts and name the consequence. Use the current Act names.

Worked examples

1. The deposits are in small amounts to avoid suspicion, which is structuring, a method of placement. The wire is a step in layering.
2. The pattern has no apparent economic purpose and is unusual in frequency, so each branch must treat it as a suspicious transaction.
3. The bank must ask for the origin and destination of the funds and the aim, and report to the NFIU within 24 hours.
4. The NFIU or the EFCC may place a stop order of up to 72 hours.

1. ₦8m by a company is below ₦10m, so it is allowed.
2. ₦12m by a company is above ₦10m, so it must go through a financial institution. It is an offence in cash.
3. ₦5.5m by an individual is above ₦5m, so it must go through a financial institution.
4. ₦4.9m is below the limit, but if it is part of a pattern of splitting to avoid the limit it is suspicious.

1. The ₦15m profit was made by using his position and was not disclosed. It is a secret profit and a breach of the duty to avoid conflict (s. 306).
2. He must account to the company for the ₦15m, and the company can recover it. The company may also cancel the contract.
3. If he had disclosed his interest at the board before the contract (s. 303), the profit would not be secret, and he might be allowed to keep it, subject to the Act and the board’s decision.

1. Delegation is allowed, but the directors remain responsible for the statements.
2. They must pick a competent person and supervise, and the duty of care (s. 308) applies to each director.
3. Not reading the statements is a failure of care. Each director is individually responsible for the board’s action in which he took part.

How to score full marks

• Name the stage of money laundering and the method (placement, layering, integration).
• State the duty of the regulated entity: identify, monitor, report within 24 hours.
• Quote the limits (₦5m and ₦10m) and apply them to the figures.
• Name the director’s duty and the section, then apply it.
• Say whether disclosure was made in a conflict question.
• Use the current law and note any difference from older wording.

Common mistakes in the exam

• Naming the repealed 2011 Act or CAMA 1990 as current law.
• Confusing the individual limit (₦5m) with the company limit (₦10m).
• Forgetting that accountants are covered.
• Saying a director may never deal with the company, when disclosure is the key.
• Believing that delegation ends responsibility.
• Omitting the stage of laundering when asked to identify the method.

Quick revision

• Laundering: placement, layering, integration. Structuring is placement.
• FATF: due diligence, report suspicion, internal programmes.
• 2022 Act: cash limits ₦5m and ₦10m; suspicious transactions to the NFIU within 24 hours; DNFBPs include accountants.
• Directors: fiduciary, good faith, proper purpose, no abdication, no secret profit, care and skill.
• SEC regulates the market. ISA 2025 replaced ISA 2007. NGX runs the exchange.
• CAMA 2020: ss. 303, 305, 306, 308, 309.

Practice questions

These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.

Recall check: multiple choice

The real ICAN paper has no multiple-choice section. These questions are for quick recall. The written questions that follow are closer to the exam.

Written questions

Model answers

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