Counterfeiting has emerged as a rapidly expanding and lucrative criminal enterprise in Nigeria. Despite the Central Bank of Nigeria’s (CBN) awareness of this widespread issue, experts have pointed out its reactive approach and lack of adequate measures to tackle the problem effectively. Counterfeiting involves the unauthorized production of imitation Naira banknotes or alterations to existing currencies, aiming for personal financial gain.
The proliferation of counterfeit Naira is increasingly displacing authentic Naira notes in the marketplace, a trend that should be alarming for the CBN and the Tinubu administration. Indeed, this issue was one of the primary factors cited by the CBN for the decision to redesign the Naira in 2022, among other reasons.
Studies, including research organization called NOI Polls and anecdotal evidence by Mailafia in 2016 suggest that between 19% and 25% of the Naira in circulation could be counterfeit. A recent undercover investigations in major Nigerian cities support this claim, indicating that approximately 30% of Naira Notes in circulation are fake, which aligns with previous estimates.
In contrast, the CBN reports a significantly lower counterfeit figure. It disclosed that as of December 2016, there were approximately 14 fake notes in every one million banknotes, representing a rate of 0.0014%. This estimation by the CBN is significantly inaccurate due to various errors and omissions.
A key factor contributing to this inaccuracy is that a substantial portion of the currency notes in circulation never enters the banking system. Consequently, these notes are excluded from the CBN counting and verification processes, leading to an underestimation of the prevalence of counterfeiting.
Additionally, there is a tendency for the CBN to deliberately downplay the extent of counterfeiting in an effort to sustain public trust in the national currency. As a result, the CBN’s figure is likely a considerable underrepresentation of the actual scale of the issue.
Former CBN Governor Godwin Emiefiele noted that while N3.23 trillion in Naira notes are in circulation, only about a trillion has been accounted for by banks, implying that the vast majority of currency, N2.23 trillion or about 85% of the total cash in circulation, is outside the banking system, making it challenging for the CBN and deposit making banks (DMBs) to accurately assess the extent of counterfeiting.
While the CBN has implemented various anti-counterfeiting features in the Naira to facilitate the identification of fake notes, the task of detecting counterfeit currency using conventional methods remains a significant challenge for citizens, business owners, bankers, and those involved in cash transactions or currency exchange. As a result, many eventually surrender to the difficulty of this task.
We must state that counterfeiting Naira notes is illegal, with severe penalties for those convicted, reflecting the government’s commitment to maintaining the integrity of the national currency. However, the effectiveness of these laws is questionable, as there is little evidence of significant convictions, especially among major counterfeiters.
Who are the Counterfeiters?
Our research reveals a significant evolution in the counterfeiting of Naira and other foreign currencies, transforming from small-scale operations by individuals or minor groups to highly sophisticated criminal networks or syndicates. These organizations are equipped with advanced technology, professional currency design and production expertise, and extensive distribution channels, including both retail and wholesale outlets.
These counterfeiters have established robust connections with law enforcement, Bureau de Change operators, and banking officials. Their operations range from local to international scales, with some groups managing both spheres.
The accessibility and decreasing cost of counterfeiting equipment, driven by advancements in computing, artificial intelligence, photography, and imaging technologies, have lowered the barriers to entry into this illicit market. This has attracted more amateur participants, given the minimal competition and a large market of willing buyers. The counterfeit Naira notes produced are often indistinguishable from genuine ones to the untrained eye. Counterfeiting the dollar is more challenging, yet it still occurs.
The primary incentive for these counterfeiters is the substantial profit margin. The cost of producing additional fake Naira notes is extremely low, benefiting from economies of scale. Moreover, the risk of getting caught is relatively low, and even when apprehended, the consequences often do not outweigh the profits gained from the crime.
The person-to-person circulation of counterfeit Naira, which operates outside the official financial system, makes detection challenging. This allows counterfeiters to operate in a virtually frictionless market, exacerbating the problem. The major markets, based on our investigation are Lagos, Ibadan, Akure, Kaduna, Kano, Zaria, Abuja, Aba, Nnewi, Onitsha, Enugu, Benin, and Uyo. The distribution infrastructure is nationwide.
Washing Counterfeited Naira and Other Currencies in Nigeria
In Nigeria, counterfeiters employ various methods to wash or circulate fake Naira and other currencies. One common tactic is to sell the counterfeit notes at a discount to counterfeit distributors, for example, a N1,000 note might be sold for N600, generating significant income for the counterfeiter when scaled.
Another method involves purchasing goods with counterfeit money and then selling these goods to convert them back into genuine currency. A third strategy is to exchange counterfeit Naira for hard currencies like the Euro or the US Dollar in the currency exchange black market.
Furthermore, low-level counterfeiters commonly utilize fake Naira notes for transactions involving small-value items. In these exchanges, they spend the counterfeit currency and receive authentic Naira as change from unsuspecting traders. This method effectively enables them to swap fake notes for real ones in everyday transactions.
Another strategy involves using traders and small business owners to circulate counterfeit notes by giving them as change to unsuspecting customers during transactions. The counterfeit currency has also been employed for making cash payments to employees and contractors who provided services to the individual producing the fake money.
Lastly, a particularly troubling practice involves the bank staff. The banking system itself is not immune to these activities. Corrupt banking officials have been implicated in aiding the circulation of counterfeit currency, further complicating efforts to tackle this issue. This involvement of bank personnel in the laundering of counterfeit money is especially alarming, highlighting the depth of the counterfeiting problem in Nigeria.
The CBN Is Fighting A losing Battle
The Central Bank of Nigeria (CBN) faces significant challenges in addressing the widespread issue of counterfeit currency, primarily due to its limited capacity to ascertain the origin, quantity, and distribution speed of counterfeit notes in circulation. The CBN’s approach has been largely reactive rather than proactive, often lagging behind the sophisticated techniques employed by counterfeiters.
Technologically, counterfeiters are far ahead of the CBN, producing fakes so convincing that they could potentially deceive even the unaided eye of the CBN governor. The counterfeits are so well-made that standard visual inspection is insufficient; advanced detection equipment is necessary to identify them.
The CBN has implemented several anti-counterfeiting measures, such as holographic strips, watermarks, and microprinting. However, these features haven’t evolved rapidly enough to keep pace with the advancements in counterfeiting technology and know-how. The counterfeit detection machines currently used by some DMBs are considered outdated.
The 2022 redesign of the N200, N500, and N1000 notes by the CBN did slow down counterfeiting of these denominations, but the counterfeiters are continuously adapting. With technological advancements making counterfeiting easier, it’s anticipated that these new notes will eventually be counterfeited too, if they haven’t been already.
We found that while the CBN focuses on redesigning higher denomination notes to thwart large-scale counterfeiting operations, smaller-scale counterfeiters are exploiting the lower denominations. In Nigeria’s informal economy, there is a higher demand for lower denomination notes (N5, N10, N20, and N50) compared to higher ones (N200, N500, and N1000). The CBN has not yet redesigned these lower denominations, leaving a gap that counterfeiters are eagerly exploiting.
Deleterious Effects of Pervasive Naira Counterfeiting
The rampant circulation of counterfeit Naira notes outside the banking system carries severe negative consequences. Firstly, it inflates the amount of Naira in circulation, contributing to rising inflation. Secondly, it compromises the sovereignty of Nigeria, eroding trust in the authenticity and integrity of the Naira, and consequently, devaluing the currency.
These counterfeit notes, bypassing official monetary policy controls, distort and weaken the national economy. Counterfeiting not only hampers long-term economic development but also empowers criminal syndicates and cabals, exploiting the vulnerabilities in the Central Bank of Nigeria’s monetary management system.
Furthermore, the widespread counterfeit activity has significantly eroded public confidence in the Naira as a reliable store of value. This is not solely due to inflationary pressures but also because of the extensive scale of counterfeiting perpetrated by both local and international criminals. This loss of confidence extends beyond the currency notes to the overall integrity of Nigeria’s financial system, including the CBN, which is currently viewed negatively.
A particularly troubling consequence involves suspicions that counterfeiting may also be a source of funding for terrorist and insurgent activities within the country, posing a significant national security concern.
What to Do?
Implement Cutting-Edge Counterfeit Detection Systems: The CBN, DMBs, and other financial transaction entities are required to adopt the latest Artificial Intelligence (AI) and blockchain technologies. These technologies will enable them to swiftly and effectively identify, trace, and report the sources and quantities of counterfeit currency circulating within the financial system. This adoption will enhance the integrity and security of monetary transactions, thus safeguarding the financial system against fraudulent activities.
Strengthened Legal Framework and Enforcement: Nigeria needs to enhance its legal framework to impose stricter penalties on counterfeiting This should include harsher punishments such as the death sentence for convicted counterfeiters and complicit bank officials. There should also be a concerted effort to improve the investigative and prosecutorial capacity of law enforcement agencies dealing with financial crimes. Specialized training programs for police and judiciary on detecting and prosecuting counterfeit-related crimes could be established. In addition, there should be regular audits and checks within the banking system to identify and prevent internal complicity.
Public Awareness and Education Campaigns: The Tinubu administration, in collaboration with the CBN and financial institutions, should launch extensive public awareness and education campaigns. These campaigns would inform the public about the features of genuine banknotes and how to identify counterfeit notes. Educating the public, especially those in the informal sector who may not regularly interact with the banking system, can be a powerful tool in reducing the circulation of counterfeit currency. Furthermore, these campaigns should encourage the public to report suspected counterfeit activities to authorities, potentially offering rewards for information leading to successful prosecutions.
Implementing these policies would require a coordinated effort between various government agencies, the financial sector, and the public. By addressing the issue from multiple angles – technological, legal, and educational – Nigeria can take significant steps toward controlling the pervasive counterfeiting of the Naira.
