There is something unseemly about the sanctions and the circumstances around the sanctions issued by the Central Bank of Nigeria on the unfortunate five: MTN Nigeria and four financial institutions. Indeed, there are too many loose ends to the issue and expectedly, it has thrown up many questions and lent itself to deductions and misrepresentations. And I think the CBN must start to tie up the loose ends fast if it must be seen to have acted in good faith and in the interest of the nation.
On Wednesday, 28 August 2018, the CBN directed four banks, namely Citibank, Diamond Bank, Stanbic IBTC and Standard Chartered Bank, to repay the sum of N5.87 billion for allegedly issuing irregular CCIs on behalf of some offshore investors of MTN Nigeria Communications Limited. Standard Chartered Bank was fined N2.4 billion, Stanbic IBTC N1.8 billion, Citibank Nigeria N1.2 billion and Diamond Bank N250 million. MTN was also directed by the apex bank to refund $8.134 billion to its coffers.
The apex bank said its investigation was triggered by “allegations of remittance of foreign exchange 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.”
The CBN letter to MTN on its investigations and findings dated 28/8/2018 and routed through Standard Chartered Bank, with number GVD/GOV/CON/DGF/118/121 signed by the CBN Governor, Godwin Emefiele, had stated thus: i. The shareholders of your company invested the sum of $402,590,261.03 in the company from 2001 to 2006; ii. The investment was carried out through the inflow of foreign currency cash transfers and equipment importation, which was evidenced by the CCIs issued by Standard Chartered Bank, Citi Bank and Diamond Bank; iii. The CCIs issued at the time of the investment by the above banks to your organization in respect of the $402,590,261.03 showed that $59,436,923.44 was invested as shareholders’ loan and $343,153,339.56 as equity; iv. However, a review of your organisation’s financial statements for the year ended December 31, 2007 revealed that $399,594,146.00 was recorded/invested as shareholders’ loan and $2,996,117.00 as equity investment, in accordance with the shareholders’ agreement but contrary to the CCIs issued by the banks in (iii above….”
Essentially, the apex bank revealed it had investigated the five companies on three key “infractions”: Issuance of certificates of capital importation for three items (1) foreign currency sourced locally; (2) falsely declared capital importation; and (3) on interest-free loans converted to preference share without authorization. “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,” Emefiele had said in an interview to clarify the issue.
According to Emefiele, the third infraction “is actually the crux of the matter in dispute,” which is the “unauthorized conversion of a loan of $399 million to preference shares by the MTN and the banks and thereafter the repatriation of the sum of $8.1 billion without CBN’s final approval.”
The very first puzzle to any informed monitor of the unfolding case will be the time lapse between the infraction and the sanction. The infraction happened 11 years ago, 2007 as shown by item iv in the CBN letter. And the CBN cannot claim ignorance in this case because item v. of the same letter clearly stated that Standard Chartered Bank sought “CBN’s approval to convert the shareholders’ loan to preference shares,” and that “an approval-in-principle was granted,” pending the fulfillment of certain conditions.
As a regulator, what steps did the CBN take to ascertain that the given conditions had been met? The Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, 1995 of the Federal Republic of Nigeria that CBN succinctly quoted in its letter mandated that an authorized forex dealer who issued a CCI to an investor must “within 48 hours thereafter make returns to the Central Bank.”
In its defence on the conversion, Stanbic IBTC Bank had denied involvement in any loan conversion but stated that the “CCIs issued by and received from Standard Chartered Bank Limited indicated inflows that had been received for preference shares and made no reference to any shareholder loans.” What this means is that there was a CCI already on the converted loans, which Standard Chartered Bank forwarded to Stanbic IBTC Bank. Based on the Act, CBN must have received a report on that CCI 48 hours after the issuance. So, why did it take this long for CBN to act on a falsification? And why did it take “allegations” about three years ago (CBN said it started investigating the issue 30 months ago), obviously by an external stakeholder, for CBN to act on what it already knew over 8 years prior?
In 2017, CBN had told the Senate committee investigating the matter that it “had pardoned the offences and based on this, the Senate toed the same line with the CBN and cleared MTN and the banks of the issues.” Before the Senate hearing, Emefiele revealed, “CBN wrote a letter dated February 22, 2017 granting MTN the permission to continue paying dividends on the CCIs” in question.
This is strange considering that at this time, based on CBN’s timelines, it was already clear that the CCIs were issued “illegally”, without proper approvals. Another pointer to CBN’s knowledge of the infraction is contained in its letter to MTN. The CBN had stated in item vii. “The action of your banker in aiding your organization in the illegal conversion of the shareholders’ loan was later described by SCB [Standard Chartered Bank] in a letter to the CBN dated December 10, 2009 as an ‘unintended omission’.” CBN knew of this infraction since 2009, at least.
So, why were the five “pardoned” and why was MTN granted “permission to continue” in the illegality? A greenhorn banker will tell you that the most important virtue required of a banker and emphasised above all else during training or orientation is integrity. The CBN action here is hard to comprehend and fail to speak to the venerated virtue. And why pardon offences if the investigation was still ongoing and you had yet to have the full picture of infractions committed? Some will call such pardon flippant. It is hard to disagree.
The alleged infractions are not minor. They are not traffic offences where the offending parties can simply be asked to go and sin no more. These are very weighty allegations involving huge capital, about N2.9 trillion (that’s about a quarter of the 2018 budget) that may have been siphoned illegally out of the economy. So, whose interest was CBN serving to have looked the other way while the nation was being fleeced only to turn round and pretending righteousness now? CBN must know that monitoring is an important tool of regulation. In this case, it is obvious the apex bank failed itself and Nigerians.
I believe CBN has been unwieldy in its approach to and management of this issue, particularly its willingness and hastiness to go public at a time when the banking sector is still reeling from unusually high toxic assets and is suffering confidence issues. Unfortunately, this is not the first time the CBN has conducted its affairs in public thus eroding confidence in the financial services industry. The Sanusi Lamido Sanusi era was defined by such media sensationalism. Many have long argued that the CBN is sometimes used as a political tool by the government in power. In my opinion, this may be one of those times CBN is being used in such manner and I stand to be proven wrong.
It is sad that our institutions are usually ready fodders in the hands of people who have scant regard for economic growth and development. As stakeholders, we must all insist that our institutions are better managed and national interest should supersede personal and sectional considerations. It may sound farfetched, but it is actions like this that tends to harm our desire for growth.
.Mokelu, a former banker, and founder of an NGO on Corporate Governance, writes in from Ilorin, Kwara State.