N14bn fraud: Banks look to EFCC to recoup funds

Michael Anan Onimisi, a software engineer, appeared before the Federal High Court, Kaduna, on October 13 and he pleaded not guilty to a charge of defrauding a Nigerian bank of N17.78 million.

According to a summary of the case filed by the Economic and Financial Crimes Commission (EFCC), Onimisi allegedly retained the sum of N17,785,010.75 from the commercial bank, “the funds he knew forms part of the proceeds of an unlawful act, and he allegedly developed a software to hack into the security measures of the bank to defraud it.”

Given the defendant’s plea, the trial judge thereafter adjourned the matter for hearing on the bail application and for commencement of trial. He also ordered that the defendant be remanded at the Nigerian Correctional Centre, Kaduna.

It is the umpteenth case the commission is prosecuting on behalf of banks and other financial services operators. It is also one of the few cases a bank admits that its systems were compromised and money stolen from the account.

BusinessDay reported previously that bank frauds had risen sharply in the past 10 months with an estimated N14 billion lost within the period. Also, the majority of the fraud cases have gone unreported, with the affected financial institutions preferring to go to the EFCC rather than the financial regulators, as stipulated in the guidelines for fraud.

Susan Fasipe, head of retail payment at Interswitch Group, highlighted two guidelines for fraud reporting. These are the NIBSS Industry Frauddesl SLA, which provides guidelines for the respective operators and the circular on Regulatory Framework for BVN Watchlist for Nigerian Financial Systems.

There are some incentives for choosing the EFCC, the top being the high chances of recovering most of the stolen funds. The commission announced that it secured a total of 3,785 convictions across all its commands in 2022. This represents a 70.5 percent improvement from 2021 when it secured 2,220 convictions. It also represents a 98.93 percent success rate in prosecution, given that the commission lost only 41 cases, representing 1.07 percent within the period. The commission said it recovered N134.33 billion, $121 million, and different amounts of pounds sterling, euro, and Japanese yen, among others.

Nevertheless, a chart by Transparency International (TI) showed that the EFCC has not been consistent with convictions. The commission crossed 1,000 convictions only in 2019, since 2010 when TI started tracking the rate. The peak was in 2022 when it hit over 3,000 convictions.

However, while the EFCC celebrated its 3,785 convictions in 2022, a report by the Financial Institutions Training Centre (FITC) found that there were a total of 67,878 cases of fraud recorded within the first and second quarters of 2022 alone. FITC’s institutional members include the Bankers’ Committee, which comprises the Central Bank of Nigeria (CBN), the Nigeria Deposit Insurance Corporation and all licensed banks in Nigeria.

A more recent report by FITC showed that a total of 12,356 fraud cases were recorded in Q1 2023, dropping from 11,679 cases. Data for Q1 showed that mobile fraud, computer/web fraud, and PoS-related fraud were the three most prevalent types of fraud, and this trend persisted in Q2 2023.

“The data reveals a significant 276.98 percent increase in the total amount involved in fraud cases during Q2 2023 compared to the previous quarter,” the FITC report said. “The sum increased from N2.58 billion to N9.75 billion. Likewise, for the amount lost, there was a substantial increase of 1125.03 percent from N472 million in Q1 2023 to N5.79 billion in Q2 2023.” In total, the banking sector lost an estimated N6 billion to fraud.

In Q4 2022, the banking industry reported 14,609 fraud cases compared to 12,553 cases in Q1 2023.

“Relying on the EFCC to handle these fraud cases is just a partial solution. The EFCC is well-equipped to investigate and prosecute crimes, but they cover a wide range of economic and financial misconducts, not just those specific to the financial sector,” said Olayiwola Osoba, vice president, marketing and corporate communications at Zone. “So while they may specifically prosecute individual cases, this doesn’t necessarily fix the broader systemic issues in our financial industry that make fraud a recurring problem. It’s like using a bandage for a wound that needs surgery; you’re treating the symptom, not solving the underlying problem.”

Under the Economic and Financial Crimes Commission Establishment Act, 2004, an individual, government or private organisation within and outside the shores of Nigeria may petition where reasonable grounds exist for suspect that there is an attempt to commit or an offence has been committed.

Lawyers who spoke to BusinessDay said there have been many cases where individuals petitioned the EFCC and the commission acted on the petitions. However, the same is not always the case when individuals complain to the CBN or the banks.

Read also: Mobile money boom spurs billion-naira fraud market

“A multi-stakeholder approach involving the CBN, commercial banks, fintech companies, and law enforcement agencies can facilitate better information sharing and more efficient investigations. The focus should be on developing secure channels for information sharing, much like the FinCEN Exchange in the US,” said Ashveena A, founder of Intemporel, an exclusive travel startup catering to high-net-worth individuals.

Adedeji Olowe, founder of Lendsqr, suggested that the existing reporting system is tedious and does not allow for easy reporting. He said the CBN, banks and NIBSS should make it easier for anyone to report fraud. “They would need to collaborate with the Nigerian Communications Commission (NCC) to make fraud so expensive for fraudsters that it becomes unattractive.”

According to him, the problem is the fact that a fraudster can move money around without consequence, even when there is no evidence that the money was earned legitimately. Making sure there are consequences would go a long, or making it so expensive to engage in fraud would also help.

“For instance, once implicated, a fraudster should be banned from all electronic transaction channels for one year to forever. The issue here is consequence management. When the authorities make the consequence for fraud expensive and damning, fraudsters will begin to borrow some sense,” Olowe said.