Stiffer Sanctions Needed To Cleanse Banks | Punch

A recent report on how three major banks paid a combined N200m in penalties to regulators underscores the weaknesses in Nigeria’s regulatory framework. For committing 16 infractions of the rules combined in 2016, Access Bank, GT Bank and Union Bank were slammed with fines by the Central Bank of Nigeria and the Securities and Exchange Commission. In the light of the horrific plunder of the public treasury and the proven complicity of the banks, tougher rules and harsher punishment are needed to protect the economy.

These three are not the only culprits as seen in details from the published audited reports of deposit money banks. Infractions routinely committed, year after year, by our banks range from late filing of financial reports, abuse of customers’ Automated Teller Machine cards to insider abuse, failure to undertake statutory due diligence, violation of anti-money laundering laws, cheating customers and anti-terrorism regulations relating to funds transfer, among others. Last year, the CBN imposed penalties of N312m on five banks for a combination of the above-listed infractions. These sums are paltry.

Nigerian banks have for decades exploited the weaknesses in regulation and mild penalties. Assured that that they can get away with middling fines, our banks circumvent the rules and derail government’s economic objectives. Bankers think nothing of an unlawful transaction that will net them hundreds of millions and a fine less than five per cent of the profit thereof. Round-tripping of scarce foreign exchange is rampant.

The problems are two-fold: some rules are weak and need to be updated to meet today’s realities and challenges. For instance, penalties for violating Anti-Money Laundering laws and Counter-Financing of Terrorism need to be made so stiff as to threaten the continued operation of a bank as a going concern when caught and thereby discourage malefactors. Moreover, bank officials who perpetrate them should be made personally liable and prosecuted.

Second, there should be a stronger resolve and the political will to institute zero tolerance for hanky-panky in the financial system. Under the last CBN governor, there was a noticeable move in this direction that saw some banks taken over, their CEOs and directors prosecuted and some top bankers forced to step down from the boards.

But, under the current governor, Godwin Emefiele, the bar appears to have been lowered: some top bankers have been allowed back; others who admitted laundering money and opening accounts for politically exposed persons are still running banks, while unscrupulous bankers have exploited scarcity to create multiple exchange rates through round tripping, with the CBN only issuing ineffectual threats.

Insider abuse that nearly brought down the system in 2009/10 has bounced back as confirmed by the Nigerian Deposit Insurance Corporation, which said that poor corporate governance created N1.85tn of non-performing loans in the 25 DMBs in 2015 with insiders/directors accounting for over 40 per cent, far above the regulatory threshold of five per cent.

In 2016, when the CBN imposed a N4bn fine on Skye Bank for withholding public funds in defiance of the Treasury Single Account rule, it demonstrated that it was not altogether institutionally helpless; it is rather the political will to take tough measures that is often lacking. Also, the regulator recently barred 16 banks from the Small and Medium Scale Enterprises window of the foreign exchange market for buying at a concessionary rate only to divert same to non-SMEs.

The world has united to combat money-laundering and terrorism through AML/CFT pacts to which Nigeria has signed on. It should enforce the rules by facilitating the objectives of the Financial Action Task Force, the international standards-setting body on AML/CFT.

The financial system is so central to economic well-being that responsible governments take a very dim view of financial malfeasance, imposing harsh penalties on offending firms and individuals. By October 2015, the United States banks had suffered a combined $204bn in fines in 175 settlements imposed by various regulatory agencies for financial misbehaviour arising from the global meltdown of 2007/8, according to a report by CNBC. Strong states do not spare even their biggest: America’s three biggest banks, Bank of America, JP Morgan Stanley and Citigroup, were fined $77.09bn; $40.12bn and $18.39bn, respectively.

For what it called its “brazen currency rigging,” the Financial Conduct Authority in 2015 slammed a £284.4m fine on Barclays Bank, the biggest in the United Kingdom’s history, while six other banks were fined £3.9m for forex markets manipulation. China has marched scores of offenders to jail for playing pranks with the system while, in Spain, the regulator imposed €16.9m in penalties on Santander, the country’s biggest banker, for cheating bond investors.

The fight against corruption has to berth at the banks. The government and the CBN should treat financial misdeeds as economic sabotage. The laws and regulations should be made stricter and rigorously enforced. Banks and their officials that break AML/CTF rules should be fined sums several times bigger than the value of the illegal transactions and should in addition, be prosecuted.

Emefiele should not be soft on defaulters or be content with warnings. He should be ruthless with offenders. The anti-graft agencies should file criminal charges against bankers who facilitated the massive looting superintended over by the last administration. The CBN needs urgent reforms to enable it to have effective surveillance of the financial sector and curtail extensive damage to the system. It should consider a whistle-blower policy with inherent rewards and protection for informants.