eNaira May Lead To New Money-laundering, Terrorism Financing Risk- IMF Warns CBN

The International Monetary Fund, IMF, has warned the Central Bank of Nigeria, CBN, against the possibility of eNaira leading to new money-laundering and terrorism financing risks

IMF disclosed this in the International ‘Nigeria Staff Report for the 2021 Article IV Consultation’.

According to the report, with the launch of eNaira on October 25, Nigeria became one of the first countries in the world to introduce a Central Bank Digital Currency (CBDC) that is open to the public. Despite the benefits, such as promoting financial inclusion, there are also some risks around the eNaira, which the Central Bank of Nigeria needs to address.

IMF welcomed the gradual rollout of the CBDC and highlighted the need for vigilance to various risks, including monetary policy implementation, bank funding, cyber security, operational resilience, and financial integrity and stability, through regular risk assessment and contingency planning.

The IMF said, “Prospective expansion of eNaira use to cross-border fund transfers and agency bank networks may cause new money-laundering/financing of terrorism risks.”

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However, IMF said the CBDC is exposed to cyber security risks, unforeseen legal issues and financial integrity risks.

“There are cyber security risks associated with the eNaira. Unforeseen legal issues, including for private law aspects of its operations (e.g., the exact nature of legal relationship between the wallet providers and CBDC holders), may subject eNaira to litigation and operational risks,” it added.

IMF suggested a way out stating, “There are financial integrity risks which are mitigated by using a tiered identity verification system and applying more stringent controls to relatively less verified users.”

The Washington-based lender stressed the need for attentiveness to the different risks, urging the CBN to fix existing deficiencies in anti-money laundering laws and combat terrorism financing.

IMF also said, ”While preventive measures and the planned AML/CFT regulations for eNaira intermediaries are welcome, a money laundering/terrorist financing risk assessment of domestic and cross-border uses of eNaira and the adoption and implementation of the regulation along with putting in place risk-sensitive mitigation measures should be a priority,”

In addition, on the likelihood of slow progress in addressing corruption, tax evasion, and related money laundering, the Fund rated Nigeria high and encouraged the country to step up its anti-corruption/ governance efforts and strengthen the AML/CFT framework.