CBN’s terror financing crackdown raises compliance burden for banks, BDCs

By Chinwendu Obienyi

The  Central Bank of Nigeria (CBN)’s latest terror-financing sanctions are set to force banks and bureau de change operators into a costlier era of monitoring, screening and reporting, as regulators deepen scrutiny of the foreign exchange and payments system, Daily Sun learnt at the weekend.

In a circular, the apex bank had ordered lenders and other regulated financial institutions to immediately freeze accounts, assets and transactions linked to six individuals and four bureau de change operators designated for alleged involvement in terrorism financing.

The directive, issued in a June 24 circular, follows an update to the Nigeria sanctions list and reflects a broader push to close off financial channels that may be used by extremist networks.

For banks in the country, the immediate issue is not just the asset freeze itself, but the compliance burden that follows.

Institutions must now strengthen sanctions screening, beneficial ownership checks and transaction monitoring to ensure they do not process funds directly or indirectly connected to the designated persons.

This, according to senior banking executives and BDCs, means higher spending on software, personnel and internal controls at a time when margins are already under pressure from macroeconomic volatility and regulatory demands.

CBN said the sanctions are binding on all regulated institutions, including commercial banks, merchant banks and payment service banks, and that they apply not only to accounts held directly by designated parties but also to entities owned or controlled by them.

Hence, this expands the scope of compliance checks and increases the risk that banks will need to review a wider web of relationships, including shell companies and linked accounts.

The sanctions come after the United States separately designated a Lagos-based bureau de change operator and associated firms over alleged links to the Islamic State West Africa Province, underscoring the cross-border nature of the financing networks under investigation.

This suggests that the CBN may likely maintain pressure on the sector rather than treat this as a one-off action.

The move also reinforces a growing convergence between Nigerian and U.S. enforcement frameworks. The sanctions were introduced in collaboration with the U.S. Treasury’s Office of Foreign Assets Control under Executive Order 13224, which targets terrorists and those who support them.

That coordination raises the stakes for Nigerian financial institutions, many of which already rely on correspondent relationships and international payment rails that are highly sensitive to sanctions breaches.

But, for domestic banks, the cost implications could be significant.

“Banks may have to upgrade real-time monitoring systems, enhance sanctions-list screening and expand compliance teams to meet the CBN’s expectations. They will also need to file suspicious transaction reports where applicable and respond faster to regulatory requests. In practice, that means more spending on technology and audit functions, as well as a greater risk of fines if controls fail”, a senior banking executive who did not want his name in print, said.

According to him, compliance failures may no longer be treated as administrative lapses.

“Regulators are signaling that banks must be able to prove they have acted on sanctions designations promptly and thoroughly. This could lead to more frequent inspections, deeper reviews of internal control systems and more intrusive supervision of high-risk business lines, particularly foreign exchange and cash-intensive operations”, he added.

For his part, Head, Research at FSL Securities, Victor Chiazor, said the clampdown may help strengthen the integrity of Nigeria’s financial system over time, but it also adds friction to an economy already grappling with persistent inflation, foreign exchange shortages and weak liquidity.

He said, “More aggressive monitoring could slow some transactions and raise operating costs for legitimate businesses, especially in sectors that depend on quick access to cash or foreign currency”.

For now, the message to banks and BDCs is clear; that the price of weak controls has risen. In the months ahead, institutions may spend more on compliance systems than on almost any other back-office function as Nigeria tries to prevent its financial infrastructure from being used to move terror-linked funds.