There’s too much unrestricted space in BDC subsector – Gwadabe

Aminu Gwadabe is the president of the Association of Bureau de Change Operators of Nigeria (ABCON). He tells NOSA IGBINADOLOR that not all BDCs in the country are involved in illicit practices

BDCs have been persistently accused by law enforcement agencies, including the police and the Economic and Financial Crimes Commission (EFCC), of colluding with bank fraudsters to launder proceeds of fraud. Is this true?

We are players in the financial system landscape, alongside banks, insurance firms and others, and this makes us vulnerable to fraud, money laundering and terrorism financing. There is nothing unique about this. Just like banks and other players in the industry, we have put in place and are constantly updating procedures and practices to help our stakeholders, especially our members, identify key threats to their businesses coming from fraudsters and help them mitigate these threats.

We have been working with the Central Bank of Nigeria (CBN), EFCC and Nigeria Financial Intelligence Unit (NFIU) and providing capacity-building training for our members to build their capacity to better position them to serve our customers. In 2019, over 4,000 BDCs were trained on Anti-Money Laundering and Countering the Financing of Terrorism, in a partnership between ABCON and the NFIU. The training focused on the obligation of registering and filing reports on the NFIU GoAML portal. The training we are constantly doing is meant to familiarise our members with the process of money laundering, the methodologies criminals use to disguise the true origin and ownership of illegal cash and the laws against it. The training also help BDCs to understand how to maintain a minimum standard of record keeping and ultimately increase the level of investors’ confidence in the economy.

It is therefore a misnomer to say that we are colluding with fraudsters. There are over one million unlicensed operators in the country and licensed BDCs are about 5,600. A lot of people transact business with these unlicensed vendors and then now say BDCs are fraudulent collaborators. It is not true.

Registered BDCs under ABCON access dollars from many independent sources, including walk-in customers, remittances and banks, and we should be given credit for ensuring that there is enough liquidity in the market. It is what has guaranteed the exchange rate remained relatively stable so far, and also helped to put many illegal operators of the business.
I am not saying that some BDC operators do not engage in illicit practices, I am saying that we should not generalise and lump every one of us together.

We will always support all measures that would lead to compliance with the Anti-Money Laundering and Combating the Financing of Terrorism, as well as support CBN’s exchange rate stability policies and security agencies to punish any BDC operator breaching corporate governance and compliance guidelines.

Read also: BDCs jump 75-fold on exchange rates attraction

In July 2020, a Lagos High Court convicted Abbas Mohammed and a BDC operator, Ibrahim Saidu Jogal, who connived to defraud Union Bank of N2.55 billion. The money was fraudulently credited into the accounts of mostly BDC operators. Last year, the Special Fraud Unit of the Police in Lagos arrested Femi Salau, who hacked the accounts of a first-generation bank and defrauded the bank of N1.868 billion. The suspected hacker, and his accomplices, two BDC operators, were arrested by the police special fraud unit. There are many such cases of BDCs’ involvement with bank fraud.

You are very right. As President of ABCON, I am not saying that there are no fraudulent operators among us. What we do when we find out these kinds of things is that we write to the BDC to explain the situation to us, and we work with the law enforcement agencies to get to the root of the matter. There is little we can do within the realm of enforcement, as we did not give any BDC any licence.

The reality is that there is too much unrestricted space in the BDC sector. There are a lot of players operating outside our umbrella and a lot of Nigerians patronise them. You see them on the streets every day. We cannot stop them from operating because to do so would be getting involved in the responsibilities of the regulators and law enforcement services.

Yes, we have an obligation to ensure that our members operate within the scope of the law and we do. Let’s also be realistic: the banks have a duty to know everyone that opens an account with them using the KYC. If they fail and they now blame us, is that fair? Fraud occurs in banks despite the KYC, yet nobody is raising an alarm. Why is the focus on BDCs? The BDC sector is very competitive. We compete against each other for customers and funds. If I refuse to buy from or sell to who I consider legitimate customers, other BDCs will. All manner of customers walk into BDCs daily to transact business. How do you determine who is a fraudster if they meet all the requirements expected?
So, the most important thing is that we will continue to meet our obligations and ensure the necessary compliance as required.

You talked about the exchange rate and compliance. On at least two occasions, the CBN governor has accused BDCs of abandoning the original objective of their establishment, which was to serve retail end-users who need $5,000 or less. Instead, he said, they have become wholesale dealers in foreign exchange to the tune of millions of dollars per transaction and that they use fake documentation to render weekly returns to the CBN. What is your take on this?

BDCs, by law, are small retail-end institutions licensed to carry on the business of selling Personal Travel Allowances, Business Travel Allowances, school fees and medical bills payment abroad, among other roles, at the retail end of the foreign exchange market. So, look at this situation and tell me how we are responsible for the pressure on the local currency. For years, we were accused by the CBN of being behind the falling exchange rate of the naira. CBN stopped selling FX to us in 2021 and said they would only sell to banks. Since then, the naira has fallen by several hundred percent. From about N500 when they stopped selling forex to BDCs, it is now about N620. So, how are we responsible for the weakness of the naira?
What is clear is that the CBN policy of stoppage of FX sales to BDCs has not only created higher demand pressure but also reduced the value of our national currency. We didn’t cause it. It is very clear now for all to see that the commercial banks authorised to sell forex to retail users cannot meet demands, because BDCs are the most effective tool for CBN’s foreign exchange rate management. The deliberate restrictions against BDCs did not make things better. It only made things worse. The CBN did. The facts are there for all to see.
The introduction of the I&E window was a result of activism from us. We advocated for it, so as to allow more dollar inflows into the economy to boost foreign reserves and raise confidence in the naira by addressing widening rate premiums.
The FX policy of the CBN has failed, and you cannot blame us for that.

As a player and leader in the industry, would you say the dual exchange rate policy of the CBN has been ineffective in managing the country’s FX strategy?

You cannot have both a floating exchange rate and a hard exchange rate at the same time. It sends wrong signals to investors and allows for round tripping, which allows some people to make so much profit doing nothing. We know how much cash that is being moved out of the country by air and by sea as a result of this.
This policy has not worked and the fact that the CBN still continues with it is unfathomable. There is a need for collaboration between the BDCs and the CBN in the implementation of market-friendly policies that would make the BDCs’ impact more positive on the market, and promote exchange rate stability in the economy. The truth is that what the market needs right now is stability and not necessarily a strong naira. If I want to pay my daughter’s school fees and I know that the dollar will still be N600 in December, I will not be running to buy dollars now, and therefore put pressure on the naira. I can wait for December to buy the dollar for my child’s school fees. There is too much pressure on the naira as a result of bad policies.
You cannot criminalise us for the imperfections and inefficiencies in the market. We do not make policies; we only operate by the policies.
The dual exchange regime has been an avenue for profit-making and has not met the objectives of the CBN. It should be scrapped.

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