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Criminalising banking on a whim


bankCompanies must be punished when they do wrong, but the approach and methodology need to be straight and transparent

The role of banking is clear; to take deposit and intermediate between the haves and the haves-not. In other words, they provide safe-custody for valuables, in this case, mostly money, which they refer to as deposit. They have done this role for ages and are considered the engine of growth in any economy, given their financial intermediation role.

Since bank deposits are liabilities to third parties and because of their relevance in economic growth, authorities like central banks and deposit insurance corporations regulate the business. That is, when these banks run foul of the law, they are dealt with by the regulators, which have rights to sanction and on the extreme cases, withdrew licences.

In effect, banks apart from answering to share holders and customers, answer to the regulatory authorities of the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC). They are also answerable to the judicial system, where any party seeking redress for rights violation can sue them.

The recent raids of banks by the Economic and Financial Crime Commission (EFCC) in search for campaign funds of the recent past administration bring to fore questions as to whether taking deposit in their line of duty make banks culpable for criminal charges.

Though the EFCC has a mandate to check and prosecute financial crimes, the arrest, detention and questioning of bank chiefs in connection with suspected sleaze deposit smack of a clear breach of protocol as the regulatory authorities were not taken along. The approach was fraught with intent to punish some individuals without recourse to the impact of the action.

In many other climes, banks are mostly charged for negligence in the use of depositors’ funds. In this case, there was no inkling on the fraudulent use of the said monies lodged with the affected banks. What the EFCC did was the use of might to force itself on the banks, thereby disrupting the complete architecture of the banks’ operations as managing directors and executive directors were detained and questioned.

The action of the EFCC would have created a near ruin of the affected banks if not for the fact that the detained bank officials were immediately released and reinstated to their positions.

The EFCC procedurally would have approached the regulators, make their claims and allow the regulators to investigate the issue and or apply appropriate sanctions before making a public show of the incidents.

In most serious economies, banks could sue for redress, as their operations were put to ridicule since most of the deposit transactions could have been reported to regulatory authorities, failure of which would attract appropriate sanctions.

As is the norm, Nigerians are wont to celebrating the fall of institutions rather than preserve and strengthen them. We have never heard of Swiss banks officials being detained for taking deposit on behalf of their banks nor from other developed economies.

However, with this development, regulators are clearly going to pay more attention on the responsibilities of senior individuals in the banking industry. Directors and senior managers would therefore be well advised to take far greater personal regulatory obligations, while industry bodies like the Chartered Institute of Bankers of Nigeria and Bank Directors Association should have a role in producing clear guidelines to them as to just what their responsibilities are.

The EFCC and many other crime bursting institutions should also note that changing the culture of banks cannot come from the outside; it has to come from inside and from the top.

On criminal activities in banks, like fraud and other infractions, the CBN should note that while sanctions play a role in containing such vices, ultimately, it is the structural incentives in place within financial institutions which shape behaviour.
Omanufemeuse lives in Lagos

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