Terrorism Financing and the Nigerian Financial System: Policy Gaps and Reform Imperatives

This study examines the policy gaps in Nigeria's framework for preventing terrorism financing within the financial system, analysing the adequacy of existing anti-money laundering and counter-terrorism financing regulations and their enforcement by banking and non-banking financial institutions. The financing of terrorist organisations including Boko Haram and Islamic State in West Africa Province through the formal financial system represents a critical national security vulnerability, yet Nigeria's counter-terrorism financing framework has significant institutional and regulatory weaknesses that have been documented by the Financial Action Task Force. Using a qualitative policy analysis design, the study draws on Financial Action Task Force mutual evaluation reports, the Nigerian Financial Intelligence Unit's enforcement records, Central Bank of Nigeria guidelines, and interviews with compliance officers in commercial banks and fintech companies operating in Nigeria. The securitisation theory and the governance of illicit financial flows framework are applied to evaluate policy design and implementation. Findings reveal that while Nigeria has made legislative progress in adopting the Money Laundering Prohibition Act amendments and establishing the Financial Intelligence Unit, enforcement remains weak due to limited specialised capacity in financial investigation, under-reporting of suspicious transactions by financial institutions fearing compliance costs, and inadequate inter-agency information sharing between the financial intelligence unit, security agencies, and the judiciary. The role of hawala and other informal remittance systems in facilitating terrorist financing across the North East geopolitical zone border regions receives particular attention. Recommendations include mandatory beneficial ownership registers, enhanced financial intelligence unit investigative capacity, and formal information sharing protocols with regional financial intelligence bodies. Keywords: terrorism financing, financial system, anti-money laundering, counter-terrorism, Nigeria