BUFFETED by recession and a battered national currency, Nigerian authorities are finally beaming the long-delayed searchlight on the activities of Bureaux de Change operators. For long identified as major conduits for money laundering and foreign exchange round-tripping, the BDCs have nevertheless enjoyed a seemingly charmed existence, protected by the peculiar interplay of corruption, political patronage and elite interests that define our national experience. It is time to reform and rein in errant operators in this segment of the financial services sector.
The Central Bank of Nigeria appears to have suddenly woken up from its slumber when its Governor, Godwin Emefiele, recently thundered that the country squandered $66 billion of its reserves in the 11 years to January 2016 partly through direct foreign exchange sales to BDCs. In January, President Muhammadu Buhari had alleged that the BDC business in Nigeria had become “a scam and a drain on the economy.” Add this to the continued stream of reports and court testimonies of how, in violation of all laid down regulations, highly politically exposed persons and their allies had been using the bureaux in the industrial scale stealing of public funds.
The BDC saga reflects the Nigerian story: what works efficiently elsewhere becomes an albatross here. BDCs are typically currency exchange businesses which buy and sell small amounts of currency. Worldwide, they serve travellers and small businesses and individuals as an important segment of the forex market. Located at banks, travel agencies, transport hubs, airports, rail stations and large markets; they make their profits by selling at a higher exchange rate than official sources, subject to government foreign exchange regulations.
But they have run haywire in Nigeria. Before a series of reforms culminating in the banking consolidation of 2005/6, the distinction between BDCs and black (illicit) market operators was often very thin and formal registration as a BDC was sometimes just legal cover for illicit currency trafficking. Reforms were introduced to instil order and eliminate the ubiquitous vendors standing at street corners and at airports, selling major world currencies at much more than the CBN exchange rate. The reforms did reduce black market operations substantially and, for some years, the band between the official exchange rate and BDC rate was not too wide, especially when banks were allowed to own BDCs.
But things have gone bad again: on Monday, when official selling price was N305 to $1 and manufacturers could not access dollar at the deposit money banks, it was available at N460-490 to $1 at the BDCs.
Buhari had complained that government and CBN officials were using surrogates to front BDCs to which they channelled forex at official rates, only to sell at exorbitant rates, effectively starving the industrial and infrastructure sectors of forex for raw materials, machinery and spare parts. Emefiele thereafter stopped direct allocation of CBN-supplied dollars to the BDCs. A circular in June ordered BDCs to raise their capital base to N35 million minimum after the CBN noted that some operators registered multiple BDCs “with the sole aim of buying foreign exchange multiple times from the CBN window for profiteering purposes.” By reselling forex without regard to the CBN and the inter-bank rates, the BDCs, among others, have been used to defeat reforms aimed at significantly narrowing the differences between the official and parallel markets as obtains in well structured jurisdictions. In their defence, the Association of Bureaux de Change Operators of Nigeria, however, say they provide crucial services as alternatives to black markets and employers of labour.
We support the CBN’s effort to check the increasing dollarisation of the economy, but lay the blame at its and the government’s door steps. The regulators have failed to institutionalise a very effective monitoring and sanction system. How do they explain the movement of truckloads of cash in naira and dollars by launderers using banks and BDCs without detection or severe sanction? The United Kingdom jailed a couple 19 years in 2014 for laundering £145 million through their London BDC. One Usama El-Kurd had a year earlier also been jailed nine years for similarly laundering £170 million for criminals, using his BDC. Here, the 20 BDCs whose licences were suspended in 2014 for failing to file returns on the use of forex are yet to be prosecuted. Some BDC operators have been testifying in corruption cases and others cooperating with the law enforcement agencies on how their BDCs converted billions of naira, well above their approved ceilings and without filing reports as required by law.
The CBN should promptly revoke the licences of those BDCs that have been found to facilitate such criminality while law enforcement should prosecute them. The UK government’s tightened rules on money laundering, requiring stricter reporting by banks and payment institutions, have led to mass closure of BDCs and money-transfer shops since 2012, London’s Telegraph newspaper reported. BDCs have had a good run here because it is the rich and powerful that launder large sums of money through them.
Henceforth, BDCs should operate in line with global best practices. CBN should discourage direct allocation. Instead, BDCs should target other sources for foreign currency such as remittances from the Nigerian diaspora. Of the $600 billion global remittances by migrants to their home countries, Nigerians abroad sent $20.8 billion home in 2015, the largest in Africa and the sixth largest in the world, as reported by the World Bank’s Migration and Remittances Factbook 2016. The CBN should tighten its regulatory screws as well as build institutional capacity to enforce its rules on BDCs and the banks found to be complicit in diverting forex and in laundering funds.
The game changer will be mustering the political will to punish crime. Politics and selfish interests get in the way because of ethnic considerations. Buhari and Emefiele should act now and ensure diligent monitoring, enforcement and prosecution of offenders.
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