The Central Bank of Nigeria’s ongoing investigation of some corporate bodies and individuals redirects the spotlight on Bureaux de Change and their role in illicit financial transactions. Among other allegations against some betting companies is one that millions of dollars were laundered through the BDCs and other institutions. Although the full details of the inquiry are not yet in the public space, the fingering of the BDCs in so many corruption cases deserves a swift action. With an import-dependent economy, the naira and reserves falling and a “fantastically corrupt” public sector, tightening and strictly enforcing regulations in the foreign exchange market should be a national priority.
The CBN has been inexcusably weak in enforcing its own rules, reflecting how politics, sectionalism and elite interests fuel corruption and prevent the emergence of strong development-enhancing institutions. The freezing of the bank accounts of some BDCs among the 38 firms and individuals coinciding with the resumption of direct sales of forex to currency-exchange retail outlets demonstrate the contradictory policies of the apex bank towards this riotous segment of the market. It suspended direct sales to the BDCs in March following the COVID-19-induced lockdown and the naira’s plummet against major world currencies, but has just resumed direct twice-weekly direct sales of the US dollars to them. Its declared aim of easing pressure on supply and firming up the naira failed. Although official exchange rate is N380 to US$1, it was available at the parallel market at between N438 and N441 to $1, despite the injection of $51.8 million into the market through the BDCs.
The World Bank identifies a convergence of corrupt funds, smuggling, terrorism and drug trafficking in countries that are lax in curbing money laundering. “The economy, society and ultimately the security of countries used as money laundering platforms are all imperilled.” To many, this doomsday scenario is already imminent, as terrorists, bandits, ethnic militias, smugglers and industrial scale treasury looters have a field day.
The CBN must tidy up its rowdy foreign exchange management posture that features multiple official rates, distorts the market, denies forex to critical productive sectors and facilitates illegal arbitrage. A BDC typically buys and sells small quantities of forex for lower margins and being cash-based, offers great opportunity for money laundering. Therefore, regulators make strict rules to guide their operations. The Financial Action Task Force, a global initiative, recommends processes across international borders to combat money laundering.
For Nigeria, strong enforcement should be a matter of national survival. The Brookings Institution estimated that Nigeria and three others, Ethiopia, South Africa, DR Congo, accounted for over 50 per cent of the $1.3 trillion of illicit outflows from sub-Saharan Africa between 1980 and 2018. Nigeria emitted 30.5 per cent of the total. The Economic and Financial Crimes Commission also found that stolen public funds are often laundered through the BDCs who flagrantly flout anti-money laundering regulations. Two operators are being tried in Abuja for laundering $1.6 million for smugglers while N448 million was in 2017 recovered from the locked office of a fleeing BDC operator. In operations and rates, it is often difficult to distinguish between licensed BDCs and illegal moneychangers.
Despite the pervasive abuse however, the CBN has not reined in the BDCs. It is not for lack of strong rules or awareness of the havoc. The CBN Governor, Godwin Emefiele, admitted in March that the depletion in forex reserves was partly driven by its direct sales to the BDCs. Nigeria, he lamented, “is the only country in the world that sells dollars directly to the BDCs.” He said the BDCs had abandoned their original mandate of serving retail-end users who need $5,000 or less, to “become wholesale dealers to the tune of millions of dollars per transaction,” using fake documentation to render mandatory weekly returns.
This is a self-indictment. The onus is on the CBN and other agencies to stop the abuse. Instead of being a small-scale enterprise, it is one of the most lucrative businesses in the country. After the CBN abandoned the reforms requiring the BDCs to independently source forex and started direct sales to them, their number jumped from 74 in 2005 to about 5,180 today with “close to 150” new applications received monthly!
Rational, scientific and global best practices should inform how the economy is run. The CBN should strictly enforce its rules; there should be a moratorium on licensing new BDCs. Rule breakers should face severe sanctions, including criminal prosecution. Direct allocation of forex to the BDCs to ease current pressure should have an exit date, accompanied by strict monitoring and surveillance of how the allocations are utilised. Other countries take strong action against financial crimes: in July, Spain’s top criminal court imposed fines of $25.5 million on four ex-staffers of Chinese bank, ICBC, for laundering money for Chinese gangsters. China spells out 10-year jail terms for money launderers and mandatory fine of 20 per cent of the sum laundered. A group of launderers, including the BDC operators, combined, bagged 75 years jail from a UK court in a £500 million illicit funds transfer case. Nigeria should not spare its “washer men” too.
The CBN and anti-graft agencies should develop the institutional capacity to monitor, detect and enforce the rules, relying extensively on the use of technology tools, which lies at the heart of the success of other economies in curtailing financial misdeeds.