CBN, BDCs and currency trafficking

CBN, BDCs and currency trafficking
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Some days ago, several media reports confirmed that two men were helping the Economic and Financial Crimes Commission operatives with information on how they came about $986,000 found on them at the Lagos and Kano International Airports respectively.  The duo, Nkem Sebastian and Alhaji Tasiu Kura, were apparently arrested in separate operations as they were about to board their flights to Dubai. Kura was nabbed with the sum of $700,000 in Kano while Sebastian was arrested with $286,000 in Lagos.

The two arrests, according to the reports, came barely 48 hours after the EFCC arrested 24-year-old Abubakar Tijani Sherif, whom the anti-graft agency described as a bulk money smuggler, with over $7m at the Murtala Muhammed International Airport, Ikeja Lagos, en route the United Arab Emirates.

In a related report, the EFCC noted that, “Globally, bulk cash smuggling is usually associated with proceeds of crime, where illegitimately earned funds are processed outside the banking system”.

Instructively, travellers leaving Nigeria are statutorily required to declare cash in excess of $10,000; however, under the provision of the Money Laundering Act, the onus is on the person making the declaration to explain the source of the excess cash and the reason for the export.

Incidentally, such arrests are not uncommon. For example, in December 2009, Mrs. Emem Etuk, Manager of the now defunct Bank PHB, was apprehended at the airport with about $3m, which she claimed was sourced from a Bureau De Change. She was alleged to also be the account officer for Akwa Ibom State Government’s account with Bank PHB.  Later in October 2010, a Nigerian family was also apprehended at a London airport with over £500,000.  In a statement on November 3, 2010, the incumbent Central Bank of Nigeria Corporate Affairs Manager, Mohammed Abdulahi, noted that the “CBN had been inundated with complaints from foreign countries that some Nigerian travellers indulge in cross-border transportation of large sums of foreign currencies in cash, and that the Nigerian Customs Service’s returns show that large amounts of up to $3 million cash had been taken out of Nigeria by individuals in single trips.”  (See Business Punch, November 4, 2010, page 15).

The more recent series of arrests confirm that currency smuggling and money laundering are still thriving businesses in Nigeria.  However, the CBN’s sanctimonious posturing may just have been a subtle form of image laundering for the apex bank, whose policies, ironically, liberally fund the foreign exchange sources for currency traffickers, smugglers and money launderers.

The truth, of course, is that the huge sums of money trafficked were most certainly purchased from the various BDCs, to whom the CBN regularly disburses hundreds of millions of dollars every month!  Indeed, liberal market dollar supply was one of the policy support instruments demanded by the IMF and the London and Paris Credit Clubs before Nigeria’s controversial debt exit, which fleeced over $12bn from our tattered pockets in 2006, in the name of debt relief.

Our monetary authorities had cleverly put a positive spin on this IMF directive, by suggesting that such free dollar supply would reduce the existing huge gap between the official and the Black market rates of exchange.  Although the Black market and the official rates are much closer, some analysts believe that the liberal supply of public sector dollars to BDCs for better exchange rate management may, in reality, be akin to smashing a cockroach on a glass table with a sledge hammer, when a less destructive repellant or insecticide could have been applied.

Incidentally, the difference between the two exchange rates continue to be between N5 and N10, a margin, which is still attractive enough to encourage underhand practices in the banks.  In successful economies everywhere, it would be apocryphal for public sector dollars to be liberally sold to BDCs, whose cash flows are traditionally derived from the itinerant tourist market.

The recent EFCC arrests suggest that the BDCs may have graduated from merely meeting the retail requirements of travellers to becoming hard-core suppliers of foreign exchange to major money launderers and smugglers!  In other words, the CBN’s ill-advised liberal dollar allocations have become a supportive tool for national economic sabotage.  For example, the near collapse of our industrial sector is partly the result of the porous inflow of contrabands from aggressive industrial economies.

Similarly, the motivation for money laundering and currency trafficking is facilitated by a free access to public sector dollars made available to the BDCs by the apex bank.  Ultimately, the adoption of IMF’s conditionality on liberal dollar supply to BDCs has evidently done more harm than good to the economy.  This much was made evident in the past, in several of our articles in this regar; see for example, “Banks and money laundering” in September 2009; and “Funding smuggling and money laundering from BDCs” in August 2011, at www.lesleba.com.

It seems paradoxical, therefore, that the apex bank, which has the mandate for engendering price stability and sustaining industrial regeneration and the promotion of increasing employment opportunities is actually the villain of our industrial and economic backwardness and the deepening poverty of our people.

It remains inexplicable that the IMF did not recommend that the issue of multiple exchange rates, a weaker naira, spiralling inflation and stagnant economy could be more benignly resolved if the CBN’s monopoly of the foreign exchange market is immediately dismantled.

Such a positive policy direction would transfigure our decrepit industrial climate and stimulate employment opportunities nationwide.  National debt accumulation would rescind and the banks would have no option than to aggressively seek the patronage of the real sector; the crowding out of the real sector by lucrative public sector borrowings from the banks would cease and inevitably, the cost of borrowing to the real sector would fall to the industrially supportive level of lower single digit rate of interest.  In addition, the welfare of the common man would become significantly enhanced by the stronger purchasing value of the naira in his pocket, as inflation rate plummets to lower single digit level.

Instructively also, fuel prices will tumble and the oppressive burden of fuel subsidies will evaporate,  as fuel prices collapse in consonance with a rising naira value, which would in turn create increasing purchasing power and demand for all income earners, particularly the poor.  Invariably, such increased demand would stimulate increasing industrial consolidation and create humongous employment opportunities, which would absorb the energies of our otherwise idle youth population and ultimately reduce the prospect of insecurity nationwide.