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How forex round-tripping landed some banks in CBN’s net

For serious infractions stemming from round-tripping, manipulating foreign exchange (forex) transaction rates and related financial crimes around forex by some banks, the Central Bank of Nigeria (CBN) has queried the affected banks.

Build up to the query revealed that the apex bank had detected the rate manipulations following the mandatory rendition of forex returns and compliance with anti-money laundering regulations.

Though the identities and exact number of the banks were not disclosed, a statement by the CBN admitted that some of the queried banks had manipulated forex rates. Others attributed the rate discrepancies to ‘formatting errors’.

Analysts say round-tripping a serious financial crime, has become more rampant after the CBN introduced the flexible forex policy which devalued the naira by over 40 per cent against the dollar. The policy shift created a huge gap between the official and parallel market rates.

Besides, about 20 to 25 per cent of the volume of forex traded in the country is from autonomous sources which always find their way into the parallel market through round-tripping.

As at Monday, the naira was trading at N306 to dollar in the official market and N498 to the dollar in the parallel market, thus soaring the urge of rate manipulation among banks desperately looking for free funds to boost their profits.

The apex bank statement had made it clear that “The commercial banks involved in providing inaccurate data have since been issued queries accordingly. Some have returned a response indicating that some of the figures were related to formatting errors which do not affect the true rates of the affected transactions.”

“The CBN neither allocates foreign exchange nor does it deal directly with bank customers adding that it also does not fix forex rates for transactions by individuals or companies.

“In line with our principle of transparency, we directed Deposit Money Banks (DMBs) to forward to us evidence of forex sale to end users and to advertise same in national dailies. Since the introduction of the new forex policy in 2016, we have published, monthly, the evidence of sale from DMBs, as received from the banks and without any alteration by us in the spirit of transparency. We have recently observed, however, that some DMBs forwarded inaccurate data, which were erroneously published and gave a wrong impression of disparate rates.

 “As the constitutionally authorised industry regulator mandated to manage the forex market, maintain external reserves and to safeguard the international value of the legal tender currency, we wish to state unequivocally that the CBN has a duty to perform and would not indulge in acts capable of discrediting the forex market,” it added.

CBN also explained that current forex policy was most transparent and not intended to benefit any individual or corporate body in anyway, stressing that “While we appreciate the concerns of stakeholders, we urge all concerned to verify information on matters relating to the bank and use our available channels to lodge their complaints.”

The CBN had been variously accused of preferential treatment and irregularities in the rates at which forex were obtained by some individuals and companies from banks under the new 60:40 foreign exchange policy. But the apex bank still maintains that it only prioritises forex sales to manufacturers, agriculture, plant and machinery and critical raw materials, among others.

This is evident in the CBN forex utilisation report last week which shows that it disbursed $1.07 billion to 4,328 manufacturers, power and other real sector operators for the procurement of raw materials, plants and machinery.