24 May 2014

Nigeria: CBN, Banks and Money Laundering


The indictment by the Acting Governor of Nigeria's central Bank, Dr. Sarah Alade that Banks have been aiding money laundering, a practice which puts a slur on their integrity, professional and ethical standard did not come as a surprise to keen observers of the Nigerian banking system. What is however curious is that the charge is coming from the apex bank that has statutory regulatory power to detect, query, and sanction any erring bank that violates the extant banking regulations. The Ag.

CBN Governor delivered the indictment at a course on Combating Money Laundering and other Financial Crimes organised by the West African Institute for Financial and Economic Management (WAIFEM) in Abuja last week. According to Mrs. Alade, "bank facilities are used knowingly and unknowingly to further the act of money laundering and in most cases to retain the proceeds of such crime" which include, round tripping, financial fraud, capital flight, fake cheques, fake currency minting, advanced fee fraud and insiders abuse. She also warned that money laundering has adverse effect on foreign direct investment (FDI) "when a country's commercial and financial sector are perceived to be associated with the incidence of organized crimes". This newspaper views the CBN Governor's disclosure as a confession of the apex bank's disappointing failure in it's regulatory functions which includes monitoring and to rein in banks engaged in illegal financial practices. The Ag. Governor's assertion that "over 80 per cent of the proceeds of money laundering are associated with banks one way or the other, all over the world," cannot be accepted as an excuse for tardiness in tackling the growing menace in the Nigerian banking sector. Indeed, fraud has been an intractable problem in the Nigerian banking system which continues to defy various measures put in place to control or eliminate the scourge. According to the CBN's report for the first half of 2013, there were 2,478 fraud and forgery cases involving Nigerian banks valued at N22.4 billion. This was higher than 2,300 cases valued at N7.1 billion recorded in the same period in 2012. Details of the fraud in the report included fraudulent withdrawals from customers' accounts, suppression and conversion of customers' deposits, theft, illegal funds transfer, cheques defalcations, and fraudulent ATM withdrawals. Equally disquieting is an earlier 2011 report of the Nigeria Deposit Insurance Corporation (NDIC), which indicated a rise of 2,352 representing 53.5 per cent in cases of fraud amounting to N28.4 billion. The report also revealed "fraud and forgeries were predominant in 10 banks totaling 87.1 percent of the cases of fraud in the nation's banking industry." While attributing the rising cases of fraud to the challenges of "internet banking and suppression of customer deposits", the NDIC report however indicted the banks for being "extremely weak in their corporate governance and credit administration."

Most alarming aspect of the increasing fraud cases in the banks is growing cases of fraud aided by banks' staff with no less than 498 such cases reported by the NDIC representing 39 percent of the total bank fraud cases reported in 2011. It is disappointing that the banks are slacking their guard in corporate governance thereby allowing the escalation of fraud increasingly aided by bank staff at a time when studies reveal that more Nigerians are patronizing the banks as a result of increased confidence in the banks. Indeed, there is urgent need for banks in the country to undergo internal cleansing with a view to ridding themselves of bad eggs so they do not take Nigerians back to the dark days when sharp practices and customer rip off was the order of the day.

No doubt, CBN as the nation's apex bank must go beyond mere whistle blowing and take pro active steps to protect bank customers and the nation from the detrimental consequences of bank fraud and money laundering by strict enforcement of its recently revised Code of Corporate Governance for Banks. The apex bank must re-enact the will it has demonstrated in recent past years to sanction erring banks and their fraudulent officials if only to restore and sustain public confidence in the banking system. This in our view is one of the areas where the new CBN Governor, Mr. Godwin Emefiele has his job cut out for him.

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