The Governor's Cousin and the Three Shells
Halima Bello, 41, describes herself as a 'business consultant' and asks your firm to invest NGN 96 million. She is the first cousin of a state governor and travels on a diplomatic passport. At onboarding she provides a passport, a utility bill, and a bank statement for an account opened three weeks earlier; the account received NGN 100 million from a company incorporated two months ago in a free-trade zone, whose sole director is her mother. She wants the money split: NGN 38 million in her own name, NGN 29 million in her mother's name, and NGN 29 million through the new company. She declines to explain the source of funds, saying 'my family's business is well known.' She asks that her family connection not be recorded because 'people talk,' and offers to pay a 5% upfront fee. The private placement she prefers has a two-year lock-up and no secondary market.
1. Is Halima a PEP, and what enhanced due diligence is required before any account is opened?
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Halima is not necessarily a PEP in her own right, but she is a family member of one: a first cousin of a state governor falls within the FATF-style definition of a politically exposed person, which extends to family members and close associates. The diplomatic passport reinforces the connection. She must therefore be treated as a PEP relationship and subjected to enhanced due diligence (EDD).
EDD requires senior management approval before onboarding; establishing source of wealth and source of funds with independent, corroborating evidence; identifying the ultimate beneficial owner of the free-zone company and the source of the NGN 100 million inflow; verifying the mother's account and her relationship to the funds; and enhanced ongoing monitoring. A statement that 'my family's business is well known' is not evidence. The three-week-old account and two-month-old company are high-risk indicators. If EDD cannot be completed, the firm should decline or suspend the relationship.
2. What red flags indicate possible structuring or money laundering, and what should the SI do about reporting and confidentiality?
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The split into NGN 38 million, NGN 29 million and NGN 29 million has no commercial logic and looks like structuring to avoid reporting or approval thresholds. Other red flags include a newly opened bank account receiving a single NGN 100 million inflow from a newly incorporated free-zone company; a request not to record the family connection; an unusually high 5% upfront fee; and refusal to explain source of funds. Structuring is a red flag even if the underlying funds turn out to be legitimate.
The SI must not tip off the client. The matter should be escalated immediately to the compliance officer/MLRO, who should consider filing a suspicious transaction report with the NFIU through the firm's established channel. The report should be based on the facts, not on suspicion of a particular predicate offence. The client's confidentiality request must give way to the legal reporting obligation; information should be shared only on a need-to-know basis. If onboarding proceeds after EDD, monitoring should be enhanced.
3. Assume EDD is completed and no adverse findings emerge. What suitability issues remain in placing NGN 96 million into the private placement?
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Even with clean EDD, the private placement raises suitability concerns. NGN 96 million in a single two-year locked-up instrument with no secondary market is a large concentration and an illiquidity risk. The firm must assess the client's objectives, risk tolerance, investment horizon, liquidity needs and experience, and document the assessment. The 5% upfront fee and the SI's incentive to earn it create a conflict that must be managed and disclosed.
If the product is not suitable, the SI should say so and recommend a diversified alternative rather than execute. If the client insists after full disclosure, the firm may still decline if the mismatch is severe. The key is that the advice must be documented, not fee-driven, and consistent with the client's declared objectives. 'Well known family' is not a substitute for suitability.