NIGERIA: CBN AND EFCC COLLABORATING ON BANKING

UNCLAS SECTION 01 OF 02 ABUJA 001742

SIPDIS

DEPT FOR AF/W, INR/AA, INL/AAE, INL/C

E.O. 12958: N/A
TAGS: PGOV PREL KCOR KRCIM EFIN
SUBJECT: NIGERIA: CBN AND EFCC COLLABORATING ON BANKING
INVESTIGATIONS

REF: A. ABUJA 1562

B. ABUJA 1290

C. LAGOS 358

1.(SBU) Central Bank of Nigeria (CBN) Assistant Director of
the Banking Supervision Department Udofia Obot told INLOFF
September 2 that the CBN will continue to audit all remaining
banks in order to rebuild confidence in the banking sector.
Obot, who has worked on money laundering issues for the past
15 years and served as member of the Presidential Committee
that created the Nigerian Financial Intelligence Unit (NFIU),
claims CBN Governor Lamido Sanusi wants to sanitize the banks
and undertake reforms to prevent another crisis in the
banking sector. Obot said he supported Sanusi,s decision to
inject 420 billion naira ($2.7 billion) from the CBN into the
five private banks under his &no bank will fail8 policy.
Once the public regains confidence in the banking sector,
Obot believed that capital markets and banking deposits would
return. Such actions would facilitate renewed growth that
would allow the banks to repay their loans with interest to
the CBN. Obot added the CBN will take care of the banks,
financial vitality, but additional efforts must occur to
force the boards of directors of banks to fulfill their role
in protecting depositors, interests. "There are clear
ethical issues in the banking sector that must be addressed,"
he declared. (Note: CBN Governor Sanusi announced that the
results of the audits for the remaining 14 banks will be
ready in October. According to the press, recapitalization of
eleven of the banks will require only 150 billion naira in
comparison with the 420 billion naira needed to recapitalize
just the first five banks that were audited. End Note.)


2. (SBU) According to Obot, the CBN has created a manual
on international best practices for conducting bank
inspections due to Nigeria's banking crisis. CBN planned to
use the new manual to train bank examiners placing greater
emphasis on the use of the CBN,s administrative sanctions
powers and the Economic and Financial Crimes Commission,s
(EFCC) prosecutorial powers to bolster banking supervision.
Obot believed this combination has already yielded results as
many debtors who had refused to pay back massive business
loans that were presumably obtained fraudulently, have now
approached his office for settlement as they recognized that
they could be taken into custody by the EFCC. (Note: Although
defaulting on bank loans is purely a civil matter, committing
fraud to obtain such loans is duly punishable under EFCC Act.
End note.) Obot added that EFCC will prosecute the debtors
and bank managers who have defrauded depositors and/or
mismanaged funds since they have no political cover.
According to Obot, EFCC Chair Farida Waziri appeared ready to
challenge her critics and &wants to prove that she is
capable8. Confirming that EFCC is working closely with the
CBN to recover lost funds, Obot cautioned that the judiciary
has served as the primary obstacle to EFCC prosecutions by
delaying cases and entertaining frivolous objections by
defendants. To overcome these obstacles, he advocated the
creation of &fast track8 Financial Crimes Courts system,
with special jurisdiction and judges trained in complex
financial matters. Ghana, he observed, has such courts which
should be feasible in Nigeria as well.
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NEED FOR CBN REFORM
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3. (SBU) Obot also advocated reform for the CBN itself.
Although many press reports have criticized CBN,s lack of
due diligence in providing banking oversight, Obot defended
the performance of his Banking Supervision Department, noting
that it had conducted examinations in the past year and
warned then-CBN Governor Charles Soludo and bank operators of
massive irregularities at certain banks. According to Obot,
the CBN took no action to address the irregularities, which
has resulted in the current crisis, and is primarily due to
collusion between bank operators and CBN banking supervision
regulators. To deter this type of collusion in the future,
Obot claimed he has encouraged current CBN Governor Sanusi to
establish limits on the tenure of the Governor and other
high-ranking CBN officials to prevent regulators from

ABUJA 00001742 002 OF 002


developing conflicts of interest with the banks they monitor.
Obot expressed confidence that Sanusi would implement these
recommendations, characterizing him as a strict, fearless
disciplinarian who has pledged to resign if the reforms
failed.

4. COMMENT: (SBU) Driven by CBN efforts to sanitize the
banking sector, the EFCC has recently shown greater activity
in investigating defaulters and bank managers. The EFCC has
reportedly recovered 45 Billion Naira ($290 million) from 90
accounts, representing roughly 41 percent of all outstanding
loans and six percent of the outstanding loan value but may
in overreached in certain circumstances in pursuing mere
defaulters who were not defrauders. EFCC Chair Waziri
relocated her offices to Lagos at the end of August to
presumably better monitor the investigations. The EFCC has
requested and obtained assistance from banking and financial
market regulators. Although, some press reports have
speculated that all of this is merely a charade to dupe the
international community particularly the United States, EFCC
officials reportedly want to resuscitate the organization,s
image on corruption by taking concrete actions, partly in
response to the Secretary's criticism of the organization
during her visit to Abuja in August. However, the true
benchmark of EFCC,s commitment to play its role in fighting
corruption will be the effective prosecution of bankers and
other individuals implicated in causing the current banking
crisis by doggedly pursuing allegations of collusion between
bank operators and CBN regulators. (END COMMENT)


5. (U) This cable was coordinated with Consulate Lagos and
cleared with LEGATT.
MCCULLOUGH