A recent decision by a Nigerian court of appeal has suggested that lawyers in Nigeria have no obligation to conduct any client due diligence (CDD) or know your client (KYC) exercises when it comes to making inquiries as to the source of funds with which a client pays legal fees.
The case involved a prominent legal practitioner, whose account had been frozen by the federal court, upon application by the federal government, for receiving professional fees from a bank account that was under investigation. The account was owned by a former state governor indicted for misappropriation of public funds. The federal government's argument was that the funds received as fees were from an unlawful origin and that the legal practitioner ought to have known.
In the legal practitioner's appeal, the court (allowing the appeal) referred to an earlier case in which the Nigerian Bar Association (NBA) had successfully challenged the designation of legal practitioners as "designated non-financial institutions" (DNFIs) in the Money Laundering (Prohibition Act) 2011, as well as the provisions that required legal practitioners to register their businesses and bank account information with an agency called the "Special Control Unit against Money Laundering" (SCMUL). The court of appeal concluded that the legal practitioner had no obligation to make any inquiries to ensure that the source from which his fees were to be paid were not proceeds of crime.(1) This decision has been interpreted as absolving legal practitioners of any obligations to conduct KYC or CDD on clients.
In the Money Laundering (Prohibition Act) 2004, legal practitioners were included in the list of DNFIs required to take specific action to guard against money laundering. The specified action included the obligation to report certain client transactions to the federal Ministry of Commerce. These requirements of DNFIs were repeated in subsequent iterations of Nigeria's anti-money laundering legislation through to the current Money Laundering (Prohibition Act) 2011. In 2005, the Ministry of Commerce created the SCMUL and designated it as the agency to receive the reports from DNFIs as mandated by the Money Laundering (Prohibition Act) 2004. The SCUML's efforts to secure the compliance of DNFIs with the provisions of the anti-money laundering legislation did not meet with great success. The legal profession never engaged properly with the efforts of the SCUML to secure compliance. The Central Bank of Nigeria (CBN) (the apex bank) clearly thought that more was needed and issued two circulars dated 2 August 2012 and 25 February 2013, which required DNFIs to register with the SCUML within a specific time frame and to provide evidence of registration to their bankers. The banks were directed to deny the operation of accounts to DNFIs that failed to provide evidence of registration with the SCUML.
Faced with this aggressive action from the CBN, the NBA instituted an action against the CBN and the federal attorney general. The first-instance judgment held that the provisions of the Money Laundering (Prohibition Act) 2011, in so far as they purported to apply to legal practitioners, were null and void, and the term "legal practitioners" was removed from the list of DNFIs in the Act.(2) The decision of the High Court was affirmed on an appeal by the CBN to the court of appeal.(3) A further appeal to the Supreme Court was lodged by the CBN and is pending.
The removal of legal practitioners from the list of DNFIs has led to some commentators suggesting that legal practitioners have no obligation to inquire as to the provenance of money with which clients pay their fees. While it is presently the position that legal practitioners do not have the additional obligations imposed on DNFIs by the anti-money laundering legislation, lawyers have no exemption from compliance with the general provisions of the legislation. In addition, lawyers continue to be bound by the Legal Practitioner's Act(4) and the Rules of Professional Conduct 2007 and continue to be obliged to conduct themselves properly in their dealings with clients and clients' money. It is certainly not inconceivable that a legal practitioner may end up facing serious legal and professional jeopardy if glaring red flags are ignored, such as a client with no evident source of income or wealth paying significant sums in fees. Therefore, the recent decision does not amount to a money laundering licence to Nigerian lawyers, who remain bound by the general provisions of the anti-money laundering legislation, as well as by the specific rules that regulate the conduct of legal practitioners.
For further information on this topic please contact Babajide Oladipo Ogundipe or Olamide Aleshinloye at Sofunde Osakwe Ogundipe & Belgore by telephone (+234 1 462 2502) or email ([email protected] or [email protected]). The Sofunde Osakwe Ogundipe & Belgore website can be accessed at www.sooblaw.com.
(1) FRN v Mike Ozekhome  LPELR-54666 (CA).
(2) The Registered Trustees of Nigerian Bar Association v Central Bank of Nigeria & Attorney-General Of The Federation. Judgment delivered on 17 December 2014 in FHC/ABJ/CS/173/2013.
(3) Central Bank of Nigeria v Registered Trustees of the Nigerian Bar Association. Judgment delivered on 14 June 2017 in CA/A/202/2015.
(4) Cap L11, Laws of the Federation of Nigeria 2004, under sections 20 and 21 thereof.