In New Sanction Regime, BOFIA Amendments Target Bank CEOs, Directors

• CBN, NDIC want banks’ powers to challenge licence revocation restricted

James Emejo in Abuja

In what could be a litmus test with far-reaching implications for banking administration in the country, a proposed amendment to the Banks and Other Financial Institutions Act (BOFIA) has targeted individuals, including chief executive officers, managers and directors of banks, rather than the institutions, in one of the stiffest sanction regimes to hit the financial sector.

The BOFIA Bill is designed by lawmakers to instil discipline in the banking and other financial services sector to protect public deposits, particularly against the backdrop of banking failures occasioned by insider abuses, corporate governance breaches and other unethical practices.
Also, the amendments seek among other things to prohibit the operation of unlicensed banks, Shell Banks, and significantly increase the amount of fines paid for infractions of the Act.
Details of the proposed amendments were made public by Chairman, House of Representatives Committee on Banking and Currency, Hon. Jones Chukwudi Onyereri, during a two-day public hearing on four bills, including one aimed at amending the BOFI Act.

The bills include an Act to Repeal and Re-enact the BOFI Act, 2004; a Bill for Act to Amend the Currency Offences Act, 2004; a Bill to Repeal and Re-enact the Foreign Exchange (monitoring and miscellaneous provisions) Act as well as a Bill for an Act to Establish the Nigerian Marine Development Bank.

The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, and the Managing Director, Nigeria Deposit Insurance Corporation (NDIC), Alhaji Umaru Ibrahim, described the proposed amendments to BOFIA as apt and long overdue, particularly in the incremental sanctions directed mainly at individuals rather than the institutions.
Emefiele said operators are often ahead of regulators because of the sheer financial power at their disposal and had often exploited loopholes in the BOFIA to perpetrate unwholesome activities.

He said penalties no longer served as deterrence to banks, knowing they could break the law and get away with payment of fines, which are nothing compared to what they stand to achieve by refusing to comply with established rules.
While cautioning, however, that increases in fines may not necessarily deter the banks from breaching regulatory guidelines, he expressed hope that the monumental increment in money penalties in the proposed alteration would ameliorate the situation.

Represented by CBN Director, Legal Services, Mr. Johnson Akinkunmi, the governor, also asked that the apex bank be granted reserved powers in the amendments to be able to take decisions to manage banks in times of crisis.
He said the reserve power would further enable the CBN powers to revoke licences of non-compliant financial institutions where necessary, while any challenge of such powers by affected banks in a law court will be penalised.
He said even if the affected banks go to court, it claims should be limited to damages, if it felt the revocation was done in bad faith- and not ask for reversal or restoration of the revoked licence.

But, the lawmakers feared that granting such express powers to the CBN could lead to abuses, a claim which Emefiele strongly denied, giving practical examples where though it could have taken harsh measures against some banks, but restrained itself in order not to send the wrong signal to bank customers.
The governor said there are currently legislative brick walls which bank operators capitalised on to perpetrate breaches.

Nevertheless, Onyereri said the mandate of the House was to provide a financial system anchored on a viable, strong, accountable, reliable and transparent banking and currency regime.
However, the NDIC boss, who was represented by the Director, Legal Services, Mr. Belema Taribo, said the power of banks to reverse revoked licences should be removed from the Act as the case is in other jurisdictions.
He said the banks could, however, challenge the revocation if done in bad faith- where only damages could be sought.
According to Onyereri, the BOFI Act amendment “bill seeks to increase the penalty for any violations of the provisions of the bill and make the penalties sufficiently punitive in order to deter corporate and individual misconduct”.

“This bill therefore, seeks to amend the BOFIA Act in order to among other things regular banking and other financial institutions by prohibiting the carrying on of such businesses in Nigeria except under a licence and by a company incorporated in Nigeria.
“The bills seeks to further increase the penalties for any contravention of any provisions of the bill.
“To streamline the operations of banks and other financial institutions in Nigeria to conform to best practices as obtainable in other climes.”

Specifically, he said: “Section 2 (2) of the bill imposes a penalty of not less than, N50 million and imprisonment of a term of not less than 10 years or both against any person that transacts a banking business without a banking licence.
“Section 5 (3) imposes a fine of not less than N20 million against any bank that fails to comply with the conditions of its licence. The extant law provided for a fine of N20,000.00.

“Section 5(4) provides for a fine of not less than N20 million against any director, manager or officer of any bank that fails to take reasonable steps to ensure compliance. With any of the conditions of the licence,” he said.
According to him, “Section 16 (2) imposes a fine of N20 million against any manager or officer of any bank who fails to disclose any personal interest in any loan or credit advance.

“Section 16 (11) imposes a fine of N50 million against any director that fails to disclose any interest in any property whether directly or indirectly owed that conflicts with his duties or interests as a director of a bank.
“Section 18 (8) provides for a fine of N50 million and five years imprisonment or both fine and imprisonment upon conviction of any bank officer that grants facilities exceeding 20 percent of the bank’s paid-up capital to persons/organisations without authority of the board.”

He said: “Section 22 (2) provides for a fine of N10 million against any director, manager or officer of a bank who fails to take reasonable steps to ensure that the bank keeps proper books of accounts with respect to all transactions of the bank and imposes a fine of N20 million on any director, manager or officer of a bank that wilfully caused a default by the bank in respect of the provisions of this section.
“Section 25 (6) imposes a fine of N2 million for every day a bank fails to publish on two daily newspapers, its detailed financial statements.

“Section 27 provides for the appointment, power and return of auditors and further imposes a fine of N50 million against any auditor approved under this section that contravenes the provision of this section and a term of imprisonment not exceeding five years on the partners if the auditor is a firm.
“Section 28 (5) imposes a fine of not less than N20 million on a bank that fails to provide the required books, documents or information required by a CBN appointed examiner and an additional fine of N2 million for everyday the offence continues.

“Section 44 makes provisions for the disqualification and exclusion of any individuals from management of banks and further provides that chief executive officers and chairman of a bank appointed by board of directors under such terms and conditions approved at the annual general meeting (AGM) shall not serve as a CEO or a chairman for a cumulative period of more than 10 years.”

The chairman added:”Section 44 (6) imposes a fine of not less than N50 million on any bank that contravenes the provisions of this section and a fine of not less than N50 million or imprisonment for a term not less than three years or both on any director, manager or any other officer of the bank who contravenes the provisions of this section.
“Section 47 imposes a fine of not less than N50 million on any bank that contravenes any provisions of the Act for which an offence or penalty is not expressly provided.

“Section 51 provides a fine of not less than N50 million on any body corporate that operates a specialised bank without a license and in any other case a fine not exceeding N20 million or imprisonment not exceeding 10 years or both imprisonment and fine.”

He said diligent efforts were being made to ensure that statutes address the exigences of time.
He said:” There exist the need for constant review of our law to meet with the realities of our times.
“This bill therefore, seeks to bring the BOFIA Act in line with best practices, provide for effective management of our banks and other financial institutions and make the Act current with the realities of our times.”