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The ongoing investigation by the Central Bank of Nigeria into some corporate entities and individuals refocuses attention on bureaux de change and their role in illicit financial transactions. Among other accusations against some gambling companies is one that millions of dollars were laundered through the BDC and other institutions. Although the full details of the investigation are not yet in the public space, the fingering of CDBs in so many corruption cases deserves swift action. With an economy reliant on imports, falling naira and reserves 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 institutions that enhance development. The freezing of bank accounts of some BDCs among the 38 companies and individuals coinciding with the resumption of direct sales of foreign exchange to retail foreign exchange outlets demonstrates the contradictory policies of the main bank towards this unbridled segment of the market. It suspended direct sales to CDBs in March following the COVID-19-induced lockdown and the naira slump against major world currencies, but has just resumed twice-weekly direct sales of US dollars to them. His stated goal of easing the pressure on the supply and strengthening the naira failed. Although the official exchange rate is N380 for US $ 1, it was available in the parallel market between N438 and N441 for US $ 1, despite the injection of $ 51.8 million into the market through 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 in jeopardy.” For many, this apocalyptic scenario is already imminent, as terrorists, bandits, ethnic militias, smugglers and industrial-scale treasury plunderers have a field day.
The CBN must put in order its rowdy currency management posture that features multiple official rates, distorts the market, denies the currency market to critical productive sectors and facilitates illegal arbitrage. A BDC generally buys and sells small amounts of currency for lower margins and, being cash-based, offers a great opportunity for money laundering. Therefore, regulators establish 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, strict enforcement should be a matter of national survival. The Brookings Institution estimated that Nigeria and three others, Ethiopia, South Africa and the Democratic Republic of the Congo, accounted for more than 50% of the $ 1.3 trillion of illegal exits from sub-Saharan Africa between 1980 and 2018. Nigeria issued the 30, 5% of the total. The Economic and Financial Crimes Commission also found that stolen public funds are often laundered through CDBs that flagrantly violate anti-money laundering regulations. Two operators are on trial in Abuja for laundering $ 1.6 million for smugglers, while in 2017 N448 million was recovered from the closed office of a fleeing BDC operator. In trading and fees, it is often difficult to distinguish between licensed BDCs and illegal money changers.
However, despite widespread abuse, the CBN has failed to control the BDCs. It is not for lack of strict rules or lack of awareness of the ravages. CBN Governor Godwin Emefiele admitted in March that the depletion of foreign exchange reserves was due in part to his direct sales to the BDCs. Nigeria, he lamented, “is the only country in the world that sells dollars directly to CDBs.” He said the BDCs had abandoned their original mandate to serve retail end-users who need $ 5,000 or less, to “become wholesale distributors to the tune of millions of dollars per transaction,” using false documentation to make mandatory weekly returns.
This is a self-indictment. The CBN and other agencies have a responsibility to stop the abuse. Rather than being a small-scale company, it is one of the most lucrative businesses in the country. After the CBN abandoned reforms that required CDBs to source foreign exchange independently and begin selling to them directly, their number jumped from 74 in 2005 to approximately 5,180 today with “close to 150” new requests received monthly.
Best rational, scientific and global practices should inform how the economy is run. The CBN must strictly enforce its rules; there should be a moratorium on the licensing of new CBDs. Violators of the rules face severe penalties, including criminal prosecution. The direct allocation of foreign exchange to CDBs to alleviate the current pressure must have an exit date, accompanied by strict monitoring and surveillance of how the allocations are used. Other countries crack down on financial crime: In July, Spain’s top criminal court imposed fines of $ 25.5 million on four former employees of the Chinese bank ICBC for laundering money for Chinese gangsters. China establishes 10-year jail terms for money launderers and a mandatory fine of 20 percent of the amount laundered. A group of launderers, including BDC operators, combined, pocketed 75 years in prison from a UK court in a £ 500 million illicit fund transfer case. Nigeria should not forgive its “launderers” as well.
The CBN and anti-bribery agencies must develop the institutional capacity to monitor, detect and enforce the rules, relying largely on the use of technological tools, which is at the heart of other economies’ success in reducing financial crime.
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