How bureaux de change aid bank fraud in Nigeria
Officers investigating bank fraud and other financial crimes in the country are worried over the principal role bureaux de change (BDCs) in the country play in supporting bank fraud and in the laundering of illicit proceeds.
Earlier this year, billions of naira were stolen from one of the commercial banks in the country by fraudsters who hacked the account of the country’s major telecommunications company (telco).
Investigations by BusinessDay revealed that the monies were moved from the account of the telco into predetermined private accounts set up within the bank, from which they were then evacuated using primed ATM cards in other banks. These accounts, BusinessDay found out, were set up within the bank because the account of the telco did not allow for interbank transfer.
The bank, part of a financial services holding company headquartered in Lagos, had its system, including its main server compromised by the hackers who then hewed off about N10 billion from the telco’s account into a dozen arranged accounts within the bank. To do this, the hackers had modified the limits on transfers from a dozen accounts to unlimited transfers and were then able to relocate the monies from the funded accounts in the compromised bank to hundreds of accounts in different banks across the country.
The bulk of the funds was transferred by the fraudsters into the accounts of dozens of BDC operators in Lagos, Abuja, Ibadan and Kano to procure mainly the United States dollar and other foreign currencies.
Defined by the Central Bank of Nigeria’s (CBN) Revised Operational Guidelines for Bureaux De Change in Nigeria 2015 as a company that is licensed to carry on small-scale foreign exchange business in Nigeria and whose sole object is the carrying on of such business on a stand-alone basis, BDCs have become the major suppliers of foreign currencies to individuals and small businesses.
“The long processes, complicated forms, and poor service quality from the commercial banks created huge opportunities for the BDCs in Nigeria,” a 2020 Stears report said.
Anti-money laundering regulations state that every BDC keeps proper registers and records of all transactions for transparency and compliance with Anti-Money Laundering Provisions, CBN guidelines, circulars, or directives. Furthermore, the arrival amount sold to or bought from a customer should be issued by a BDC through a machine list or receipts.
Most BDCs do not adhere to these rules and are hardly sanctioned by the CBN.
“BDCs have become essential to major bank frauds in the country,” a senior official at the Economic and Financial Crimes Commission (EFCC), with long years of experience investigating bank frauds and financial crimes, told BusinessDay.
The official added: “We have found out that it is difficult if not impossible for hackers to steal banks’ customers’ monies on an industrial scale which they do without the support of BDCs.
“They can only evacuate huge amounts of monies out of the system using BDCs because if they have to use ATM cards only, they would not be able to get a tenth of what they get using BDCs.”
An earlier investigative report by BusinessDay showed that BDCs have become indispensable partners with fraudsters in major bank fraud operations. While the BDC operators do not originate any fraud operation, they serve as the most credible and practicable instruments for evacuating and laundering the scores of billions of naira hacked out of the banks every year.
In July last year, Godwin Emefiele, the CBN governor, announced that the top bank would no longer approve BDC licence applications and would also stop providing forex to the existing licensed ones.
The decision, he said, was premised on the Monetary Policy Committee’s observation of how BDCs had become wholesale dealers, conducting large FX transactions worth millions of dollars, above their sales limit of $5,000 per person.
Emefiele noted the astronomical rise in the number of operators from 74 in 2005 to 5,689 in June last year, implying the BDC business was very lucrative for the operators and was pushing Nigeria towards the dollarisation of the domestic economy.
Earlier in 2016, the CBN governor had decried the role played by BDCs in the mismanagement of the country’s forex system and the apex bank’s subsequent inability to maintain stability in that system.
He said: “In total disregard of the difficulties that the bank is facing in meeting its mandate of maintaining the country’s foreign exchange reserves to safeguard the value of the naira, we have continued to observe that stakeholders in some of the subsectors have not been helpful in this direction. In particular, we have noted with grave concern that Bureau de Change (BDC) operators have abandoned the original objective of their establishment, which was to serve retail end users who need $5,000 or less. Instead, they have become wholesale dealers in foreign exchange to the tune of millions of dollars per transaction. Thereafter, they use fake documentation like passport numbers, BVNs, boarding passes, and flight tickets to render weekly returns to the CBN.”
A source at the Nigeria Police headquarters in Abuja told BusinessDay that between January and June this year, tens of billions of naira have been stolen by fraudsters hacking accounts of mostly corporate and institutional customers.
“What is clear from the hundreds of cases we have been investigating recently,” he said, “is that there are still some of these BDCs that have been involved with these fraudsters innocently and end up being victims themselves. This can happen when a fraudster walks up to a BDC operator and tells him he has a transaction to make and requests the account number of the BDC in which hundreds of millions of naira, sometimes one billion naira, will be transferred to the account.”
“The operator will give the equivalent amount in USD, without knowing he is engaging in a fraudulent transaction. In such cases, the BDC operator will be arrested when the fraud is uncovered, because the money was transferred directly to his account from the bank by an authorised person,” he added.
The longstanding relationship between bank fraudsters and BDC operators in the country is said to be undergoing a fundamental change. In the past, when fraudsters stole monies from banks and transferred a billion naira to a BDC or several BDCs, the negotiated payment formula ranged from 40 percent to 50 percent in returns to the fraudsters, with the BDCs taking between 50 percent and 60 percent.
BDCs take the biggest risks in fraud transactions, BusinessDay was told. “They have to be paid well because the BDCs will need lots of money to follow up the case in the event of arrest and investigations. It is not easy to find and arrest the brains behind the fraud. It is easier to trace the flow of money to the BDCs. The BDCs provide the final evacuation accounts for the big money and this can easily be traced to them by the Police or EFCC and when investigations start, they need money to handle the case with lawyers, and if necessary, to influence the investigative and judicial process,” a senior police officer said.
“What we are witnessing now,” the source said, “is that fraudsters no longer trust the BDCs to keep to their terms of the agreement. We have noted several cases where fraudsters hack banks, steal billions of naira, transfer large chunks to BDCs hoping to get between 50 to 60 percent of the monies in dollars but end up getting 15 to 20 percent from the BDCs. The BDCs know that the fraudsters can do nothing about it. They know the fraudsters need them more than they need the fraudsters.”
An executive member of the Association of Bureaux de Change Operators of Nigerian (ABCON), who spoke to BusinessDay under anonymity in Abuja, said that despite the fact that the association was doing everything possible to stem the trend of fraudulent transactions emanating from these fraudsters, “there seems to be a very strong cabal within the association that specialises in this trade”.
In July 2020, a Lagos High Court convicted Abbas Mohammed and a BDC operator, Ibrahim Saidu Jogal, who connived to hack into the flexible database of Union Bank and defrauded it of N2.55 billion. An investigation had shown that the said money was fraudulently credited into the accounts of mostly BDC operators, including one Jaxmine BDC, Gona BDC and Great Well Communication.
Last year, the Special Fraud Unit of the Police in Lagos arrested Femi Salau, who hacked the accounts of a first generation bank and defrauded the bank of N1.868 billion. The suspected hacker, and his accomplices, two BDC operators, were arrested by the police. Salau was arrested over alleged use of software to create fictitious credits totalling N1,868,900,000, which he deposited into the accounts of the BDC operators.