Ring-Fencing the Economy Through Ban On Illicit Financial Flows (

The prohibition of the acceptance of foreign currency cash deposits by deposit money banks announced by the Central Bank of Nigeria (CBN) last week will ultimately ring-fence the Nigerian economy against illicit financial flows as well as check the activities of economy saboteurs like foreign exchange speculators and money launderers, reports Festus Akanbi

The resolve of the Central Bank of Nigeria (CBN) to give an official stamp to the recent suspension of the acceptance of foreign currency cash deposits by money deposit banks couldn’t have come at a better time. Financial sector watchers who hailed the move at the weekend said the measure was expected to give relative relief at the foreign exchange market. The outright ban on the acceptance of foreign currency cash deposits by commercial banks by the CBN was to stem illicit financial flows. This followed the decision of commercial banks to either cap or ban such deposits a fortnight ago due to the unavailability of outlets that could absorb their cash.

A circular by Olakanmi I. Gbadamosi, CBN Director of Trade and Exchange Department, directed to all authorised dealers and the general public said, “The Central Bank of Nigeria has considered the recent statements by Deposit Money Banks (DMBs) concerning the large volume of foreign currencies in their vaults and the decision to stop accepting foreign currency cash deposits into customers’ domiciliary accounts as a welcome development. “Therefore, in its continued efforts to stop illicit financial flows in the Nigerian banking system which aligns with the anti-money Laundering stance of the Federal Government, the CBN hereby prohibits from the date of this circular the acceptance of foreign currency cash deposits by DMBs.

“For foreign currency cash lodgments made prior to the date of this circular, the account holder has the option to either withdraw his or her foreign currency cash or the Naira equivalent. For the avoidance of doubt, only wire transfers to and from Domiciliary Accounts are henceforth permissible,” the central bank statement added. A domiciliary account allows an individual or business to make transfers and save directly in British pounds, euro or dollars from within the Nigerian banking system.

Central Bank Governor Godwin Emefiele said last month that the naira, which has lost around 15 per cent against the dollar over the past year, with an official devaluation in November and a de facto one in February, was “appropriately priced” at its current level. The latest development came amidst reports that some desperate bank customers were moving their dollar cash to the neighbouring countries of Benin, Ghana and Togo to repatriate their funds to their various account overseas.

A market source, which gave the hint, said such an action was inevitable at a period when the Nigerian foreign exchange market is awash with excess dollars put at $1 billion by President of Nigeria’s Bureau de Change Association, Aminu Gwadabe. The flurry of activities at the market, which was exacerbated by the crackdown by the Central Bank of Nigeria on foreign exchange market speculators, combined to put currency traders on edge as the exchange rates at the parallel market fluctuated throughout the period.

Tumbling Rates Depending on which market one sourced his information from; different rates were dished out by currency traders as the prevailing exchange rates in the various parallel markets in the country last week. For instance, the naira was said to have closed at N209 to $1 on Monday in some locations in Lagos, while the rate was N216 per dollar in some markets on the same day. Whatever was the case, the current black market rate is a significant improvement compared with the N240 to a dollar the currency went for penultimate Friday and market watchers are optimistic that the current push for a moderation in the exchange rate is yielding fruits. “Banks are rejecting dollar deposits … they are not able to transfer excess liquidity to their correspondent banks abroad, which is restricting importers from using domiciliary accounts,” said Gwadabe.

The naira had weakened on the parallel market to as much as 242 to the dollar, on persistent dollar shortages. The central bank last month limited importers’ access to dollars on the official interbank market to buy a wide range of goods, in order to save its reserves. After the restrictions, importers bought dollars on the unofficial market and deposited them in their bank accounts for transfers abroad, Gwadabe said. But now banks are rejecting cash dollar deposits “due to large speculation on the currency,” the chief executive of First City Monument Bank, Ladi Balogun, said.

Pressure from Importers However the naira, according to market survey by Reuters, reversed its gains against the dollar on the parallel market on Tuesday on increased demand for the US currency by some importers, In a report based on market intelligence, the naira was trading at 224 to the dollar on Tuesday, weaker than 216 the previous day. On the official interbank market, the naira traded at 199 to the dollar, unchanged from the previous day and near the central bank’s pegged rate of 197. “We have seen increased demand for dollars again by some end users taking advantage of the gains recorded in the past few days,” Harrison Owoh, a bureau de change operator, said.

There was concern that the naira gain on the black market would be short-lived, triggering a surge in dollar buying. The naira had weakened on the parallel market to as much as 242 to the dollar last month, on persistent dollar demand after central bank month limited importers’ access to dollars on the official interbank market to buy a wide range of goods, in order to save its reserves. Nigerians had been celebrating the temporary improvement in the value of the national currency, which was attributed to the decision of banks to reject dollar deposits. Traders explained that there had been a surfeit of dollars in the bank vaults and the rejection of dollar deposits had seen an influx of forex into the parallel market, where most individuals and small businesses do business. However, by close of work on Monday, naira had fallen N215/$1, and by Tuesday morning the downward journey continued. Naira started the day at N220 and closed at N235 at most bureaux de change (BDCs) in Lagos, leading to speculations that the temporary appreciation was a bubble

As the foreign exchange market continues its volatility amidst a cocktail of policies by the regulatory authorities to put the activities of foreign exchange speculators and money launderers in check, it is certain that the current decision of banks to reject dollar deposits will eventually stabilise the market. Managing Director, Wema Bank Plc, Mr. Segun Oloketuyi, pointed out that banks were currently under pressure by some categories of customers, especially importers of some goods currently exempted from sourcing dollars at the official market because the door had been shut against them. According to him, these people are mounting pressures on banks to keep their idle dollars. He said, “People also go to the market because goods had been banned and it is pretty difficult to get things from the official market, so what they do is to change their money into dollars, dump them in the vaults of banks and immediately they say, I have put this money in my domiciliary account, help me wire it or send money to UK or to US. Now the money is sitting in your own vaults here, you are not able to pick that money and get them into your offshore account. If you don’t have much money in your offshore accounts, how will you be able to fund your account to be able to meet those kinds of demand?”

Removing Fuel Subsidy But the momentary reprieve felt in the foreign exchange market notwithstanding, Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, believe it will be impossible for the local currency to firm up appropriately until certain bottlenecks are removed by the current administration.

He argued that as long as the government is hesitant to remove subsidy on petroleum products, the heightened demand for dollars by the marketers, among others, will continue to haunt the economy. Rewane, however, raised the hope that the recent activation of Kaduna and Port Harcourt refineries will help reduce the pressure on fuel import with a corresponding reduction in the demand for the dollars by fuel importers.

On how banks are responding to the pressure by customers seeking to dump their dollars deposit on banks, Oloketuyi said operators are looking at the situation on a case to case basis. He said, “For instance, if a customer come and open a domiciliary account with me few days ago and come today and dump $200 million dollars in the account, and tomorrow he does the same, and then come two days after and tell me to move the money, then I will know that he is trying to achieve something, using the vehicle of the bank. If I see a pattern of behavior from a customer that doesn’t look reasonable, I may say sorry, I don’t want it because it is going to create service problem. It creates problems for the bank because if I don’t have enough in my offshore account to meet the demand, why do I want to offer that service to you. There is still a lot of instability in the foreign exchange market.”

Currency Trafficking Interestingly, various reasons have been given for the excess dollar supply in the country. From the apex bank came the warning to the banks to be wary of currency traffickers who may wish to use Nigeria as conduit for moving foreign exchange around in the global financial system.

The bank said the warning became necessary to let bank users know the several protocols on illicit fund flows now being used for money laundering, and terrorism financing both in Nigeria and around the world. The Global Financial Integrity, GFI, the international financial monitoring and assessment group, in a recent report ranked Nigeria as one of the 10 largest countries for illicit financial flows in the world.

The CBN said although it was yet to independently confirm details of the report that an estimated $15.7 billion of illicit funds go through the Nigerian banking system annually, saying it was important to warn Nigerians to avoid being used as a conduit for these illegal flows. “We note and applaud that in line with global best practice, Nigerian banks have started to curtail the acceptance of foreign currency cash deposits, much the same way as customers in other countries cannot just walk into banks and make foreign currency cash deposits without proper documentation,” the bank said.