Often, banks and fintech mitigate customers’ losses by initiating and managing suspicious transactions (STR) and related fund recovery under the anti-money laundering regime.
The Money Laundering Act (MLA) broadly stipulates steps banks and fintech must lock in while managing STR in Nigeria.
Loss mitigation in suspicious transactions differs from banks’ and fintechs’ fraud monitoring obligations under the Central Bank of Nigeria’s (CBN) industry fraud desk regulations.
Background
Hackers accessed Okon’s ZBA Bank account from WhatsApp and successfully transferred money to other bank accounts.
Okon was alarmed when he received over 11 bank alerts at 30 million Naira debits. His relationship manager at ZBA Bank later explained that the fraudsters performed inter-bank transfers to 13 bank accounts.
Unauthorized access to bank accounts is not uncommon in Nigeria. Hacking WhatsApp, a social media messaging platform, and related disclosures can result in unauthorized access to sensitive banking data.
Moreover, the combined effects of poor access to justice and armchair investigations by law enforcement agencies discourage victims from pursuing justice.
Zainab lost 100,000NGN when they hacked her bank account. Although her Bank placed an administrative post-no-debit order on the beneficiary’s funded account, the Bank insisted that Zainab obtain an Order from the Court authorizing the Bank to reverse the funds to Zainab.
Given the high transaction costs, our Fintech Law team has yet to devise a cost-effective strategy for Zainab’s Court Order. Transaction costs include paying the Court’s sheriff to serve court papers on the Bank.
Banks undertake asset tracing by contacting the beneficiary bank’s fraud desk and internal audit team.
Depending on the transaction value, banks may mitigate losses by seeking interim orders from Nigerian Courts.
Administrative Post-No-Debit Measures
Although the Central Bank of Nigeria Regulation on Instant (Inter-Bank) Electronic Funds Transfer Services in Nigeria 2018 on fraud must be read together with the Establishment of Industry Fraud Desk 2015, there is no regulatory time limit for lifting an administrative post-no-debit order on a customer’s account on fraud-related cases.
Accounts include wallets and virtual accounts. Our fintech lawyers know that banks tend to lift administrative post-no-debit restrictions on accounts from the second business day unless a court order perpetuates the limits.
The process flow includes the victim’s bank’s prompt notice to the receiving bank to salvage available funds in the receiving bank by placing a post-no-debit order on the account – customers’ complaints are the triggers.
Additionally, banks enjoy disclosing to each other the financial transaction data of anyone who received payments directly or indirectly from the victim’s account.
Fund Recovery Process under the Money Laundering Act
Money laundering is a global concern. Nigeria needs to improve on FATF (Financial Action Task Force) money laundering compliance listing.
Broadly, the definition of money laundering includes suspicious transactions and unauthorized access to customers’ accounts and related fund transfers.
The Money Laundering Act 2022 did not define money laundering. The CBN Anti-Money Laundering, Combating the Financing of Terrorism and Countering Proliferation Financing of Weapons of Mass Destruction in Financial Institutions Regulations 2022 defined money laundering as STR (suspicious transactions) and fraud.
Money Laundering refers to:
- Conversion or fund transfers, knowing that such money from a criminal offence conceals the illicit origin of the funds or assists any person involved in committing the offence.
- She was concealing or disguising the true nature, source, location, and disposition, knowing that such money is the proceeds of crime.
- Receiving funds arising from or related to money laundering.
Section 7 of the MLA 2022
Generally, unauthorized debits will not amount to fund transfers due to customers’ or banks’ errors under Nigeria’s Regulation on Instant (Inter-Bank) Electronic Funds Transfer Services.
Our fintech litigation team relies on section 7 (2) (b) of the Money Laundering Act (MLA) 2022 in a post-no-debit interim and interlocutory application. Honourable Justices of the Federal High Court are more inclined to justice administration than technical justice.
Section 7 (2) (b) of the MLA encourages banks and fintech to take appropriate action to prevent the laundering of the proceeds of a crime or an illegal act in every case of a suspicious transaction.
Although cases pending before a court are public records, Nigerian banks and fintech are most conservative when publicizing litigation cases.
Section 7(2)(b) of the MLA 2022 assists fintech litigation lawyers in promptly obtaining an interim post-no-debit order of a Court.
Conclusion
Fund recovery in suspicious transactions under the money laundering legislation differs from debt recovery practices. Fintech litigation lawyers know the difference.
Section 7 of the MLA 2022 is a fintech litigation lawyer’s magic wand when seeking an interim post-no-debit order from a Nigerian Court – in STR cases.
Specifically, the Federal High Court enjoys jurisdiction if the BankBank or FinTech is the sole plaintiff in such an application.
Central Bank of Nigeria should promptly revise the 2015 Establishment of Industry Fraud Desk to provide guidelines on fraud in the payment system adequately.
SRJ Legal is a Fintech and digital banking law firm. We complement our fintech & digital banking practice with education law and dispute (litigation).
