Did Nigeria’s banking regulator conveniently fail to spot forex “illegalities”?

Nigeria’s central bank, CBN, Wednesday announced it has fined four banks N5.65 billion ($15.58 million) for breaching Nigeria’s forex regulations on illegal capital repatriation by telecommunications company MTN Nigeria.

The CBN had since directed the banks to refund a total of $8.134 billion which MTN took out of the country as dividends from 2007 to 2015. But the CBN, whose mandate is to regulate the banking industry did not find out the “illegality” by itself; it took a forensic audit by a third party.

In a statement by the telco, there were no funds repatriated illegally. “No dividends have been declared or paid by MTN Nigeria other than pursuant to CCIs issued by our bankers and with the approval of the CBN as required by law,” the company said.

MTN was right. A Senate committee had in 2016 commenced an investigation into issues surrounding the certificates of capital importation (CCIs) and its 2017 report exonerated MTN. But a law firm Tope Adebayo LLP had following a forensic analysis of all available CCIs and foreign exchange documentations for remittances or repatriation of dividends to offshore corporate shareholders of MTN found 10 individuals and corporate entities culpable in the forgery and/or production of false CCIs. The report, which according to Sahara Reporters, was made available to the CBN started what led to the fines announced yesterday.

CBN had claimed that MTN converted shareholders loans to equity without getting a final approval from the central bank and remitted dividends on the conversion with CCIs issued by their banker.

According to the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act Section 15, banks, as authorized dealers in forex are allowed by law to issue CCIs and transmit information on the transaction to the CBN.

15. (1) Any person may invest in any enterprise or security, with foreign currency or capital imported into Nigeria through an Authorised Dealer either by telegraphic transfer, cheques or other negotiable instruments and converted into the naira in the Market in accordance with the provisions of this Act.
(2) The Authorised Dealer through which the foreign currency or capital for the investment referred to in subsection (1) of this section is imported shall, within 24 hours of the importation, issue a Certificate of Capital Importation to the investor and shall, within 48 hours thereafter, make returns to the Central Bank giving such information as the Central Bank may, from time to time, require.

Section 16 of the Act further showed that no information on such transaction can/should be hidden from the CBN. Note that the transactions happened years ago.

16. (1) An Authorised Dealer and Authorised Buyer appointed under this Act shall submit to the Central Bank, at such intervals as the Central Bank may prescribe, returns of activities in the Market and the returns shall be in such form as the Central Bank may, from time to time, by circulars and guidelines direct.
(2) The Central Bank shall furnish to the Minister, on a quarterly basis, detailed reports on the returns submitted to it under subsection (1) of this section.
(3) An Authorised Dealer or Authorised Buyer which contravenes the provisions of subsection (1) of this section, by failing, neglecting or refusing to submit the returns, is guilty of an offence and liable on conviction to be dealt with as provided in the Central Bank of Nigeria Act and the Banks and Other Financial Institutions Act as if it had contravened the provisions of those Acts relating to the submission of returns.

With the CBN fine on the four banks involved, it is safe to assume that they contravened Section 16 (1) of the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act.

However, what is suspicious is the central bank’s tardiness in imposing fines on the affected banks. Recall that Tope Adebayo LLP, the law firm hired by the Federal Government to recover revenues which were allegedly repatriated illegally, had accused the CBN of not cooperating with it in its investigation.

Sahara Reporters had on August 27, claimed that CBN Governor Godwin Emefiele who was expected to impose fines following a review of the law firm’s report by the Bank and its Board of Governors, might have been compromised. Two days after the report by the online news platform, the CBN announced fines of more than N5 billion.

Efforts to get reactions from the affected banks failed as the officials who responded to The Nerve Africa declined comments, but one, who told us the obvious explained: “MTN converted the shareholder loan to preference shares and repatriated some of the funds. That is where the issue lies.”

A staff of one of Nigeria’s leading banks who asked not to be named lamented weak corporate governance in the Nigerian banking industry. “There are many fines that banks pay that are not made public. Banks in Nigeria contravene a lot of regulations. They compare possible fines with profit and make their decision based on that. Sad as it is, it’s the truth.”

Two of the banks fined by the CBN have announced they were “holding further engagements with the CBN” on the issue and are “cooperating with the apex regulator to ensure that this matter is resolved”.

The announcement of the fine, which earlier on Thursday affected MTN’s shares saw Diamond Bank lose 9.35 percent to close at N1.26 and Standard Bank (StanbicIBTC) shed 2.45 percent R18.49 (13;41 GMT).

Originally published at The Nerve Africa.