The Federal High Court in Abuja granted a request by Attorney General of the Federation, Abubakar Malami, for a temporary forfeiture of all funds held in Nigerian bank accounts not linked to a Bank Verification Number and whose ownership could not be absolutely identified, according to multiple news reports citing court documents. The Nigerian government also plans to seize funds held in bank accounts without sufficient know-your-customer (KYC) credentials. No estimates have been made, but it is widely believed that billions of naira remained trapped in unlinked bank accounts since 2015 when the Central Bank of Nigeria ordered banks to stop attending to new enrollees. The order followed an originating motion of notice filed by Malami on behalf of the Nigerian government on 28 September, and granted by Justice Nnamdi Dimgba on 17 October. All nineteen banks across the country have fourteen days (lapses on 31 October) to advertise accounts without a BVN in national newspapers, during which owners of such accounts are required to show cause why the money should not be forfeited.
BVN: Revolutionising banking through safety, preventing identity theft and driving inclusion
On 14 February, 2014, the CBN launched a bank verification number scheme whose stated aim was to revolutionise the country’s banking and payment systems, curb illegal banking transactions and consequently reduce fraud in the banking system by recording fingerprints and a facial photograph of customers. In a note accompanying the release, the regulator said the BVN is designed to address issues such as: a) ensuring the safety of depositors’ funds; b) avoiding losses through the compromise of personal identification numbers; c) preventing identity theft; d) checking fraud; and e) include illiterate persons in the banking system.
In June 2015, the CBN gave bank customers a thirty-three day deadline to enrol in the BVN scheme. It was subsequently extended the deadline till the end of that year while exempting customers of other financial institutions regulated under Nigerian banking rules. On 23 October, 2017, the federal government has asked CBN to extend the BVN requirements to account holders in other financial institutions, which includes microfinance banks, a policy which the regulator said it planned to do in August and September. Furthermore, the apex bank announced that with effect from 1 January, 2018, all customers without BVNs linked to their accounts will no longer be entitled to debit and other ordinary financial operations.
According to the website of the Nigeria Inter-Bank Settlement System, there were 97.57 million bank accounts in the country as at 28 February, 2017, the last month for which data is available. Of this, 30.37 million are dormant, with 67.2 million accounts listed as active. The financial shared service says BVN enrolment has only been complied with by about 76.9 percent of those accounts, data showing that 51,721,961 accounts are linked to a BVN, leaving about 15.5 million non-BVN linked bank accounts. Clearly, in all of this, there is no prescription of forfeiture of monies due to customers not having done BVN.
The shaky legal standing of a strange policy
Nigeria is a federal republic whose government and legal system is rooted in the tenets of presidential democracy enshrined in a Constitution that guaranteed key human rights and freedoms, one of which is the right to retain possession of personal property unless under specific circumstances. Section 44 (1) of the Constitution of the Federal Republic of Nigeria 1999 as amended provides that “no movable property or any interest in an immovable property shall be taken possession of compulsorily and no right over or interest in any such property shall be acquired compulsorily in any part of Nigeria except in the manner and for the purposes prescribed by a law that, among other things (a) requires the prompt payment of compensation therefore, and, (b) gives to any person claiming such compensation a right of access for the determination of his interest in the property and the amount of compensation to a court of law or tribunal or body having jurisdiction in that part of Nigeria.” The Interpretation Act defines the term “law” as meaning “any law enacted or having effect as if enacted by the legislature of a State and includes any instrument having the force of law which is made under a law.” The law, therefore, seems to empower the government and its institutions with the power to requisition private property pursuant to a subsisting law, under a clear legal process and subject to the supervision of the courts.
The new BVN enforcement policy has been sold as a means to rein in corruption, officially a crime under at least five federal statutes. Nigeria’s criminal justice system is fundamentally ordered around the core principle of the presumption of innocence, that a person is presumed innocent until proven guilty by a duly established court of law pursuant to Section 36(5) of the Constitution. Thus, it would seem that the forfeiture of monies in non-BVN lined bank accounts amounts to a reversal of a legally and constitutionally guaranteed presumption; that is, that any account holder who does not possess a BVN is presumed to have either committed a crime or is hiding the proceeds of criminal activity, the penalty of which is permanent forfeiture of money.
A third point on the legal front to note about the import of the judge’s order is that the BVN policy is simply that, a regulation; one that appears not to have the backing or force of any law. There is no known piece of active legislation or one currently under consideration at the National Assembly that incorporates the BVN policy. The CBN is, however, statutorily permitted by Section 51 of its establishment statute to “make and alter rules and regulations,” and Section 55 the Banks and Other Financial Institutions Act as amended 2002 to “make regulations … to give full effect to the objects and objectives” of those laws. The absence of any substantive legislation on the BVN policy means that there is no law which spells out a punishment or penalty for not linking a bank account to a BVN. S36(12) of the Constitution is to the effect that no Nigerian “shall not be convicted of a criminal offence unless that offence is defined and the penalty thereof is prescribed in a written law, and in this subsection, a written law refers to an Act of the National Assembly or a Law of a State, any subsidiary legislation or instrument under the provisions of a law.”
The ex parte motion does is not a substitute for criminal proceedings as it violates the constitutional right to defending oneself in a court of law and hence cannot form the basis of a conviction, a prerequisite to such an action.
The enforcement mechanism of this regime is also in murky waters on procedural grounds. The court documents seen by many sections of the national press and by SBM Intelligence, state that the originating ex parte motion was made by Attorney General Malami before the court pursuant to Section 3 of the Money Laundering (Prohibition) Act 2011 (MLPA) as amended which requires all financial institutions and ‘designated non-financial institutions to identify customers “using identification documents as may be prescribed in any relevant regulation.” Crucially, the MLPA does not prescribe any penalty that involves the forfeiture of any bank deposits save it has been found by a court to be “the proceeds of a crime or an illegal act.” Also, there is no specific penalty for financial institutions and designated financial institutions for not enforcing the provisions of Section 3, only a blanket provision in Section 20(2) that the Federal High Court “shall have jurisdiction to impose any penalty provided for any offence under this Act or any other related enactment,” a legal loophole which is not closed by the aforementioned fact that Section 3 has no specific penalty attached to it. The MLPA does permit a director of investigation or an officer of the Ministry of Industry, Trade and Investment, the Economic and Financial Crimes Commission or the National Drug Law Enforcement Agency to “inspect the books and records of financial and designated non-financial institutions” to “confirm” compliance with the law.
A final point to be made is that the application was made by way of motion ex parte (or without notice), where the banks were added as respondents to the suit but not given advance of its existence, as well as the owners of millions of non-BVN linked accounts, a development that is sure to set alarm bells ringing through the financial system and beyond despite a subsisting motion of notice which the affected banks ought to have received advance notice.
The economic costs of nationalising depositor funds
We believe that it is symptomatic of the FG’s funding problems that they are willing to go this far. What bothers us now is “what next”?
The government’s rationale for this new push is to target potentially stolen or misappropriated funds stashed away in the country’s banks by persons who would not submit themselves to the rigorous open disclosure regime of the BVN. We had predicted in our 2017 outlook that “prosecutorial agencies will exhibit a trend where they interpret their establishment laws to arrogate new powers to investigate and prosecute targeted politically exposed persons.” While this case does not involve the expansive interpretation of an establishment legislation, it is keeping in line with the spirit of the federal government’s aggressive enforcement of its vaunted war against corruption.
However, reading between the lines, the reason for the move on accounts without BVNs is less about fighting corruption, and more about looking for funds. This will have the unintended consequence of increasing uncertainty about government policy, and what moves the government will take when issues arise.
It is very important to note that banks do not own the funds in question. The funds belong to the depositors, and as a result, the banks do not have a right under the law to effect the forfeiture without conviction of the owners of the funds. The financial system runs on trust and the government’s action breaks trust in the system. The potential therefore is achieving the direct opposite of what the BVN regime’s stated goal of financial inclusion. Depositors will come to the conclusion that if the government can take over their monies without them having their day in court, it is perhaps safer to keep their funds outside of the financial system, a potentially paradoxical development considering that one of the stated goals of the BVN policy is to help drive financial inclusion. The lack of trust in the financial system has the potential ultimately to lead to a run on the banks.
A forfeiture on the basis of the current order will open up the banks to a myriad of potential lawsuits. This, coupled with the potential impact on bank liquidity means that the critical loans and advances that the private sector needs will become even scarcer. Nigeria’s economy desperately needs to enter an expansionary phase and the private sector should be at the forefront of this. Moves such as the new enforcement policy will create unneeded economic handicaps.
Investor funding is the alternate source that the private sector can look to for funding. But in an atmosphere where property rights are insecure and people fear that the government can, and will go to any lengths to expropriate private resources to fund itself, investors are sure to shy away and take their money elsewhere. It is well known that the government needs to shore up its revenue base, as it is racking up huge deficits and debt service to revenue ratios continue to climb. It is therefore not a long shot for investors to interpret moves of this nature as one from a desperate government which has refused to cut its own costs, seeking to expropriate private funds by whatever means to keep funding its bloated recurrent expenditure outlay.