The International Monetary Fund (IMF) warns that the expansion of eNaira use to cross-border funds transfers and agency bank networks could lead to new money-laundering and terrorism financing risks.
The IMF stated this in its report titled “Nigeria Staff Report for the 2021 Article IV Consultation”.
Although the eNaira has some benefits, such as promoting financial inclusion, there are some risks associated with it, which the Central Bank of Nigeria must address.
According to the Washington-based lender “Prospective expansion of eNaira use to cross-border fund transfers and agency, bank networks may cause new money-laundering/financing of terrorism risks.”
On October 25, 2021, the eNaira was launched, making Nigeria one of the first countries in the world to introduce a Central Bank Digital Currency open to the public.
The IMF, on the other hand, has stated that the CBDC is vulnerable to cyber security risks, unforeseen legal issues, and financial integrity risks.
According to the most recent report, there are cyber security risks associated with the eNaira. Unforeseen legal issues, including those about private law aspects of its operations (e.g., the precise nature of the legal relationship between wallet providers and CBDC holders), may expose eNaira to litigation and operational risks.
“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 the CBN to address existing weaknesses in the counter-money laundering and counter-terrorism financing framework like the lack of awareness of the various risks.
Staff 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.
Staff noted significant financial integrity risks that could arise from the wide accessibility of eNaira and stressed the need to fix existing deficiencies in the AML/CFT framework which could exacerbate these risks.
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,” the IMF said.
Furthermore, the Washington-based lender rated Nigeria highly in terms of the likelihood of slow progress in combating corruption, tax evasion, and related money laundering, and encouraged the country to step up anti-corruption/governance efforts and strengthen the AML/CFT framework.