MONDAY, 09 APRIL 2012 00:00       JOHN OMACHONU FINANCE EDITOR

http://www.businessdayonline.com/NG/index.php/banking-a-finance/35654-of-cashless-policy-money-laundering-and-moral-burden-on-banks

Initial disappointment and confusion  heralded the commencement of the cashless Lagos policy. This was occasioned by the return of third party cheques for what the banks regarded as ‘exceeding the limit’ of N150, 000. The policy, which has the banks as main drivers, may have placed some moral burden on the banks if revelations from the police pension funds are anything to go by.

Apart from the confusion, most customers claimed ignorance of the third party cheque limit of N150, 000, a development that has compelled customers to opt for electronic money transfer to evade what they regard as a ‘rip- off’ by the banks.

A memo from Diamond Bank to its customers which was pasted at its Amuwo-Odofin, Lagos branch reads, “Please be informed that the Central Bank of Nigeria (CBN) has released further guidelines for the cashless policy in Lagos on March 16, 2012, the following will now apply: “Third party cheques above N150, 000 cannot be cashed over the counter, but shall only be paid directly into an account and other banks’ cheques processed through the clearing house. You can make or receive electronic payments via any of our payment options example; Diamond pay, Diamond Online etc.”

Banks generally are to provide merchants with the Point of Sales Service (POS) terminals, customers with friendly and reliable internet banking system, advise customers on the most appropriate of the cash alternatives, among others.

Niyi Ajao, acting chief executive of the Nigeria Inter-Bank Settlement System, (NIBSS), posited that an efficient payment system would depend less on cash, and has great potential to grow the national economy; increasing sales and commercial activities, as more convenient payment options other than cash are now available to buyers; ‘no change’ no more a limiting factor for business transactions.

Also, velocity of money increases and this has multiplier effect on profitability, higher wages, higher employment and higher Gross Domestic Product (GDP). It has the potentials of reducing the volume of cash kept outside the banking system thereby providing banks with more liquidity for lending to the needy sectors of the economy at affordable rates and enhancing the efficiency of monetary policy in managing inflation and driving economic growth.

The policy is expected to reduce the overall cost of banking and payments thereby reducing bank charges, and bringing the benefit of banking services to more citizens.

Ajao said the direct cost of cash management keeps growing, saying that it is estimated to reach N192 billion in 2012.

So, the electronic payment instruments, which are considered as alternatives to cash management available to the investing public now include, cheque, bank transfer, either at the bank’s branch or internet banking system; same day interbank transfer (NEFT) and NIBSS instant payment (NIP). It could be through direct debit, including payment cards, such as ATMs, Mobile payment among others.

Raphael Eruba, managing director/CEO, Odysyl Venture, said the cashless policy of the CBN is affecting business people negative as they pay a lot of transaction cost. For instance, he said for every transaction done on POS, they are charged 1.25 percent. “They charge us for using POS and COT. The POS terminal contract is supposed to be free but the banks are charging money. It is not good for us business people,” he said.

Besides, he added that there was always a delay in receiving the money transferred into an account. This, he said, the banks have always attributed to network problem.

Another memo from another bank encouraging its customers for electronic transactions reads, “Dear valued customer, with a view to providing you with the most efficient and secure solutions available from bank, we introduced the Hardware Authentication Token for Internet Banking with the intention of eventually phasing out the email and SMS software tokens.

“Consequently, from July 1, 2012, we will discontinue the use of our email and SMS software authentication tokens for internet banking transfers. Further to this, the daily transfer limit using the software token has been reduced with immediate effect from Three Hundred Thousand Naira (N300, 000) to Fifty Thousand Naira (N50, 000) per day.

The Hardware Authentication Token is a more secure and efficient solution and we urge you to request one via internet banking or from any bank near you as it enables you transfer up to Two Million Naira (N2, 000,000) per day. There is no limit to the number of transfers you may make, so long as the daily maximum limit of Two Million Naira is not exceeded.”

But, while the new policy recognises the vital role of banks, current revelations seem to decimate the importance of the banks even as their preparedness for the policy is being questioned.

For instance, the Senate joint committee probing alleged scam in the administration of pension fund in the country on Tuesday insisted that seven banks’ chief executives must appear before it to explain their roles in the fraud.

The affected banks whose chief executives the committee asked for are First Bank, Skye, GTB, Fidelity, Union, Zenith and Diamond banks. Managing Directors of the seven banks and that of the United Bank for Africa had earlier been directed to appear before the committee on Tuesday.

Dan Okeke, UBA’s executive director, North, who appeared before the probe panel on Tuesday, however, said he could not confirm if the bank received an authorisation letter from the Office of the Accountant General of the Federation before it opened an account for police pensions to deposit N3billion last year; although, the bank had come out to say that the account with it had the authorisation of both the Finance minister and Accountant General of the Federation.

There is also the seeming crooked alliance between corrupt government officials and the banks which helps to facilitate illegal transactions for the former, which analysts say may be denying the Nigerian economy of much needed development and undermining the very purpose of governance, BusinessDay investigations reveal.

Indeed, the Senate joint committee probe also alleged fraudulent practices in the Police Pension Scheme, with certain individuals in the Abdulrashid Maina-led sanitisation team, conducting illegal transactions with some banks, to the tune of N127 billion; N88 billion; N38 billion and N10 billion respectively.

“This revelation clearly indicates lapses in the system which will have to be addressed,” says, Razia Khan, analyst with Standard Chartered Bank, London.

BusinessDay investigations also revealed that other funds such as the National Health Insurance Fund (NHIF), monthly allocations to states, ministries, departments and agencies, are sometimes placed with banks, to earn interest for corrupt officials, often at the expense of developmental projects.

Property business and capital market are not left out and banks have in recent times become major conduit pipes for collecting, moving stolen funds into various accounts, which are all at variance with the money laundering decree of 2011, and this is causing much disquiet in the industry, especially among the regulatory authorities, security agencies and audit firms.

For instance, the law requires the banks to report to the Financial Intelligence Unit of the Economic and Financial Crimes Commission (EFCC) transactions above N5million and N10million, by individuals and corporate organisations respectively. This is in spite of the fact that banks have bold inscriptions written in their banking halls, which state that they reserve the right to notify security agencies of transactions above N5 million and N10 million, by individuals and corporate organisations respectively, including any suspicious foreign transaction above $10,000.

However, with the ease with which corrupt government officials seem to navigate these laws and exploit the inherent loopholes to defraud the nation, most analysts are at a loss, as to the relevance of the regulatory agencies’ examination departments and the monthly, quarterly and yearly reports that the banks submit to the CBN.

At the end of the second monetary policy committee meeting for the year, held on Wednesday in Abuja, CBN governor, Sanusi Lamido Sanusi, warned that banks found involved in illegal transactions, as revealed by the ongoing Senate joint committee probe of the old pension scheme, would be appropriately sanctioned.

Sanusi said he had had talks with the minister of finance, on the matter and that the apex bank stands to work with the report, as soon as it gets to it, sounding strongly that banks indicted therein would not be spared.

He also disclosed that the CBN would send in examiners to the affected banks, to determine their extent of involvement.

But the EFCC would rather prefer to be silent on its seeming failure to act on the anti money laundering decree.

Following the revelations, questions being asked in the industry are the role of the Nigerian Financial Intelligence Unit of the Economic and Financial Crimes Commission (EFCC), which is supposed to monitor the banks; CBN that embarks on periodic audit of the books of the banks, Auditing firms that okay the financials of the banks before they are approved by the regulatory authorities.

The Act also stipulates that foreign transfer in excess of $10,000 must be reported to the Central Bank and the Securities and Exchange Commission (SEC) in writing within seven days from the day of transaction.

Indeed, some of the banks are being accused of assisting certain individuals of interbank transfers while in most cases funds are moved frequently from one account to the others, even non interest yielding accounts, all, to beat the provisions of the law.

In most cases, these monies are illegally kept with banks in connivance with bank officials even when the law requires the banks, for instance, to report to the Nigerian Financial Intelligent Unit of the Economic and Financial Crime Commission (EFCC).

The Nigerian Financial Intelligence Unit is the sole body charged with the receipt analysis and dissemination of financial intelligence in Nigeria. Financial intelligence comes primarily in the form of Suspicious Transaction Reports (STRs), and also Currency Transaction Reports (CTRs)

It draws its powers from the EFCC (Establishment) Act of 2004 and the Money Laundering (Prohibition) Act of 2004. The laws require financial institutions and designated non financial institutions to submit records of financial transactions to the NFIU.

But, analysts are of the opinion that the current development has the potential of eroding the confidence engendered by the reforms in the sector. Consequently, they decried the abandonment of the intermediation role of the banks to the current “quick money” syndrome.

“The current happening is an evil wind that is capable of eroding the confidence and undermining the hard won trust that is beginning to come back to the sector following the reforms by CBN,” an analyst said.

These developments have put more moral burden on the banks, particularly in their new role as major facilitators of the cashless policy.