Over the last six months, Central Bank of Nigeria governor Godwin Emefiele has not minced his words when putting commercial banks on notice, warning them of the dangers of violating foreign exchange (forex) rules.
Emefiele promised to punish any breach of forex policy. Disguised as a customer, he visited bank branches in Abuja and Lagos to monitor forex sales to travellers and ascertain if the rules were being followed. So, when four banks – Standard Chartered Bank, Stanbic IBTC, Citibank Nigeria, and Diamond Bank – were accused of assisting MTN Nigeria Communications to illegally move $8.1bn abroad, the CBN quickly applied sanctions.
After the announcement of the policy breach, Standard Chartered Bank’s account with the CBN was debited N2.4bn ($6.62m), Stanbic IBTC’s $4.96m, Citibank’s $3.3m and Diamond Bank’s $689,655 for the alleged offences. The banks’ pleas for pardon or reduction of the fines fell on deaf ears. MTN Nigeria was also accused of illegally sending $8.1bn out of Nigeria in breach of forex regulations.
CBN claimed the fines were imposed after painstaking investigations and its inquiry was triggered by “allegations of remittance of forex with irregular Certificates of Capital Importation (CCIs) between 2007 and 2015”, in “flagrant violation of extant laws and regulations of Nigeria, including the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, 1995 of the Federal Republic of Nigeria and the Foreign Exchange Manual, 2006”.
Seeing the swiftness with which the CBN acted on the banks, MTN Nigeria quickly sued the Attorney General of the Federation and the CBN over the fine. The company claimed that the transfer had been to shield its assets and shareholders’ rights. MTN also refuted any allegations of wrongdoing, saying the CCIs were issued by bankers with the CBN’s approval.
But Emefiele disclosed that the CBN had investigated MTN’s forex repatriations for 30 months, during which the four banks were found wanting on three charges of infractions. The MTN Nigeria investors were accused by the CBN of procuring funds locally from the forex market and using the same for ‘round tripping’. The banks were accused of not issuing CCIs within 24 hours of fund in-flow into Nigeria as stipulated in the country’s regulations.
The CBN also alleged that the conversion of $399m shareholders’ loan to preference shares in 2007 had led to the repatriation of over $8.1bn as dividends by MTN Nigeria. The CBN stated that the CCIs issued in respect of the importation of $402m by MTN shareholders indicated $59.4m invested as shareholders’ loan and $343m as equity but a review of the company’s financial statement for the year ended 31 December 2007 showed that $399m was recorded as invested as shareholders’ loan and $2.9m as equity in accordance with shareholders’ agreement but contrary to the CCIs issued by the banks.
Emefiele described the alleged offences as weighty and said they had attracted global attention. “It is important to stress that the CBN examiners had been investigating three charges of infractions against the four banks and MTN, particularly the manner of funding the equity investment into MTN and the subsequent capital repatriation that resulted thereafter,” he stated.
MTN, in its response, stated that it had adhered to all extant laws in the payment of dividends to its shareholders between 2007 and 2015. “MTN Nigeria strongly refutes these allegations and claims. 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.
Ferdi Moolman, MTN Chief Executive Officer, said it was practically impossible for the firm to comply with the 24 hours required to issue the CCI before moving funds. “The requirement to issue a CCI within 24 hours of conversion is an administrative requirement. As such, the CBN has the authority, and indeed we believe approved the banks’ applications to issue CCIs outside the recommended time- frame.
“Often, for various reasons (such as not having all the required documentation, for instance), it is not possible to issue a CCI within 24 hours, and the Central Bank of Nigeria’s Forex Manual contemplates such situations by asking that the banks refer to the CBN for approval,” Moolman explained in a statement from Johannesburg, South Africa. He said no dividends were declared or paid until the CCIs were issued and finalised, adding that MTN Nigeria only requested CCIs for foreign capital that was imported into Nigeria, and dividends were externalised on CCIs.
Shareholders the biggest losers
Chidi Okezie, Group Company Secretary, Stanbic IBTC, informed the Nigeria Stock Exchange that the CBN has debited the account of its banking subsidiary with the CBN for the full amount of the above stated fine advised to the bank. “Stanbic IBTC Holdings PLC, as well as our banking subsidiary, maintain our position on this matter, which is the fact that the bank has done nothing illegal and accordingly, the bank will continue to provide CBN with documents and details in support of our contention that our actions in relation to these transactions were not illegal,” he said.
Olakunle Ezun, Head of Treasury at Ecobank Nigeria, said all the banks have accounts with the CBN, which makes it easier for the regulator to sanction them than it could MTN Nigeria. “What the CBN did was to debit the accounts of the banks directly and send them debit advice. The fine is going to affect the banks’ profit and loss accounts for the year but the impact will be different across the banks,” he said. According to Ezun, all four banks will report the fines in their 2018 financials while the quoted ones will also report to shareholders.
Shehu Mikail, President, Constance Shareholders Association of Nigeria, said the fines will affect dividend payments for the year. “I believe that the return on the investment, especially from Stanbic IBTC, will decline. The fine is likely going to reduce dividend for shareholders, however the penalty is a welcome development. CBN wants to ensure that banks comply with forex transaction policies. It will serve as a warning to others to always follow due process,” he said. Boniface Okezie, Chairman, Progressive Shareholders Association of Nigeria, urged the CBN to always give priority to the survival of the banks and boosting depositors’ confidence. He said that banks also needed to be careful about the type of transactions they finance.
He said the shareholders in the quoted banks will have to wait endlessly to have dividend. “The banks will now begin to make provisions for the fines and dividend payment may not come soon. What has happened means that investing in the banking sector remains risky for investors. The shareholders are the biggest losers,” he said. Akeem Ogunlade, Executive at the Centre for the Promotion of Enterprise and Business Best Practice, said Nigeria’s quest for economic development through foreign direct investment will suffer. “Whatever the merits of the issues, one would have expected CBN, as regulator, to be more circumspect in its reaction,” he said.
About two years ago, MTN was accused of illegally repatriating $13.8bn. It blamed its failure to comply with the law requiring issuance of CCIs within 24 hours of conversion on “administrative requirement”. For Standard Chartered Bank, the fine is the second in about two years for violating the country’s forex regulations following a $5.51m fine in November 2016. During the opening of an investigative hearing by the Senate Committee on Banks, Insurance and Other Financial Institutions into the transfer, MTN said circumstances beyond its control necessitated its decision to move funds without following the letter of the law. n
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