Nigeria, Africa's largest economy by gross domestic product (over $380bn), recently grabbed global attention following reports that South Africa's telecoms subsidiary, MTN Nigeria, illegally repatriated huge profits from the country and avoided paying appropriate taxes to the government.
The report highlighted growing concerns about rising illicit financial flows in Africa and underlined the role of multinationals in under-developing the continent's economy.
Last August, Nigeria's central bank sanctioned four banks -- Standard Chartered, Citi, Stanbic-IBTC, and Diamond -- for allegedly violating the country's foreign exchange regulations and facilitating the repatriation of over $8.2bn on behalf of MTN.
Also, Nigeria's Attorney-General, Abubakar Malami, about the same period, released another incriminating report against the telecoms operator, alleging accumulated tax liabilities totaling about $2bn.
Mr Malami, also the Minister of Justice, in his August 20, 2018 letter to MTN seen by PREMIUM TIMES, said the liabilities followed a 10-year "revenue assets investigation" the Nigerian government conducted between 2007 and 2017.
Details of the liabilities, the minister said, included alleged unpaid/underpaid import duty of about N242.25bn as well as withholding and value-added tax (VAT) of about $1.3bn.
Analysts say aggregation of the two contentious figures linked to MTN alone in the West African country (a staggering $10.2bn) mirrors the grim reality of the menace of illicit financial flows (IFFs) in Africa.
The African Union High-Level Panel on IFFs says the continent's losses have grown by about 60 percent since 2015, from about $50bn to around $80bn annually.
In Naira terms, $10.2bn translates to a whopping N3.12 trillion (at N306 dollar official exchange rate), about one-third of Nigeria's total N9.12 trillion budget for 2018.
Financial experts knowledgeable on the matter say the withdrawal of such a colossal amount could sink Nigeria's fragile economy still struggling to recover from a devastating recession since 2016.
Why CBN sanctioned MTN, banks
In March 2018, CBN's banking supervision department opened investigations into allegations that the four banks were complicit in a string of illicit transfers on behalf of some MTN offshore shareholders between 2007 and 2015.
Findings in an extract from CBN report seen by PREMIUM TIMES showed MTN conspired with the four banks to repatriate billions of its profits from Nigeria, part of which were later returned to the country as imported capital by shareholders.
Details of the findings showed Standard Chartered facilitated the repatriation of about $3.45bn; Stanbic-IBTC ($2.63bn); Citibank ($1.77bn) and Diamond ($348.9mn) over the period.
But, the purported imported capitals were recorded in MTN's books and the banks' as 'new investments' imported into Nigeria in the form of cash inflows and equipment.
MTN claimed the 'investments' were in accordance with its shareholders' agreement reached at its board meeting of November 8, 2007. But, CBN considered them irregular.
Specifically, the report said the irregular transactions involved some MTN shareholders who claimed to have brought into Nigeria about $402.59 million of 'new investments.'
In November 2007, CBN said MTN, through Standard Chartered, requested approval to convert its shareholders' loan to preference shares.
CBN said an approval-in-principle was granted. But, a final approval was subject to fulfillment of certain conditions in the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, 1995 and the Foreign Exchange Manual, 2006.
The conditions required the submission to CBN evidence of legal compliance with the implementation of the board resolution on the loan conversion.
The other condition was the provision of an undertaking by Standard Chartered not to remit to MTN's shareholders either interest or principal repayment from the date of the loan until they were converted to preference shares.
CBN said neither MTN nor Standard Chartered met these conditions.
Consequently, the final approval of the request to convert MTN shareholders' loan/investment to preference shares was withheld.
But, MTN still proceeded to authorise Standard Chartered to issue Certificates of Capital Importation (CCIs) to convert the shareholders' loan to preference shares, in defiance of regulations.
CBN spokesperson Isaac Okorafor said all CCIs issued by the four banks in respect of those transactions failed to comply substantially with stipulated foreign exchange regulations.
The main grouse of CBN, he pointed out, was that the repatriation of MTN's profits over the period and the attempt to convert the 'new investments' to preference shares (interest-free loans) were not approved.
The report said all CCIs were issued outside the mandatory 24 hours of receipt of shipping documents required by the monetary, credit, foreign trade and exchange policy guidelines for fiscal years 2012 and 2013.
Besides, all CCIs were not accompanied with indemnity letters to the CBN against double remittances and transaction history, in line with regulatory requirements.
Besides, following the publication of MTN's financial statement for the year ended December 31, 2007, the report said about $399.59 million was recorded as investments from shareholders' loan and about $2.996 million as equity.
However, CBN said a routine regulatory review by its auditors revealed only about $59.4mn was imported by some offshore investors into Nigeria as shareholders' loan, and about $343.15mn as equity.
The contradictions, the CBN noted, constituted a "rendition of false returns". But, Standard Chartered, in responding to a regulatory inquest by CBN on December 10, 2009, described it as an "unintended omission."
Tope Fasua, an economist and CEO, Global Analytics Consulting Limited, described the transactions masterminded by MTN as "complicated", "more like round-tripping of profits generated from Nigeria."
ANRP Chairman, Tope Fasua
"What MTN did was clearly share manipulation, by taking profits from Nigeria and bringing the same back as cash inflows and equipment. It was purely round-tripping money from Nigeria and not allowing it to go into the foreign exchange market," Mr Fasua told PREMIUM TIMES.
According to Mr Fasua, MTN's attempt to convert the funds into preference shares was a way of bringing "diluted funds", such that in the event of liquidation, it will easily take out its equity before other shareholders.
"Multinational corporations, particularly those engaging in opaque business deals, often prefer preference shares, perhaps to fend off hostile takeovers, as dividend payments on preference shares are always consistent and value stable," he said.
MTN officials declined to comment for this story.
Failed reconciliation efforts and the sanctions
Last September, CBN governor, Godwin Emefiele, told PREMIUM TIMES, at the end of investigations, despite several meetings between a committee of CBN governors and the management of the affected banks, with representatives of MTN over its findings, they failed to produce documents to back up the transactions.
Mr Emefiele said the meeting, which he presided on May 25 in Lagos, attended by all financial sector regulators, CBN deputy governors, the director of banking supervision, and about 20 examiners and auditors, was inconclusive.
He said a one-week deadline for MTN and the banks to reconcile their records and report back to the committee was not met. A fresh deadline also stretched to almost two months without the documents.
"At this point, we (CBN) could not wait endlessly for them. That is why we released the report to the public and imposed various sanctions totaling N5.87bn against the banks," Mr Emefiele told PREMIUM TIMES.
"What CBN sought was a reversal of the transactions by MTN and return of the funds, because they were not finally authorised by the CBN, and follow due procedures in funds repatriation," Mr Emefiele explained.
Alluding to previous regulatory infractions by MTN that were waived, the CBN governor added: "There were a number of issues, two of which we decided to let go. But, on this last one, we thought the amount ($8.2bn) was too large, and therefore the need for CBN to further investigate."
In its reaction to the sanctions on the banks last August, MTN spokesperson, Tobe Okigbo, in a statement, insisted the company was not guilty of any wrongdoing and was ready to "vigorously protect its assets and shareholder rights within the confines of the law."
In September, MTN filed an application before a Federal High Court in Lagos seeking to restrain the CBN from enforcing its sanctions. Hearing in the case was fixed for December 4, 2018.
However, at the resumed sitting, lawyers for MTN, the CBN and a representative of Nigeria's Attorney General and Justice Ministry, told the court, all parties were engaging each other in "out-of-court settlement talks."
Initially, hearing was adjourned until last Wednesday, December 12, for presentation of a joint settlement report. But, at the resumed sitting, the case was again adjourned to January 22, 2019.
It is not clear whether the terms of the settlement included a reversal of the sanctions by CBN against MTN and the banks.
But, Mr Emefiele told this newspaper on November 20 that a review of the case, following the submission of documents CBN requested from MTN and the banks, did not mean their clearance from applicable penalties for infractions.
"There are still issues to be addressed. It is normal for MTN and the banks to clear themselves. But, the banks must do what is right, by obeying our country's extant rules and regulations. The sanctity of CCIs issued by our banks to foreign investors remains sacrosanct and inviolable," he declared.
MTN rejects tax liabilities
Also, on December 3, 2018, hearing in another application by MTN before the Federal High Court, Lagos was postponed till February 7, 2019 following the absence of the judge.
In the application obtained by PREMIUM TIMES, MTN's lawyers rejected the tax liabilities charges against the telecoms firm.
They, however, did not contest the veracity of the liabilities against their client.
Rather, they accused the justice minister of acting "illegally, unconstitutionally and in excess of his powers", by usurping, through the self-assessment exercise, the rights, duties, and powers of the Federal Inland Revenue Service (FIRS) and Nigeria Customs Service (NCS).
However, when contacted to confirm FIRS' role in computing the tax liabilities released by Mr Malami, its Chairman, Babatunde Fowler, refused to comment on the issue.
"Issues relating to tax records of individuals and corporate entities were confidential documents that cannot be disclosed to third parties without the consent of the affected person or entity," he said.
The Nigeria Customs spokesperson, Joseph Attah, also refused to comment until he had consulted with his principals.
For Nigeria's Finance Minister, Zainab Ahmed, the entire MTN saga was "terribly bad for Nigeria"
"The conduct of the banks and MTN created serious reputation problems for Nigeria," she noted. "It made the country look bad in the eyes of the international community.
"First, the fine by CBN was not imposed on MTN, rather on the banks, for deliberately ignoring established regulations for repatriating profits by multinational companies. Again, they refused to provide the documents showing the transfers were done legally.
"CBN only asked MTN to reverse the transactions, return the funds to Nigeria, and follow due process. A situation where it was made to appear as MTN, or South African companies, were being targeted by Nigeria for victimisation was not fair at all on the country."
When PREMIUM TIMES contacted the banks for their side of the story, only Diamond Bank responded.
"Beyond our initial statement that we are working with our regulators on this matter, we have nothing further to add," its spokesperson, Chioma Afe, said in a text message to this reporter.
It is not clear why other banks failed to respond to either text messages or mails sent to them.
In 2001, as Nigeria's first GSM licensee, MTN refused to carry out regulatory directives from the Nigerian Communications Commission (NCC) to adopt per second billing.
For over three years, MTN creamed off billions of naira from its subscribers.
Again, in 2013, MTN, for over 24 months, ignored directives to all telecoms operators to disconnect all unregistered subscriber identity module (SIM) cards from their networks on or before July 1 of that year, or risk N200,000 fine per SIM card.
In October 2015, for refusing to disconnect over 5.1 million unregistered subscribers' SIM cards from its network, the NCC imposed N1.04 trillion (about $5.2bn) fine on MTN.
Following protests, the fine was cut to N780bn initially, and later by almost 70 percent to just N330bn. Yet, MTN failed to keep its part of the bargain to list its shares on the Nigerian Stock Exchange (NSE) and settle the fine.
In 2015, PREMIUM TIMES investigations uncovered how MTN was serially funneling abroad billions of its profits from Nigeria and avoiding paying its fair share of taxes to Nigerian authorities.
This story was written and produced by Bassey Udo as part of 'Wealth of Nations', a media skills development programme run by the Thompson Reuters Foundation.