FRCN vs Stanbic IBTC: Regulatory rascality and economic development

The recent saga between the Financial Reporting Council of Nigeria (FRCN) and Stanbic IBTC, a subsidiary of South Africa-based Standard Bank Group, Africa’s largest bank by assets, over alleged misstatement of the latter’s financial accounts readily calls to mind a puppet show. FRCN is a government parastatal which by law is empowered to ensure accuracy and reliability of financial reports and corporate disclosures, give guidance on issues relating to financial reporting and corporate governance to professionals, protect investors and other stakeholders, among other duties.

On September 2, 2015, Jim Obazee, CEO of FRCN, addressed the media and told the world the agency was investigating disclosures made by Stanbic IBTC in its financial statements dating back to 2011. Obazee, according to the reports, stated that the investigation was in response to a petition written by shareholders of the bank, which drew its attention to some unapproved transactions entered into by Stanbic IBTC Bank. The said shareholders, under the Trusted Shareholders Association, it was reported, wrote the petition because they claimed Stanbic IBTC Holdings had been warehousing billions of naira “in an account since 2011 for the credit of its controlling shareholder, Standard Bank of South Africa, as payment for franchise and management fees without prior approval by NOTAP (National Office for Technology Acquisition and Promotion), which is mandatory”.

Surprisingly, on October 26, 2015, FRCN suspended two key officers of Stanbic IBTC from signing financial statements for what it called “regulatory breaches” and directed that the company withdraws and restates its financial statements for 2013 and 2014. FRCN reeled out a number of infractions allegedly committed by the banking group in the presentation of its annual reports from 2011-2014 and called on the CBN and EFCC to take further actions as appropriate. The body said the suspensions would remain in force “until the investigation as to the extent of their negligence in the concealment, accounting irregularities and poor disclosures in the said financial statements is completed in accordance with Section 62 of the Financial Reporting Council of Nigeria Act”.

The manner of the suspension by FRCN, the hastiness of it and the total disregard for guidelines and procedures paint a picture of a hurriedly conducted investigation and poorly communicated findings. This makes an independent but interested observer like myself wonder if there is an underlying agenda or a prepared script FRCN seeks to prosecute. Why the haste to pass sanctions when it admitted investigation is still ongoing? Has the body done a thorough job? Indeed, knowing the accounting agency’s pedigree, it may not seem out of place to believe it does have a hidden agenda or some unseen hands pulling the strings.

The body is known to have been used in the past to whip a perceived political opponent in line. A recent celebrated case was the one involving erstwhile CBN governor, Lamido Sanusi. Sanusi had blown the whistle on an alleged missing $20 billion from the federation account and the FRCN was the attack dog used to intimidate Sanusi into keeping quiet. Sanusi ran to the courts for protection and, not surprisingly, eventually got judgment against FRCN.

It is interesting to note what the trial judge, John Tsoho of the Federal High Court in Lagos, said about the accounting body in the Sanusi case: “Prejudice is very pronounced in the language of that document. The language of the briefing note (transmitted by the FRCN to the presidency) conveys a sense of the defendant (the FRCN) desperately goading the presidency to deal with the plaintiff (Sanusi). The plaintiff submitting himself for investigation (by FRCN) is like the cockroach finding itself in the midst of fowls. Such a cockroach cannot be innocent.” For a body that has taken on the role of judge, jury and prosecutor all rolled into one, to have prejudice thrown into that mix really destroys whatever credibility it may claim to have.

Indeed, FRCN’s body language in the current situation does not give confidence that a thorough job has been done. Is the body again “desperately goading the presidency to deal with” Stanbic IBTC to show it is working and thereby satisfy the lust of the unseen hands pulling the strings? Considering the anti-corruption stance of the current regime, this is a strong possibility. Nigerians would like to know if Stanbic IBTC is guilty of the allegations against it, and would like for it and whoever is culpable on its board to be appropriately punished, if found guilty. The economy cannot continue to tolerate corporate highhandedness and impropriety. No economy can grow that way. Similarly, no economy can grow if regulation and regulators are deficient in their duties and can easily be manipulated for cheap gains, which could give room to all manners of irregularities. The question of guilt could very easily be answered in a competent open law court, where contending parties are afforded the opportunity to present their cases.

Unfortunately, there is the real possibility that FRCN’s actions may jeopardize the chances of the truth ever coming out. In its haste, the body left some gaping holes in its investigations and eventual actions. For starters, the Trusted Shareholders Association and Stanbic IBTC are already in court over the same issue of unapproved transactions/misstatement of accounts. So, the question would be: shouldn’t FRCN be more circumspect in its investigations and or defer final decision till after a court pronouncement? Another noticeable hole is the fact that the accounting umpire flouted its own procedures in this matter. Regulation 21 of FRCN’s Directorate of Inspection and Monitoring Guidelines clearly states the need for FRCN and the company under investigation to ‘agree’ to a mistake in financial reporting before a revision or restatement is publicly announced. The regulation then, in 21 (i) and 21 (ii), outlines the procedure to follow.

While Stanbic IBTC continues to insist it has “fully disclosed and provided a true and fair view of its assets and liabilities, profits and losses, and its overall financial position”, FRCN hastily published sanctions on its site and ordered a restatement.

Meanwhile, Regulation 25 gives an indicted entity 14 days within which to appeal to the Technical and Oversight Committee of FRCN. One doubts if Stanbic IBTC had been given the 14-day grace; it was not stated by the accounting body. Again, Regulation 27 clearly states that FRCN “shall institute a legal action against the entity” if after the notification period the company still refuses to accept its judgment.

We then ask, what is the point of rules, regulations or procedures if they are never followed or obeyed? Unfortunately, the penchant by individuals and organisations in Nigeria, particularly government agencies, to circumvent rules and regulations has made economic growth and development a huge challenge despite the country’s abundant human and natural resources. In many instances, this penchant has also made it difficult for justice to be truly served.

The much-desired foreign direct investment and investors will understandably be wary of an economy or a system that does not seem to play by stated rules or is easily cajoled into bending the rules to favour certain interests. Nigerians must not be fooled by the current FRCN’s grandstanding. Every right-thinking person must look at the issues dispassionately.

Harold Odumosu

Odumosu is an Abuja-based economist, businessman and social commentator.