How AFC Made $60m From Round-Tripping CBN Funds | Independent Newspapers Limited
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How AFC Made $60m From Round-Tripping CBN Funds

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Posted: Oct 19, 2016 at 7:13 pm   /   by   /   comments (0)

By: Henry Boyo

Media reports, in July 2008, confirmed that the Presidential Committee which probed allegations of $480 million which CBN invested in African Finance Corporation (AFC) had completed its investigations.  The Presidency initiated the Committee to address government’s unease with regard to the role played by CBN Governor, in the formation and funding of AFC.  After what appeared to be a painstaking worldwide audit exercise, over three months, the Committee Chairman, Tunde Ogunshakin, disclosed that CBN’s equity contribution was actually $462.923m.  The panel’s report, however, condemned the CBN Governor, Professor Chukwuma Soludo’s appointment as “Chairman of the AFC in his personal capacity, as a clear violation of Section 9 of the CBN Act 2007 which bars principal officers of CBN from holding any office by virtue of their respective offices.”

The erudite scholar may also have overplayed his hand in the withdrawal of the said $462million investment in November 2007 without bringing President Yar’Adua into the picture.  Indeed, the Presidential committee alleged that Austin Ometoruwa, the AFC’s CEO was arrested for allegedly “shuffling funds around without due process”.  Furthermore, it is plausible that all six investor banks which also contributed about $551m equity in AFC may also have been some of the beneficiaries of CBN’s unusual placement of $7bn in 14 Nigerian banks a year earlier.

The Investigative Committee similarly condemned the apparent sourcing and use of funds by AFC, and confirmed that CBN’s equity was funded with income from sale of government treasury bills. Furthermore, the committee’s report noted that all AFC funds were invested in money market instruments in Nigeria, but described the manner of operation as round-tripping at best and money laundering from a criminal perspective.

Curiously, Nigerian’s commercial banks’ have continued to post bountiful returns from the very profitable shenanigans from the risk free venture of lending to government, money that the same CBN and other government agencies earlier deposited with them.  Regrettably, the service charges for such borrowings, which sole purpose is to reduce the level of systemic excess money supply and hold back inflation, may exceed N800bn in 2008.

Conversely, however, the Investigative Committee revealed that instead of sterilising the excess funds from use, to restrain inflation, unexpectedly, part of these funds was actually inappropriately diverted into funding the AFC.  The begging question therefore is, since AFC’s equity was denominated in dollars, how did CBN obtain the foreign exchange equivalent for the ‘stolen’ Naira? Invariably, CBN must have gone into the forex market with a horde of over N50bn (enough capital base for two banks) to source the dollar equivalent from Bureau De Change (BDCs).  It is inexplicable that, CBN with it’s over $60bn reserves would descend to the ‘humble’ BDC to re-purchase dollars at parallel market rates, to fund its equity in AFC.

So, we have an idea of how AFC funds were consolidated; but the question is how were these funds applied and what benefits did Nigerians derive?  Well, in an open letter published in the media, Austin Ometoruwa, the recently suspended CEO of AFC, confirms that the “AFC … sought to optimise earnings … by investing part of its short term naira instruments, thereby taking advantage of higher domestic naira interest rates versus those for US dollar deposits”.  See Vanguard pg. A3 4/8/2008.    In plain language, this implies that AFC dollars purchased with Naira income from government’s Treasury bill auctions, found its way back to the black market, where, it was again converted to naira, presumably, through collaborative banks and BDCs; thereafter, the resultant naira sums were then used to purchase CBN treasury bills with average yields of 10% compared with less than 1% paid on such risk-free instruments abroad!

Consequently, the AFC with Soludo, as life Chairman and CBN Governor would invariably become major beneficiaries of increasingly higher interest rate regime in Nigeria, despite the pain from the excruciating burden of such interest rate level on SMEs and the real sector.  Thus, it would be against the interest of Prof. Soludo’s AFC, if the problematic systemic Naira liquidity surplus can be minimized to bring down interest rates. I have maintained that the adoption of dollar certificates for payment of dollar allocations to government will tame the rampaging ghost of excess liquidity and strengthen the naira, but again, such salutary results would certainly not favour the parochial interests of the AFC and its founders.

If the EFCC finds nothing wrong in all this, it would have done disserve to its image as a financial crimes fighter. The Indictment of United Bank for Africa, in a criminal case in the United States, as a party to this scam of round tripping attracted a penalty of $15m fine on the Nigerian bank and subsequently actually also compelled the follow-up investigation by the special committee set up by President Yar’Adua.”

The above is a summary of this writer’s “AFC, ROUND-TRIPPING AND EFCC”, an article published in the Vanguard Newspapers on August 8, 2008.

Regrettably, despite the recognition of the obvious collusion between some banks and the CBN Governor in the above scam, nothing more was heard about this case.  However, revealingly, in March 2009, newspaper publications of beneficiaries of CBN’s forex sales confirmed that AFC, which the Presidential Committee identified as the brainchild of Professor Soludo made a remittance of $60m in two instalments of $30m. The advertised purpose of these remittances was the AFC’s repatriation of the proceeds of their investment in money market instruments; the transaction evidently corroborates the testimony of Austin Omeruwa, the erstwhile AFC CEO, who, according to the panel also prodigally “stayed in a hotel for more than a year at a cost of $1000/day”. Ometoruwa had voluntarily, we recall, revealed in an open-letter published in the media that AFC found the market for federal government bills and bonds, with its high interest rates, as the most profitable investment around”.

Coincidentally, the CBN Governor who also doubled as AFC Chairman at the time was also responsible for determining the higher rate of return on government instruments, despite its adverse impact on manufacturers, employment and the increasingly oppressive debt burden on Nigerians!  I think the Igbo’s have a saying about the freedom of the man who has both the yam and the knife in his hands to slice the yam in his own favour.

Although late President Yar’adua may have without prior conviction, inexplicably pardoned Soludo’s financial indiscretions for initially unilaterally establishing AFC, however, it would be fairer reparation if this pardon did not exclude the return of the $60m, which the corporation remitted as proceeds from round tripping government funds.


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