IMF warns CBN that eNaira could lead to new money laundering and terrorist financing risks

The potential extension of the use of eNaira to cross-border remittances and agent bank networks could lead to new money laundering and terrorist financing risks.

This was revealed in the International Monetary Fund’s “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) open to the public. Despite the benefits, such as promoting financial inclusion, there are also risks around eNaira, which the Central Bank of Nigeria needs to consider.

The IMF welcomed the gradual deployment of the CBDC and stressed the need to be vigilant in the face of various risks, including the implementation of monetary policy, bank financing, cybersecurity, operational resilience, integrity and financial stability, through regular risk assessment and contingency planning.

What the IMF says about eNaira

The IMF said:The potential expansion of the use of eNaira to cross-border remittances and agency banking networks may introduce new money laundering/terrorist financing risks.

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

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

The IMF suggested a way out, saying: “There are financial integrity risks that are mitigated by using a tiered identity verification system and applying tighter controls to relatively less verified users.

The Washington-based lender stressed the need to be mindful of different risks, urging the CBN to address existing loopholes in anti-money laundering laws and tackle terrorist financing.

The IMF said:While the planned AML/CFT preventive measures and 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 the implementation of regulations as well as the establishment of risk-sensitive mitigation measures should be a priority”,

Furthermore, regarding the likelihood of slow progress in the fight against corruption, tax evasion and related money laundering, the Fund rated Nigeria as high and encouraged the country to intensify its efforts to combat corruption. against corruption/governance and to strengthen the AML/CFT framework.