October 23, 2017 07.54PM / @ecopoliticsng / Editorial
The Biometric Verification Number (BVN) was conceived by the Central bank of Nigeria in order to improve the process of “knowing your customer” (KYC). This was introduced at the same time electronic banking was taking shape in the market; and it appeared natural to add biometric verification to consolidate on the steps taken as an “added” layer of proof, anti-corruption matrix and an enabler for the future development of digital banking.
The idea of finger capturing (biometrics) fused with a specific number created the spring board for unique customer identification.
This measure was not only critical to the future of financial services but was considered critical to the evolution of fintech and the improvement of regulatory oversight over funds movement in the economy; with a possibility of a link to the NIMC project along with others; all geared towards a universal KYC that would empower a quality service environment founded on actual accounts in a corruption free environment.
To make it seamless, depositors who had more than one account were simply required to link all their existing bank accounts with one BVN such that there will be no need for multiple numbers. This extended to accounts held by sole signatories of corporate accounts.
Over the last three years, we have seen how the biometric verification exercise has aided fiscal house cleaning, purging off ghost workers and has helped the trio of government, depositors and the banks themselves provide a better understanding of fund flow in the country.
In a largely illiterate
population, the slow-down in compliance (with varying figures) was understood
to be a function of the multiple factors associated with the nation’s financial
system; one that needed a major jolt to eradicate the following:
· Dormant accounts owing to a myriad of issues related to and arising from an evolving financial market place
· Customer/consumer awareness penetration bugged by scepticism and indifference by a largely rural/illiterate population
· Diaspora related accounts and clear logistics/time-frame issues
· Education, enlightenment and empowerment shortfalls.
The data on compliance, in the absence of actual data on existing records was not deemed an issue by us; given the notion that the supervision and investigation functions of the CBN was deemed a routine function. If the CBN felt that the rate of sign-on was less than expected, it had not only the processes but the authority to demand for a detailed explanation on such and a remedial course would have been created as part of its regulatory function; and more importantly, its knowledge of such a move as an anti-corruption facilitator within existing rules and laws.
The Court Order
Over the weekend, the news space was regaled with a court order emanating from a Federal Government (through the Attorney General) case filed in court on September 19, 2017, suing the Central Bank of Nigeria (CBN) and the Deposit Money Banks.
It was reported that on
October 17, 2017, the Federal High Court granted the Federal Government all the
nine relief(s) it sought for; asking that the 1st – 19th defendant banks
1. The Name of Accounts not connected to BVN
2. Account numbers
3. Their outstanding balances
4. Domiciliary location
5. Domiciliary account without BVN
6. Where they are domiciled
7. Disclosure of any investment made with funds
8. Withhold outward inflow of fund to such accounts
The court also ordered the banks to publish the names and identity of such accounts in the national dallies. In return individuals whose accounts are not linked to the BVN should come forward and justify why their funds should not be forfeited to government within 14 days.
While this seems rightly headed, it immediately, for a discerning mind, present a huge problem – none the least, its regard for the rule of law.
In all its pretentions to be a move about anti-corruption; obvious regard for the law, process, practice and procedure of commerce and civil engagement would appear to have been thrown overboard.
In the first place, the full list of all non-compliant accounts were not attached to the pleadings.
Second, the impracticability of processing the responses of all those who might be involved (in the absence of a proven case of “proceeds of crime”) who would have to approach the courts to file a sworn affidavit to identify their accouts make such a decision curious.
Third, the courts did not demand a proof to establish that the non-compliance with the BVN rule by the CBN (a defendant in this case) was a violation of the law of the land.
Fourth, it was never established that the CBN was derelict in its duties and complicit in compromising the efforts and work of other agencies in the fight against corruption, money laundering and improper accounts opening. If indeed, any of this took place, the onus was on the banks that opened and caused to be operated these accounts; to be liable for a violation of CBN rules; none of which was attached to the pleadings.
Lastly, in any society; especially one with a central bank operating under a legal mandate, the attempt by the government to take over this function must be nothing more than an attempt to usurp the role of the CBN.
These will appear to be no more than a fishing expedition by the Federal Government, whose mandate is the creation of wealth; not a hostage taker of wealth.
That there will be found instances of wrong doing, illicit funds kept in accounts and unidentified accounts is not a major discovery. The real discovery ought to be the explanations provided by the banks for facilitating such a criminal enterprise within the extant laws, rules and regulations upon which their licences were issued.
Possible Impact & Inference
Given that the BVN program preceeeded this administration and there appears to have been sufficient time given for compliance; it will be a clear disregard for the operational and market to assume that non-compliance is a fait-accompli on corrupt motives.
This is a fallacy and an exaggerated assumption with fatal consequences on policy formulation, execution and review.
The Federal Government, in media commentaries have indicated that whereas 30million persons have complied with the BVN instructions, there exists about 46 million accounts yet to be verified.
This is a significant sum up to an including the point where you realise that there is a probable 1:6 ratio of account holder to accounts held in a country that promotes multiple account holding. What happened to the existing laws around dormant accounts and how many years it takes to reach the forfeiture threshold…for starters? There are other extant laws that exist and are worthy of interrogation.
We would not even bother to argue about how irresponsible the 14 day provision for such to be rectified represents; given the obvious implication to deny that the responsibility for this has been either abdicated by the CBN or taken over by the Minister of Justice/Attorney General.
If the prosecutor can establish the number of unverified accounts; has at his/her disposal the DMBs and institutions of CBN and EFCC, yet is unable to make a determination as to which accounts are related to activities that may be considered “proceeds of crime”, we believe this is a red herring and a fishing expedition that has as an objective, anything but the compliance objective with a BVN mandate (an added layer of identity to the basic KYC required by banks).
While persons and entities continue to make a case for the diaspora, aged, rural population, illiterate and those who maintain a memorandum relationship with banks; we make bold that this is outside the FGN remit. The government may simply come out and say that it has lost confidence and regard for the CBN to manage banking relations and that would make a better argument.
In the absence of that explicit statement, we aver that the reason for creating the CBN, was precisely for this purpose and they should be given the necessary support to do their work.
The Nigerian public, like the FGN is desirous of finding out if the banks were complicit in creating accounts for unknown persons and entities and are eager to know the details of the 46million accounts referred to.
For a country that is in need of its diaspora population for both its remittances and investment, this knee-jerk move has the potential of shooting ourselves in the foot; especially for a sovereign that has experienced massive sterilisation of funds and just edging out of a recession.
The trend of uncoordinated, conflicting and duplicitous policies such as this particular one would impede on the nation’s remittances (diaspora), which will affect aggregate foreign exchange inflows into the economy.
The perception that a larger chunk of the 46million accounts are transitory for corrupt activities (proceeds of crime) could be wrong, and the consequences damning on the best intentions of government.
The advisers on this move may be motivated by a single analysis mind-set; as prosecutors and having faced multiple situations (which we acknowledge truly exist); they reasoned in a closed shop manner on the solution.
At the end of the day, the full brunt of such forfeiture will be felt by the lower end of the pyramid and such class, which has experienced erosion in their income compared to 2014, will cause dislocations in the economy. Moreover, in the prosecutors desire to establish their case, they would have to publish the names of individuals and entities involved and that would in itself violate the original purpose of the BVN.
Proshare have consistently frowned at every shade of corruption, either enabled, facilitated or processed and we firmly believe that the BVN project is critical to ensuring a means-tested and KYC led bank customer environment that aids the fight against corruption.
That said, we equally deride the bin approach of publishing customer details including that of debtors without cause; especially in an environment where security challenges exist.
Summarily, the effort currently underway undines the regulatory intent.
Who is the Regulator: CBN or the Federal Government?
BVN is an added requirement to the original “know your customer” requirement. It does not form part of the monetary laundering law nor is “de facto” law.
The Central Bank Act broadly recognises the role of the Central Bank as the financial regulator and indirectly confers on it the authority to promulgate and make use of such tools like the BVN, in its administration of the banking sector and support to related agencies involved in the fight against corruption.
Allowing the Federal Government to legislate on banking is an overlapping of authority and also an infringement of the Central bank’s authority.
What should have been done
It is trite to imagine that were such allegations of an existence of 46million unverified accounts to be true and verified, the courts should have been approached to direct and order the Central bank to take a proper audit of the accounts in question and provide explanations as to the non-compliance of its rules.
The request from the CBN will naturally include the nature of such accounts, transaction history, basic compliance issues, location, efforts to contact account holders, staff members invoved and discernable patterns that should aid not only a decision on forfeiture, but issues around practice and process including the requirements for validation for KYC which included utility bills in a country where there is no discernible utility provider except LASMA in lagos state and PHCN to a smaller extent (no meters hence no personal bills).
At a minimum, we must seek to avoid scenarios that could either be a distraction in the polity or create uncertainty for the entire populace as this announcement has done.
According to our economist, this particular incidence could end up being a distraction, thereby affecting output; albeit minimally given the resistance well documented about the move.
Evidently the interbank rate is already jolted by such decision as the open buy back and overnight rate rose by 135% and 148.3%, respectively at the end of the day.
We will be monitoring the activities in standing lending facility corridor over the next few days and review our position thereafter.
The possibility of experiencing a capitulation in the cycle due to on-going scenario is grim, avoiding such is in the best interest of the nation.
This move was not well thought out, conflicts with the best intentions of government and really is actiong out of depth. We agree that we have to act against unverified accounts, but we do not agree with this approach – a gunslinger mentality.
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