AN INVESTIGATION OF THE EFFECTS OF CORRUPTION IN ECONOMIC AND FINANCIAL CRIMES IN THE PUBLIC SECTOR

CHAPTER ONE INTRODUCTION.

1.1 BACKGROUND OF STUDY

 Nigerian has been facing many problems for a very long time up till the present moment. Among the problems are high rates of poverty and unemployment, low investment, high rate of inflation, high level of corruption and poor economic growth. Of all this problems the major one is the developmental issue in which the level of corruption in the country is assumed to have worsened political, social and indeed the poverty alleviation program of the Nigerian Government. Almost all the sectors of the Nigerian Economy either political, economic, security, education and other social service sector are badly affected with corruption on daily basis if not every seconds. Though corruption is a globally phenomenon, I personally think that developed countries are less corrupt than developing countries of the world. Corruption is pandemic in Nigeria. All these are what led to the establishment of Economic and Financial Crime Commission (EFCC) under the leadership of Olusegun Obasanjo to fight against corruption in Nigeria as part of the reform program to address corruption and money laundering and in order to answer to the Financial Action Task Force (FATF) concerns about Nigerian anti money laundering and combating the Financing of terrorism in the world. (Samuel Togbolo, 2005). Lots of people have held their views on the present surge of fighting the antics of corruption where some are fully in support of other act against it. The fact still remains that no meaningful society can grow amidst the monster called corruption. Although before Nigerians have been yarning and hoping for an economy that will savage our problem. Fighting against corruption in Nigeria, one must acknowledge that is one of the most daunting and challenging task to embark on but with political will and commitment by her leaders and the right attitude by all Nigerians there is no doubt that someday, the Transparency International report will rank Nigeria as one of the least corrupt countries in the world (Ameh, 2007).I would like to say that as Nigeria we should not give room to what I will call phenomenal meaning that we are 7 TURKU UNIVERSITY OF APPLIED SCIENCES THESIS |Oladapo Zainab Ajoke NINBOS 11 only satisfied as long as the corruption does not hammer on us and any of our family members. The Economics and Financial crime commission (EFCC ACT, 2004) is primarily charge with the responsibility of enforcing laws relating to banking, money laundering, and advance free fraud miscellaneous offences and any other laws or regulations relating to Economic and Financial Crimes, including criminal code and the penal code. EFCC has the power to persecute directly without going through the Attorney General’s office. The independence corrupt practices (ICPC ACT, 2000) on the other hand focus on curbing, bribery and corruption in the civil public service and limited in time of those offences committed from year 2000. 1.2. History of Nigeria Nigerian is a country that God has blessed with lots of natural resources like crude oil but despite all this corruption still exist in the country. Is one third larger than Texas and most populous country in Africa located in the Gulf of Guinea in West Africa, Benin, Niger, Cameroon and Chad are its neighbors.(Fact Monster, n.d.) The Country is an amalgam of ancient kingdom with a long history of organized societies. The name (Nigerian) was adopted in 1898 to designate the British protectorate on the River Niger. The population as at 2010 was 152,217,314, land area 351,694square meter; the capital is Abuja , monetary value is Naira, It has a multiparty Government transitioning from military to civilian rule. Nigerian was declared independence in Britain on October 1st 1960 after that three year the country gained her independence. The country president at the moment is Good luck Jonathan. (Nigerian government, n.d) 1.3. Objective of the thesis Since the establishment of the EFCC in 2003, it has been involved in the investigation of cases ranging from high profile corruption cases, economic and financial crime commission has been facing some problems after its establishment in 2003 such as 8 TURKU UNIVERSITY OF APPLIED SCIENCES THESIS |Oladapo Zainab Ajoke NINBOS 11 advanced free fraud, money laundering, tax evasion, contract scams, identity theft, illegal oil bunkering, bribery, looting and foreign exchange malpractices, counterfeiting, illegal charge transfers, future market fraud, fraudulent encashment of negotiation instruments, computer credit card fraud so this thesis will analyze the listed above corruption and give some recommendations.( Faboyede and Samuel, 2013) The objectives of this thesis are based on the impact of the Economic and Financial Crime Commission on the Nigeria Economic development will include the following:  To determine the effectiveness of EFCC in curbing financial corruptionü  To determine the cleansing of the banking sectorü  To trace closely the activities in the oil industry and prevention of illegal bunkering.ü  To determine the capacity in building a key to fight against graftü  To determine the technology of combat cyber crime.ü 1.4 Research question For the purpose of this thesis the research methodology that would be use is quantitative research. The Quantitative research will be implemented by using Questionnaire and interviews. Secondary data will also be collected from internet. 1. Has EFCC been able to reduce the level of crime committed in Nigeria? 2. Has EFCC serves as an instrument of economic development in the nation? 1.5 Structure of the study This thesis is divided into five parts, which includes the introduction, theoretical framework, Research methodology, Empirical analysis of the research and conclusion. The introduction of this thesis describes what EFCC is all about, brief history of Nigeria, research problem, objectives of the thesis, research questions, and structure of the thesis. 9 TURKU UNIVERSITY OF APPLIED SCIENCES THESIS |Oladapo Zainab Ajoke NINBOS 11 The second part of the thesis explain the theoretical framework, Economics development, economic development of Africa, Economic development of Nigeria, brief history of corruption in Nigeria, effect of corruption on Nigerian Economy, meaning of some basic terms, definition of bribery and corruption According to the bribery and corruption Act 2010, meaning of Economic and Financial crime commission according to the EFCC ACT 2004, purpose of establishing the EFCC. Financial crime, Financial crime in Africa and Nigeria, History of EFCC, Accountability and Corporate Governance, anti corruption initiatives of the Nigerian Government, Economic and Financial crime commission constitutional power and examples of cases resolved. The third parts described research methodology used in the process of this thesis, research design, data collection, and reliability, validity and Generalization of the research that shall be carried out The fourth part describes the empirical analysis of the research and the result of the survey is presented. The last part covers the summary based on the analysis collected, conclusion and certain recommendations made to set out to which extent EFCC can be improve. 10 TURKU UNIVERSITY OF APPLIED SCIENCES THESIS |Oladapo Zainab Ajoke NINBOS 11 2. THEORETICAL FRAMEWORK 2.1Definition of important terms The following terms defined below are the various fraudulency activities that the EFFC work on checking the irregularities and financial manipulations that could occur for both individual and government officials. 2.1.1Nigerian scams Another code for Nigerian scams is 419 according to the article of the Nigerian criminal code dealing with fraud. These are internet based frauds, received through the website. Responses to the mail through such websites bounce back. (Shockwaves writer, 2002) The EFFC investigation on this section of fraud are mainly cases of 419 for instance obtaining by false pretence through different fraudulent means initiated and carried out through the internet, scams ranging from e.g. contact scam, credit card scam, inheritance scam, job scam, lottery scam, marriage scam, immigration scam, counterfeiting, religious scam.(EFCC ACT,2004.) 2.1.2Banking fraud This is an intentional act of a criminal offence to defraud a financial institution or take over the assets of this financial institution through fraud. The EFFC carries out investigation on this section for cases involving banks and other financial institution frauds. This is a fraud that has to do with banking activities. E.g. Issuance of fake cheque, fraudulent encasement of negotiation instruments, foreign exchange malpractices and other financial malpractices majorly in the banking sectors and other financial institutions.(EFCC ACT, 2004.) 11 TURKU UNIVERSITY OF APPLIED SCIENCES THESIS |Oladapo Zainab Ajoke NINBOS 11 2.1.3Economic governance Economic governance is a laid down procedure for supporting the economics activity and economic transaction through the protection of property right and taken a collective agreement of action that leads to a befitting physical and organizational infrastructure. The EFFC under this section investigates cases that have flair with good governance, transparency and accountability. Investigation on cases ranging from abuse of office, official corruption activities, corruption in land allocation, diversion of public funds through fraudulent award of contracts, bribery of governments official, tax evasion, capital market fraud, money laundering, oil bunkering etc.(EFCC ACT, 2004.) 2.2. Economic development Economic development has to do with sense of morality of a country or wrong or right as Michael Todaro (2011) explains, that is the expansion of a country’s economy and social well-being of the people which includes freedom oppression, quality education system, better income, less poverty, cleaner environment, equality of opportunities, greater individual freedom and rich cultural life and also improvement of technology. Economic development can alleviate a country or people from a low standard of living to a suitable shelter. Economic factors that contribute towards economic development include capital, labor, natural resources and technology. Economic development can also be seen as a multi-dimensional process involving change in social structure, population attitude and national institution as well as the acceleration of economic growth, the reduction of inequality and the eradication of poverty. Economic development is a development process that promotes the standard of living and the health of a particular country. (Todaro and Smith, 2011, 215-219) 12 TURKU UNIVERSITY OF APPLIED SCIENCES THESIS |Oladapo Zainab Ajoke NINBOS 11 2.2.1. Economic development of Africa on corruption Economic corruption still remains a significant burden of financial growth and development in Africa. This issue is deeply rooted in all tiers of Africa government set ups from the local government to the federal government. The continent remains the worse affected area in economic corruption in the world. Corruption perception index is an indicator that combines sources of information from various countries about corruption and rank countries on how their public sectors are perceived to be. The corruption perspective index measures corruption and how this can be an incentive for tackling it. Given the fundamental challenges of gathering evidence based data on corruption, the corruption perception’s index takes a different approach. This index brings together a number of different data source (in 2011, 17 separate surveys and assessments), which capture perceptions of the extent of corruption in the public sector of a country. The average 2011 score for Africa was very low 2.93. The continent remains the most famous corruption category with a score below 3.0. Botswana representing less than 1.0% of the African population is the only African country to have reached a score above 6.0. In Europe, transparency international gathered facts and ranked countries like New Zealand, Denmark, Finland and Sweden at the top of the corruption perception index and are perceived to be the least corrupt of all countries surveyed.(Corrpution perception Index, 2011) 2.2.2. Economic development of Nigeria Despite that Nigerian has been blessed with lots natural resources like crude oil, the country still face some challenges using this wealth to maintain development. Various means could be used by an economy to maintain economic development. As estimated by Ogwumike (1999) that from 1970 to 2000 the poverty rate of Nigeria has increased from 36% to around 70%, which means the number of poor people has almost doubled. As shown by Sala-Martin and Subramanian (2003) that more the income distribution 13 TURKU UNIVERSITY OF APPLIED SCIENCES THESIS |Oladapo Zainab Ajoke NINBOS 11 data between 1970, 1980, 1990 and 2000 shows that more people were being forced down below poverty line. Human development reports (2006) indicate that 70.8% and 92.4% of the Nigerian lived on less than US$1 and US$2 in a day even though the country is endowed with lots of natural resources. Gary and Karl (2003) said that over 35 years Nigerian cumulative revenue oil have a amount to US$350 billion at 1995 price even though the nation has been an exporter of crude oil for more than 4 decades. (Ogwumike, 1999) According to Ekpo and Umoh (2013) Nigerian economy has had a bridge history between the year 1960-1970 the gross domestic product (GDP) recorded 3.1% growth annually, during the oil boom era around 1970-1980, GDP grew positively by 6.2% annually this shows that there has been a remarkable growth during the period.(Economic growth of Nigeria, n.d.) Nigeria’s economy growth has not automatically result into better economic and social welfare for the masses, part of the forecast made Nigeria’s economy report (2013) says that the country will have increase its fiscal revenue in order to protect the country against oil price volatility and so develop internally generated revenue to meet up for what with be likely declining the revenue in relate to the size of the economy. Also the Federal Government needs cooperation and policy coordination in macroeconomic management, policies to enhance connectivity in the market and improve service public and to realize national standard in the financing management of the public. John Litwack one of the Lead Economist World Bank and the lead author of the report says that macroeconomic management can be effective by establishing an institutional framework that can separate and buffer Government expenditure from oil prices. Marie Francoise Marie-Nelly World Bank country director to Nigeria also state that bringing the best out of the country could only be achieve through expansion of federal programs involving co-financing for the states around priority infrastructure and the implementation of national standards could also help in solidifying the needed trust and cooperation among levels of Government. 14 TURKU UNIVERSITY OF APPLIED SCIENCES THESIS |Oladapo Zainab Ajoke NINBOS 11 2.2.3. Brief history of corruption in Nigeria Corruption has a long history in Nigeria society, it can been seen in all spheres of the Nigerian’s life including public and private sector because is taking for granted in all human transaction. Before the colonial period African traditional rulers then based on gifts of some drink, walking stick and so on given them by the slave traders. All the valuable gifts were exchanged for Africa’s virile young and old taken away to Europe and the Americans to labor on their farm plantations. The United Nations Department of State Country Report on Human Right Practice (2000) states that Nigerians wealth is accumulated mostly by corruption and non-transparent governmental contracting practices in this similarly the British Department for International Development states that poverty persist still in Nigeria due to the mismanagement of resources and corruption particularly not excluding the public sector. (International Journal of World Peace, 2012) Corruption in those days of the colonial period, the western education and including the development of the urban area and the Economy led to increase change in the way people do things and relates with each other. The traditional administrations which the white colonist met were disrupted by the consular system. Thereby designated the highly forceful rule under which appointment of personnel were arbitrarily made. The appointees were of questionable characters who often became intoxicated by power leading them to abuse and misuse of office including showing goodwill to criminals. The deceitful system got to the attention of the colonialist as most of the warrant chiefs prospered materially through the proceeds of bribery and corruption also the local council established by them were fertile ground for corruption. (Corruption in Africa, 2012). After the colonial period, nationalist took charge of the government before independence was gotten to attained exhibited corruption. The government and the regional levels corruption characterized the first republic (1960-1966). There were corruptions during the election and different kinds of malpractices involving the money 15 TURKU UNIVERSITY OF APPLIED SCIENCES THESIS |Oladapo Zainab Ajoke NINBOS 11 to hire thugs to intimidate the opponent, buy votes, hijacking of electoral boxes and election materials, printing of fake voter cards and elimination of opponents by hiring assassins. Inherently, those who attained power through corrupt means had no other ambition than to serve self and promote ulterior interest at the disadvantage of the larger society.(International Journal of world peace,2012.) At the time the military government was in power, corruption activities was at alarming rate among the politicians, in spite of the fact that the military rule gave prominent position to corruption as the reason for staging the coup. The Military regime posed more corrupt practices than the previous regime they seemed to have come to correct. Upon taking over power to kick against act of corruption activities would remove from office or dismiss some individuals allegedly for corrupt practices, forcibly seize corrupt acquired property, confiscate property through legislation, directed against particular person, ban and disqualify persons from holding a public office the credibility of such action then was put in doubt for any durable culture of probity. (corruption on Nigerian history,2007.) 2.2.4. The effect of corruption on Nigerian economy The damages that corruption had done on the Nigerian economy could be seen in the Economic and in the moral terms. Corruption is really expensive because it reduces the trust in the government whose moral authority is diminished. Also it could be worsened by misallocation of resources and some of the government officials will not make changes in the regulation from which they enrich themselves. Corruption in Nigeria aggravates income inequalities and poverty because those who benefit from the bribery, kickbacks and preferential deals are not likely to be among the poorest, it adversely affect the growth of the economy as it acts as additional tax on enterprises, raise costs and reduces incentives to invest. Corruption reduces domestic savings and investment and stimulates capital fight as a result of that it weakens the domestic banking system. Is one of the most important 16 TURKU UNIVERSITY OF APPLIED SCIENCES THESIS |Oladapo Zainab Ajoke NINBOS 11 inhibiting forces on investment and growth which result into lowering the living standard of the people Corruptions discriminate against honest foreign businesses as a result of lack of transparency in most act of corruption. More so corruption as sadly change people’s moral orientation is now been describe as The Nigerian Factor (egunje means bribe) honored in the society by reason of affluence. (Ayoola, 2005 & Paolo, 1998) 2.2.5. Bribery and corruption definition according to the bribery Act 2010. The Bribery act defines bribery and corruption as “giving or receiving a financial or other advantage in connection with the improper performance of a position of trust or a function that is expected to be performed impartially or in a good faith”. (Bribery and corruption Act, 2010.) Most of the time bribery does not have to involve cash or an actual payment exchanging hands and it can take many forms such as gifts or lavish treatment during a business trip or ticket to an event. Some other bribery examples comprises  Bribery in order to secure or keep a contract,·  Bribery to secure an order, bribery to gain any advantage over a competition,·  Bribery of a local, national or foreign official to secure a contract,·  Bribery to turn a blind eye to a healthy safety issue or poor performance or· substitution of materials or false labor charges. From my own perspective I will say that bribery is an act of giving promise to give or influence one with gifts, financial or otherwise with an aim of obtaining a favor most of the times undeservedly while corruption is dishonest, accepting of bribes.

1.2 ECONOMIC AND FINANCIAL CRIME COMMISSION

 Based on Mallam Nuhu Ribadu, chairman of EFCC on the US congressional house committee on international development (2006) corruption had been part of Nigerian existence for 39 years of military rule after independence in 1960. The desire of stealing public treasury, decapitated public institutions and free speech led to secret in the running affairs of government business subdue the rule of law by successive military regime. The outcome was completely insecurity, poor economics management, abuse of human rights, ethnic conflicts. (Ribadu 2006).After all this trauma democracy was restored to Nigeria in May 1999, with the election of civilian president under the leadership of Olusegun Aremu Obasanjo. One notable performance of the President is the formation of Economics and financial crime commission and Independent corrupt practices in 2000 and 2003 to fight against corruption and waste in the public service. (Sowunmi et al, 2010) One of the biggest killer diseases in Africa is corruption; apart from its deformation to macroeconomics indices, it ensures that basic such as Medicare, water; schools; roads and other infrastructure are unavailable. (Farida,2011). The existence of this commission derives from the recognition in the 1980s of the obligation to establish a special interventionist agency to investigate economic and financial crimes. As at that time threat of advance free fraud, with its negative impact on Nigeria had been recognize. During the same period, it was recognized that the complexity of economic crimes were such that there might be the need for special commission to handle its investigation and prosecution as opposed to the regular law enforcement agencies. By 2002, Nigeria found it was in the financial risk task force list of non-cooperative countries and one of the conditions for being off that list was compliance with recommendation 26 FATFs list then 49 recommendations, which demand the establishment of a financial intelligence unit. Therefore, the EFCC was established in 2002 and Nigerian Financial Intelligence unit domicile therewith. The statue creating the EFCC was first enacted in 2002 and subsequently re-enacted in 2004. The EFCC started operation in 2003. (Farida, 2011). 18 TURKU UNIVERSITY OF APPLIED SCIENCES THESIS |Oladapo Zainab Ajoke NINBOS 11 2.3.1 Definition of economic and financial crime commission according to the Act that established it. The Economic and financial crime commission (EFCC) is an arrow head in the fighting against corruption in Nigeria and it was established as far back as 2003. The EFCC is an inter-agency commission consisting board drawn from all Nigerian Law Enforcement Agency (LEA) and the regulations. The commission has the authority to investigate, to avert and prosecute offenders who engage in money Laundering, embezzlement, bribery, looting and any form of corrupt practices, illegal arms dealing, smuggling, human trafficking and child labour, illegal oil bunkering, illegal mining tax evasion, foreign exchange malpractices including counterfeiting of currency, theft of intellectual property and piracy, open market abuse, dumping of toxic wastes and prohibited goods.(EFCC ACT,2004.) The commission is also saddled with the responsibilities of identifying, tracing, freezing, conflicting or seizing proceeds derived from terrorist activities. EFCC is also host of the Nigerians Financial Intelligence Units (NFIU), established by law with the responsibility of collecting suspicious transaction reports (STRs) from financial and designated nonfinancial institutions, analyzing and disseminating them to all relevant government agencies and others plus all over the world. Besides to other law relating to economic and financial crime, involving the criminal and penal codes, EFCC is empowered to enforce all the 1999 anti-corruption and anti-money laundering law. (Section 46 of the EFCC ACT, 2004) Penalty inflicted on financial crimes by the EFCC Establishment Act range from combination of payment of fine, forfeiture of assets, terrorist imply terrorist activities attracts life imprisonment.(EFCC ACT, 2004)

1.3  RECOVERY AND RETURN IF PROCEEDS OF CRIME

The EFCC has recovered close to N500BN ($3,141,698,246) looted funds during the last 10 years as shown by Daily Trust. Records shows that N497.482 Billion ($3,125,868,797.23) representing 96% of the stolen monies has been released to victims of crimes involved while the remaining 4% is still with the commission as at July, 2013 waiting for forfeiture order from the courts. These funds are kept with Central Banks of Nigeria says by senior officer to daily trust. About 350,000 in Saudi Arabian Riyal were recovered by the EFCC between 2003 and 2013 and the entire amount has been released to the owners.(Daily trust, 2013.) Information gathered by daily trust shows that 281 banks account have been frozen across the country in both existing and liquidated banks as part of the agency’s 23 TURKU UNIVERSITY OF APPLIED SCIENCES THESIS |Oladapo Zainab Ajoke NINBOS 11 campaign against graft, 266 of these banks accounts are being held on interim forfeiture while 15 have already been decided in court and a final forfeiture order was secured for the monies to be given back to the rightful owners.(EFCC recoveries, 2013.) Then agency also is in possession of 8 hotels, 3 schools, 94 vehicles and 6 vessels in which 7 out of the 8 hotels are still held by the commission pending court cases while the high-brow Chelsea hotel in Abuja has been releases back to the Delta state Government. Out of the 94 vehicles 81 are being held’s at various EFCC impounds facilities across the country while 13 have been earmarked for disposal under a final forfeiture order. (EFCC Recoveries, n.d).

1.4 ACCOUNTABILITY AND CORPORATE GOVERNANCE.

Accountability can be seen as a mandatory rule for an organization or government of a country to account for the activities of the organization or a country and to accept responsibilities for the organization or masses and ensure disclosure all the result in a transparent way. (Business dictionary, n.d) Accountability in the government sector can be so sacrosanct that one must be accountable in all circumstances on the basis of the constitution that governs such country. Individual in the position of authority on behalf of a nation, state, local government must give account in all action taken on behalf of the state at the time of their regime. (Agara & Olarinmoye, 2009) Corporate governance Corporate governance is a framework of rule and practice by a head of a state is accountable, fairness and transparent in its relationship with the masses under him. (Corporate governance, n.d) (Turnbull) states that the corporate governance influences all firms’ activities or all the activities carried about the head of a state of a country at a particular time. (Turnbull 1997) The following models describe below the principle of accountability and corporate governance. 25 TURKU UNIVERSITY OF APPLIED SCIENCES THESIS |Oladapo Zainab Ajoke NINBOS 11  Simple finance model§ This model posits that there is the a urge needs to construct rules on all financial matters and incentives in corporate organization so as to effectively and efficiently align the behavior of manager as agent s in the desires of principles as owners ( Hawley and Williams1996). Being accountable to owner’s managers as agents is entitled to agency fees. The cost is the sum of the cost of arrangement for observing management, bonding the agent to the principal and residual losses. This model really emphasized the requirement for rules and professional ethics to assist operation of organization from recklessness. (Turnbull, 1997)