Financial Crime Compliance: The Approach for Financial Institutions

CONTRIBUTOR: ANGELA ANEKWE

INTRODUCTION

Financial crime is a broad term used to describe criminal activities that involve money or other financial resources. Financial crime refers to any illegal activity that involves the use of financial systems, institutions, or instruments for illicit purposes, typically with the goal of generating profits for the perpetrators.^[1] Financial crimes can take many different forms, from money laundering to fraud, embezzlement, insider trading, and cybercrime. These crimes are often committed by individuals or groups seeking to profit from illegal activities, such as drug trafficking, human trafficking, or terrorism. Financial crimes can have serious consequences for individuals and society as a whole, including economic instability, loss of public trust in financial institutions, and erosion of the rule of law.^[2]

The policies, frameworks, and operational measures implemented by financial institutions and organizations to identify, manage, and mitigate risks associated with financial crimes are known as Financial Crime Compliance (FCC).^[3] Financial Crime Compliance (FCC) ensures that businesses adhere to legal, regulatory, and ethical standards designed to prevent and detect such unlawful activities. Financial crime is a complex and ever-evolving problem that requires a multifaceted approach to combat. Law enforcement agencies and regulatory bodies constantly develop new tactics to combat financial crimes. In addition, with the development of technology, criminals develop new tactics.

This article examines “Financial Crime Compliance and the approach of financial institutions”. The article also explores the frameworks, measures and regulations that financial institutions and other regulated entities must follow to combat and reduce the risk of financial crime and illegal activities. It will highlight why the FCC is crucial for safeguarding financial institutions and the wider financial system from the harm caused by financial crime which can include economic damage, reputational risks, and legal penalties as well as also draw conclusions and proffer recommendations.

FINANCIAL CRIME COMPLIANCE

Financial crime compliance (FCC) is the various measures that ensure the integrity of the financial system, by enforcing laws and eliminating unethical practices. Companies use these tactics to prevent, detect, and report unlawful financial activities.^[4] The strategy cuts across several processes, which all have a single goal of identifying and reporting criminal acts or those trying to hide or benefit from them.

Meeting financial crime compliance is a legal requirement for banks and financial institutions to combat the various financial crime risks and activities.^[5]Several laws guide financial crime compliance with global and regional requirements based on a business’s jurisdiction.

In recent years, the landscape of financial crime has evolved significantly, influenced by advancements in technology, the globalization of financial systems, and shifting regulatory priorities.^[6] Financial crime has far-reaching consequences, from undermining economic development to enabling corruption and financing terrorism. Its estimated cost runs into trillions annually, affecting businesses, governments, and individuals alike.

Strengthening Financial Crime Compliance is critical to curbing these impacts, ensuring market integrity, and fostering trust in financial systems. By understanding the essence of the FCC and the challenges it seeks to address, organizations can better position themselves to navigate this complex yet vital area.

WHY FCC IS CRUCIAL FOR SAFEGUARDING FINANCIAL CRIME

In the landscape of fast-moving expectations for financial crime compliance, the importance of understanding all risks and business associates cannot be overstated. Financial crime not only harms individuals’ social and emotional well-being but also damages the reputation of companies.^[7] It involves both seeking financial gain through criminal acts and concealing the proceeds. Financial Crime Compliance is pivotal and cannot be overemphasized, thus, without a robust compliance framework, financial institutions face multiple risks:

1. Regulatory Penalties and Fines: Regulatory authorities worldwide are increasingly strict about non-compliance. Institutions that fail to meet their obligations risk significant financial penalties and legal action.
2. Maintaining Trust: Financial institutions are entrusted with individuals’ and businesses’ financial assets. Financial Crime Compliance helps uphold this trust by ensuring that these institutions operate with integrity and transparency.
3. Global Security Implications: Financial institutions play a critical role in the broader fight against organized crime and terrorism. Non-compliance undermines global efforts to disrupt criminal networks and safeguard economic stability.
4. Operational Risks: Financial crimes often lead to operational disruptions, requiring costly remediation efforts that divert resources from core business functions.

By implementing effective FCC strategies, financial institutions not only comply with laws but also enhance their resilience against emerging threats.

FRAMEWORKS, MEASURES AND REGULATIONS TO REDUCE FINANCIAL CRIME AND ILLEGAL ACTIVITIES

Financial crime and other illicit financial activities pose a significant threat to the global economy, national security, and financial institutions. To counter these threats, governments, international organizations, and financial institutions have developed a range of measures and regulations. These include legal, procedural, and technological interventions aimed at detecting, preventing, and punishing financial crimes such as money laundering, fraud, terrorist financing, and tax evasion. Nigeria has developed a robust legal framework to combat financial crimes in line with international standards and best practices.^[8] The key pieces of legislation and regulatory bodies include:

1. The Money Laundering (Prohibition) Act 2011 (as amended): The Money Laundering (Prohibition) Act (MLPA) of 2011 is the primary legislative instrument for combating money laundering in Nigeria. The MLPA establishes a legal framework for detecting, preventing, and penalizing money laundering activities in Nigeria.
2. The Terrorism (Prevention) Act 2011: The Terrorism (Prevention) Act is another important piece of legislation that complements the Money Laundering (Prohibition) Act. It criminalizes activities related to terrorism financing, including providing support for terrorism, and imposes severe penalties for violations. This law also addresses the need for the identification of customers and the reporting of suspicious activities related to terrorism financing.
3. The Central Bank of Nigeria (CBN) AML Guidelines: The Central Bank of Nigeria (CBN) plays a pivotal role in regulating financial institutions and ensuring they comply with AML requirements. The CBN has issued guidelines and directives to banks and other financial institutions, requiring them to adhere to AML standards, conduct risk-based assessments, and report suspicious activities. The CBN also issues specific regulations on customer identification and verification, as well as reporting procedures for suspicious transactions.
4. The Nigerian Financial Intelligence Unit (NFIU): The Nigerian Financial Intelligence Unit (NFIU) is an autonomous body under the Economic and Financial Crimes Commission (EFCC). It plays a crucial role in the country’s AML compliance efforts by receiving, analyzing, and disseminating financial intelligence to relevant law enforcement agencies.
5. The Economic and Financial Crimes Commission (EFCC): The EFCC is Nigeria’s primary law enforcement agency responsible for investigating and prosecuting financial crimes, including money laundering. The EFCC works closely with the NFIU to ensure that AML regulations are followed and offenders are prosecuted. The EFCC’s mandate extends to a wide range of financial crimes, including fraud, bribery, and corruption, in addition to money laundering.

CONCLUSION

In today’s increasingly complex and interconnected financial ecosystem, a well-structured Financial Crime Compliance (FCC) framework is far more than a regulatory requirement, it is a strategic imperative and a cornerstone of ethical, sustainable, and resilient financial operations. Financial institutions face a constantly evolving threat landscape, including money laundering, terrorist financing, fraud, and other financial crimes. A robust FCC framework enables institutions to proactively identify, assess, and mitigate these risks, safeguarding against regulatory penalties, reputational damage, and operational disruptions. Moreover, it plays a critical role in reinforcing trust and confidence among regulators, customers, investors, and other stakeholders.

As Africa’s largest economy, Nigeria is under increasing scrutiny from international bodies and regulatory institutions to ensure its financial systems are not exploited by criminal networks. To meet these expectations and strengthen financial integrity, Nigeria must continue to advance its Anti-Money Laundering framework through enhanced legislation, stronger enforcement mechanisms, and the widespread adoption of effective compliance practices across the public and private sectors.

As Nigerian businesses expand and deepen their engagement with global markets, staying abreast of evolving financial crime regulations is essential. By embedding robust FCC strategies and maintaining a culture of compliance, organizations can not only reduce their exposure to financial crime risks but also support national and global efforts to combat financial crime.

RECOMMENDATION

Financial crimes encompass a broad spectrum of illicit activities, including money laundering, terrorist financing, fraud, bribery, corruption, and tax evasion. The primary aim of financial crime compliance is to safeguard the integrity of the financial system by reducing the risk of these crimes occurring within it. It is upon this background that this article proffers the following possible recommendations:

Enhanced legislative reforms: Nigeria has strengthened its legal and regulatory frameworks for tackling financial crimes, and updating existing laws to meet international standards will be a good way to go.

Increased enforcement capabilities: The Nigerian Financial Intelligence Unit (NFIU) has expanded its role and capacity, increasing the frequency and efficiency of investigations is a step closer to combating financial crime.

Improved financial sector cooperation: The Central Bank of Nigeria (CBN) and other regulatory bodies have been working more closely with financial institutions to ensure compliance with AML regulations there is a need for consistency.

REFERENCE

1. Sanction Scanner, ‘What is Financial Crime? (2025) https://www.sanctionscanner.com/knowledge-base/financial-crime-977 accessed 15th April, 2025. ↑
2. Ibid. ↑
3. NEOTAS, ‘Financial Crime Compliance: Guide to countering Financial Crime Risks and Business Risk Management’ (2025) https://www.neotas.com/financial-crime-compliance/#:~:text=Financial%20Crime%20Compliance%20(FCC)%20refers,risks%20associated%20with%20financial%20crimes accessed 15^th April, 2025. ↑
4. Abija Stankevičiūtė, ‘Financial Crime Compliance: Comprehensive Business Practices’ (2023) https://www.idenfy.com/blog/financialcrimecompliance/#:~:text=What%20is%20Financial%20Crime%20Compliace,the%20effectiveness%20of%20these%20systems accessed 15^th April, 2025. ↑
5. Anaptyss Team, ‘What is Financial Crime Compliance (FCC)?

   Financial Crime Compliance’ (2023) https://www.anaptyss.com/blog/what-is-finacial-crime-compliance/ accessed 15^th April, 2025. ↑

6. NEOTAS, ‘Financial Crime Compliance and Risk Management: Guide to countering Financial Crime Risks and Business Risk Management’ (2025) https://www.neotas.com/financialcrimecompliance/#:~:text=Financial%20Crime%20Compliance%20(FCC)%20refers,risks%20associated%20with%20financial%20crimes accessed 15^th April, 2025. ↑
7. REDCLIFF TRAINING, ‘What is Financial Crime Compliance? Full Guide to FCC’ (2024) https://redcliffetraining.com/blog/what-is-financial-crime-compliance accessed 16th April, 2025. ↑
8. Sanctions.io, ‘Anti-Money Laundering (AML) in Nigeria: A 2025 Guide’ (2025) https://www.sanctions.io/blog/anti-money-laundering-aml-in-nigeria-a-2025-guide accessed 16th April, 2025. ↑