In the wake of the Russia-Ukraine conflict that triggered oil windfall, petroleum exporting countries got an unanticipated opportunity to increase their revenue generation.

Oil prices rose as high as $130 per barrel, marking a significant shift from the market’s pandemic-induced turmoil. Though high oil prices posed a fresh global economic challenge, it presented a golden opportunity for some economies.

“The reality, though, is that the global crude and product system has suddenly become more complicated, less efficient and higher cost. This will be reflected in prices,” Simon Flowers, Chairman, Chief Analyst and author of The Edge, said.

For members of the Organization of Petroleum Exporting Countries (OPEC), a window opened for replenishment of what was lost to the pandemic. The organization generously increased oil output quota for its members as demand soared.

The once upon a time golden opportunity saw many members of OPEC, particularly in the MENA region, scooping billions of dollars in revenue, boosting their GDP.

Saudi Arabia led the pack with a whopping $1 billion per day revenue from oil export. The kingdom’s oil exports reached $30 billion in March, the highest in at least six years. The value of crude exports increased by 123% year on year, according to the kingdom’s statistics office.

Oman recorded a budget surplus of 784 million rials ($2 billion) in the first half of 2022, due to increase in oil output. Oman’s oil production rose to 1,037,000 barrels per day from 952,000 bpd in the same period in 2021.

Other MENA countries like Kuwait and Qatar also caught the wind of fortune. In other parts of Africa, there’s an uptick in both oil production and revenue. Angola overtook Nigeria as Africa’s largest oil producer.

While the oil windfall provided succor for OPEC members, Nigeria, Africa’s largest economy and the continent’s former largest oil producer, was left out.

“Nigeria is the only major oil exporter that hasn’t benefited from the windfall of higher global oil prices,” Dr Michael Olawale-Cole, President of Lagos Chamber of Commerce and Industry said.

The miss, which came with a brutal consequence of huge revenue loss, was masterminded by factors that the Nigerian government is still grappling with.

On Monday, the Minister of State for Petroleum Resources, Dr Timipre Sylva, decried the level of oil theft rocking the oil sector. He said Nigeria is losing 400,000 barrels per day to crude oil theft, which is capable of crashing the economy as it undermines the country’s earning capacity.

“It is a national emergency because the theft has grown wings and reached a very bad crescendo… And because of the height and orchestrated nature of the menace, Nigeria could not take the advantage of opportunities that abound in the gas production… This is because no investor would want to invest where there is incessant insecurity and vandalism of the infrastructure,” he said.

Nigeria has failed to meet up with its OPEC quota which has been increased to 1.8 million barrel per day (mbpd) due to the rise in crude oil demand globally. The country could only boast of 1.4 mbpd as of July 2022.

Besides this backdrop, Nigeria has no functioning refineries – thus, it imports refined petroleum products at the international market rate. The international market rate, which is unaffordable in Nigeria given the poverty rate in the country, has forced the government to pay billions of dollars in fuel subsidies.

In fact, the oil windfall was a curse rather than a blessing to Nigeria because it yielded budget deficits that the government has resorted to borrowing to upset. Nigeria’s oil benchmark for 2022 national budget was pegged at $62 per a barrel, which would have yielded budget surplus if not that the country is not refining its crude oil products. This means, Nigeria was losing more in revenue as soon as oil prices rose above $62.

Money laundering is the act of obscuring large amounts of money to be used for illicit purposes, like drug trafficking, illegal wildlife trade, or terrorist activities. While most people know that money launderers also make use of the banking system to execute their criminal misdeeds, few have an idea of how exactly they do so—much less how often it happens and how financial institutions are meant to respond to it.

The truth is, money laundering often goes undetected among unequipped financial institutions. If banks have neither the methods nor the technology to rightfully distinguish money laundering from legitimate customer transactions, it isn’t hard for the former to pass as the latter. It is also a testy time for those who do honest work in the financial industry, as many factors have driven criminals to become even smarter and more ruthless about their methods.

How exactly does money laundering happen, and how can banks use innovations like anti money laundering (AML) software to combat financial crime? Here’s a quick overview on modern money laundering schemes, as well as the approaches that financial institutions can use to counter them.

How Does Money Laundering Occur?

First, what both the general public and people in the financial sector need to know is that money laundering in real life does not always look like it does in the movies. To most people, money laundering elicits images of sketchy-looking agents who move conspicuous amounts of money in one-time bank transfers. But most global crime rings snub this approach in favor of something more effective: disguising illicit money transfers as legitimate and ordinary transactions done by innocent, respectable banking customers.

Criminals can “smurf” or break up large amounts into small bank deposits, all done by different people. They can also take illicit funds from bank accounts into other commodities such as precious metals or real estate properties, which make them easier to move across jurisdictions. Though diverse, these money laundering methods often have a key process at their core, which involves the following steps:

• Covertly injecting the illicit funds into legitimate vehicles in the formal financial system;
• Layering the transactions using tricks like bookkeeping treatments, and;
• Withdrawing the funds so that they can be used for illicit purposes.

Sadly, many financial institutions only respond to money laundering when the criminals are already deep into their systems. Too many uphold a reactive AML program, in which staff only start looking into evidence of a crime when an illicit transaction has already happened. By that time, a bank risks ruining its reputation among its legitimate customers—sometimes, for good.

What Are the Best AML Solutions for Financial Institutions?

Effective counterattacks against money laundering and other forms of financial crime are largely pre-emptive, with emphasis on early and accurate detection and efficiency of available technological and human resources. Financial institutions will do well to implement this four-fold approach:

Pattern-Based Thinking in AML Detection

Good anti-financial crime practices can start with a bank’s know your customer (KYC) and customer due diligence (CDD) protocols. If these systems are improved, they can serve as powerful siphons of suspicious behavior and preclude money laundering activities.

When at their full potential, they may be able to identify instances of money laundering through webs or networks of customer behavior as opposed to individual customer transactions. Successfully detecting patterns that are emblematic of financial crime, instead of individual customer movements, can prevent further damage to the bank’s integrity and significantly hamper a criminal network’s operations.

Improvements in AML Data Analytics and Data Management

Small- and medium-sized banks are now increasingly at risk of being manipulated by money launderers and other financial criminals. In their case, data is the best defense. They should aim to invest in AML systems that can process, sort, and analyze huge swathes of data in time to track suspicious customer activity and put a stop to it before it’s too late.

AML teams can explore innovative and data-driven solutions like AML cloud databases, graph analytics, and custom-built AML scenarios. These will help financial companies craft an AML approach using a wider and more technically proficient perspective, which is sorely needed in the fight against smart and sophisticated financial criminals.

Increased Intelligence in AML Case Investigation and Reporting

Financial institutions should also branch into technologies like artificial intelligence (AI) and machine learning (ML) to increase their customer screening, transaction filtering, and case investigation capabilities. Using an AML platform that becomes more intelligent with transaction data over time will help banks concentrate their efforts on cases of concern and react to them at the right time.

Some banks may balk at the idea of using AI and ML for their anti-financial crime initiatives, but the technologies are neither as inaccessible nor as difficult to use as they used to be. A smooth integration experience will ensure that an AML team can properly incorporate these technologies into their screening, case investigation, and case reporting workflows.

Higher AML Compliance Rates

Contrary to what some financial institutions may believe, AML regulators are partners and not adversaries in the fight against money laundering and financial crime. Regulators hold financial institutions to a high enough standard for AML initiatives and motivate them to keep international crime rings at bay.

For that reason, banks should strive for better regulatory compliance for anti money laundering. A quicker and more organized AML reporting system, running on AML insight that boasts greater data richness and data integrity, will allow them to achieve this. This will earn them the trust of international AML regulators and keep them on top of regulatory requirements that will ultimately strengthen their institutions.

Final Words

Criminal networks perpetuate themselves by evolving their methods. The only way that financial institutions can win against them is to stay several steps ahead. If you are a stakeholder in your bank’s AML program, keep an eye out for new trends in financial crime—and utilize AML approaches that are pre-emptive, data-driven, and pattern-based.