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Banks and Fraud Incorporated

By Les Leba

I have had reason to comment on the banking culture in this country over the years! The piece, “Banks and Fraud Incorporated” was first published in this column in October 2005, and was indeed preceded in September of that year by another article titled: “Banks and Money Laundering”.

Later in April 2008, the piece “Banking of Public Funds, Corruption and Double Speak” also appeared in this column. More recently, in September 2008, in another piece titled “The Bonanza in Margin Trading”, we drew the conclusion that “it seems CBN’s desire is to protect the banks and not the economy in its policy somersaults in recent months”.

Indeed, it seemed that the banks could do no wrong with Charles Soludo as Governor of Central Bank. Even when Intercontinental Bank was fingered as distressed by International Rating Agencies, and when the IMF reported that several Nigerian banks carried excessive risks with their huge uncollateralised loans, non other than the erudite keeper of our nation’s treasury came out in stout defence of Intercontinental Bank with several adverts in the media.

It is not clear who paid for those adverts, but what is clear is that there had been genuine concern over the years about the unusually close confraternity between the Chief Executive of several Nigerian banks and the then incumbent Governor of the Central Bank, who was expected to regulate and supervise banking operations to ensure stability of the system. The recent revelation of serious distress in five banks is testimony that CBN’s control and supervision was mainly done on the pages of newspapers and the electronic media.

The following is the full text of the article “Banks and Fraud Incorporated” in which we warned of the dangers ahead:
“The subject of this week’s piece will take off from the concluding paragraph in this column last week. In this vein, we reproduce below an excerpt from a report by Senior Correspondent Sanya Adejokun published in the Daily Independent of September 23, 2005 titled “CBN to Sanction Banks over Fraudulent Accounts”

“Central Bank of Nigeria (CBN) has threatened to sanction banks caught submitting different financial statements and accounts for the same trading year after the consolidation exercise.

“CBN’s Deputy Governor, Financial Sector Surveillance, Tunde Lemo, who made this known, also vowed to blacklist external auditors conniving with the banks to prepare doubtful (statements) or accounts.

“Lemo said that at the opening of the 11th Annual Bankers’ Conference organised by the Chartered Institute of Bankers of Nigeria (CIBN).
“He pointed out that the apex bank was aware of the preparations of three different financial accounts by banks for themselves, regulatory authorities and shareholders.

“”The CBN is prepared to curb the practice of keeping different financial accounts by the banks. The regulatory authorities would also ensure that auditors who connive in the preparation of these accounts are not engaged by other banks. In fact, we would ensure that the auditors are blacklisted” Lemo stated”

“The importance of the above report must be very disturbing to all well meaning Nigerians! It is common place in this country to read about the fraudulent indulgences of various grades of bank employees in their official capacities, and the attendant financial losses suffered by their employers. There are also reports of several of such staff who have been successfully prosecuted and jailed for their inability to control their sticky fingers!

“A case of financial impropriety by the bank establishment itself is a different kettle of fish and only a few indiscreet and very careless promoters have been arraigned before the courts and even fewer still have been convicted in the recent past.

“The banks have nonetheless been fingered for a series of financial impropriety ranging from round tripping of foreign exchange, money laundering and misappropriation of depositors funds. In these instances, it may be possible to pin the various misdemeanors to the doors of specific individuals who hold key positions in each bank, but it may not be easy or appropriate to claim that such malpractices formed an integral part of a particular bank’s corporate philosophy. Indeed, the promoters and owners of the banks may claim ignorance and may safely apportion blame to individual staff who had been overwhelmed by the motivation of greed or any other such human weakness!

“The issue of a deliberate presentation of false statements of financial trading accounts is fraud at a higher level; indeed, it is wholesale corporate fraud couched in and supported by a bank’s underlying corporate philosophy!

“Such a trend is more alarming and disturbing because of its negative implication on the financial market which forms the bedrock of the nation’s economy. The banking institution is based on ‘TRUST” which is a synonym for noble qualities, such as integrity, truthfulness, transparency, due diligence, etc, etc.

Trust is a sine qua non for the banking industry as air is to human life. Shareholders are willing to invest in banks and depositors are also willing to place their funds in the hands of strangers and monetary authorities also give banks the licence to create money over and above their depositors and shareholders’ funds because they all trust the banks would take good care of their hare earned funds and will play within tested and defined rules and limits prescribed by the regulatory authorities to ensure the existence of a stable and progressive economic environment.

“In this regard, the banks are expected to publish reports which represent true and accurate records of their operations within a given period for consumption by investors and assurance of its shareholders depositors and the regulatory authorities that they have adhered to due diligence and best practice. The importance of this requirement is underlined by the need for an external audit firm to inspect the books and confirm the integrity of the adopted accounting practices.

The prevalence of falsehood in the financial and trading statements of banks will have serious destabilising effects on the fabric of any economy ad it would be difficult to trust the banking institutions and shareholders will be unwilling to participate in the establishment of a banking enterprise; depositors will be unwilling to place their money in the hands of strangers and it will be foolhardy for the monetary authorities to give licence to a bunch of rogues to create money.

In other words, there will be no banks! If there are no banks, there can be no savings in a formal sense and consequently, there will be very little investment and by extension, there will be minimal economic growth in the country. It would be catastrophic to expect an economy consisting of tens of millions of people to be driven by the primitive instrument of trade by barter! The fabric of society will degenerate and we will quickly descend to Stone Age commercial practices!

“It is in the light of these horrendous consequences that we should be alarmed by the seemingly innocuous declarations by no less than the CBN Deputy Governor that the banks prepare three different financial statements; for themselves, the regulatory authorities and their shareholders.

In essence, this means that the information provided by the banks to enable both existing and potential shareholders and investors to make sensible business decisions are false! The implication of such false information on the stock values of banks and the integrity of the stock market itself can only lead to destabilization of the money market and by extension the larger economy.

“It is even more worrisome that the falsehood being churned out are in turn endorsed as accurate by ‘reputable’ audit firms who are expected to protect the interest of the investing public. What is, however, most disturbing in all the above is the apparent levity of the CBN in arresting the trend.

The Ministry of Finance had at some time last year accused the banks of colluding with political office holders to loot the economy through various instruments including the Irrevocable Standing Payment Orders, ISPO, forex round tripping, money laundering, as evidenced by the inflow of dubious money in the bank consolidation exercise and various other financial misdemeanors. However, in all these, the perpetrators have almost always gotten away with a slap on the wrist and a timid warning of go and sin no more or at worst, the threat of fire and brimstone next time around!

“The CBN Deputy Governor’s remarks at the recent 11th Annual Bankers’ Conference appears to fit the old pattern of the regulatory authorities’ reaction to malpractices in the banking sector; a lot of huffing puffing laced with sound and fury but sadly signifying nothing! So long as perpetrators of financial malpractices and indeed of any type of criminal behavior go unpunished, as is currently the case with high profile offenders in this country, the greater will be the motivation to undermine the values of trust and security in our body polity and the closer we will move to the borders of anarchy!”

All articles cited can be found at www.geocities.com/lesleba SAVE THE NAIRA, SAVE NIGERIANS!


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