As part of efforts toward stemming money laundering in Nigeria, Central Bank of Nigeria (CBN) on Tuesday called for enactment of law that will prohibit operations of ‘shell banks’ across the country.

Shell banks are unlicensed financial institutions that carry out activities.

Godwin Emefiele, CBN Governor, gave the charge at the opening of two-day public hearing organised by House Committee on Banking and Currency on a bill to amend the Banking and Other Financial Institutions Act (BOFIA) and other bills, held in Abuja.

He said the shell banks, apart from being used for money laundering, distort the banking system and pose as major problems to the regulatory agencies.

Emefiele who was represented by Johnson Akinwumi, CBN’s Director, Legal Services Department, said: “we wish to propose the introduction of new subsections 3(6 and 7) for the proscription of shell banks in response to the latest recommendations of the Financial Action Task Force (FATF) on money laundering to read:

“Any bank or its subsidiaries without physical presence in the country where it is incorporated and licensed and is not affiliated to any financial services group that is subject to effective consolidated supervision shall not be allowed to operate in Nigeria and no Nigerian bank orbits subsidiaries shall establish or continue any relationship with such bank or subsidiary,” he observed.

The apex bank also sought for additional powers to revoke licences of banks and inject funds into a falling bank by way of equity participation up to a level that guarantees control by CBN.

The additional powers, according to the director is to enable the CBN acquire equity investment institutions and its ability to ensure a sound financial system.

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“Without prejudice to the provisions of subsection 2 of this section, and notwithstanding the provisions of section 34 of the CBN Act or anything written law or any limitations contained in the memorandum and articles of association of any bank, the bank shall have power at any time to acquire the shares of any bank up to a level that guarantees its control by the Bank and management of the bank.

“Provided that the Bank shall dispose of such equity investment in the bank, when it is satisfied that the state of affairs of the bank concerned has improved”

The CBN also backed the House of Representatives in imposing stiffer penalties and terms of imprisonment of certain offences on erring commercial banks and their staff.

However in his presentation, Belema Taribo, Director of legal/board secretary for Nigeria Deposit Insurance Corporation (NDIC), opposed the proposed fines saying they were too high.

“The NDIC as a deposit insurer supports the passage of the bill into law as the current fine of N1,000 does not meet contemporary realities. However, it is our submission that the the proposed penalty of N200,000 is above N100,000 percent increment from the current penalty. In view of the above, we propose a fine of N5,000.”

On the issuance of licence, NDIC proposed that CBN should seek the consent of NDIC before granting any application for banking licence.

“This is to enable the corporation have a prior evaluation of the applicants with regard to insurance of deposits,” Taribo stated.

Speaking earlier, Jones Onyereri, chairman, House Committee on Banking and Currency, explained that the proposed increase in penalties to the bank operators would streamline the operations of such banks to conform to international best practices.
According to him, one of the objectives of the Bank and Other Financial Institutions Act, 2004 was to instill financial discipline into Nigerian banks and other financial institutions and to protect the public deposits. It is the mandate of this House to provide a financial system that is anchored in a viable, strong, accountable, reliable and transparent banking and currency regime.
“The aim is to pursue measures that would prevent banking failures – hence operators and regulators would be required to match authority with responsibility.”
According to him, “one of the problems that continue to plague our banks is the issue of non-performing loan assets of banks, AMCON was formed to address this challenge and save our banks and the financial sector from collapsing.
“Billions of public funds were pumped into this exercise to save the banks. Unfortunately, this ugly practice continues to persist and continues to be a significant threat to our financial sector. The banks have become complacent – believing erroneously that AMCON will always be there to bail them out.
“Given this problem, it has become imperative for the House to tackle head-on this persistent threat to the banking sector by non-performing loans. The issue if non-performing loans has been attributed to the high incidences of insider transactions in our banks. Insider transactions continue to pose serious risk to our banks.
“One of the reasons for this, in my opinion, is the lack of stiff penalties in the current BOFI Act, which are not in line with current realities and what obtains in other climes,” Onyereri noted.
In the bid to checkmate the infractions within the system, the lawmaker stressed the need to reduce the maximum tenure of Bank CEOs and Board Chairman to 10 years at a time.
Some of the penalties in the 70 proposed amendments to the BOFIA Act 2017 include: a fine of N20 million on banks that fail to comply to the conditions of the licence, a fine of N20 million on any director that fails to declare any property he/she owns that runs contrary to the Act.
“A fine of N10 million against a director or manager that fails to keep a book of account and a fine of N2 million on banks that fail to publish its annual report of its general meeting in two reputable national dailies among others”
While declaring the public hearing opened, Speaker Yakubu Dogara said the House opted for stiffer penalties of millions of Naira as fine for commercial banks which engage in illegal deduction of spurious charges on customers accounts domiciled in such banks.
In his keynote address, Speaker Yakubu Dogara who was represented by Chukwuma Onyema, House Deputy Minority Leader, noted that the process of lawmaking was dynamic noting that bank customers have not stop compiling of spurious charges on their accounts.

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