Criminalizing banking on a whim

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(Last Updated On: 2016-05-31)

Companies 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 deposits and intermediate between the haves and the have-nots. In effect, they provide safe-custody for valuables, in this case mostly money, which they often refer to as deposit. They have performed this role for ages and are considered the engine of growth in any economy, given their financial inter-mediation role.
Since banks’ deposits are liabilities to third parties and because of their relevance in economic growth, the business is regulated by authorities like the Central Bank and the Nigeria Deposit Insurance Corporation (NDIC). In effect, when these banks run foul of the law, they are dealt with by the regulators, which have rights to sanction them and, on the extreme, withdraw their licences.
In effect, banks apart from answering to shareholders and customers, answer to the regulatory authorities of the Central Bank of Nigeria (CBN) and the NDIC. They are also answerable to the judicial system where they can be sued by any party seeking redress for rights violation.
The recent raid of banks by the Economic and Financial Crimes Commission (EFCC) in search of campaign funds of the recent past administration bring to the fore the question of whether taking deposits in their line of duty makes 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 fraudulent deposits 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 run on 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 its claims and allow the regulators to investigate the issue before making a public show of the incidents.
In most serious economies, the banks could sue for redress as their operations were put to ridicule since most of the deposit transactions were reported, hence the final acquittal of those detained.
As is the norm, Nigerians are wont to celebrate the fall of institutions rather than preserve and strengthen the institutions. We have never heard of Swiss bank officials being detained for taking deposits on behalf of their banks or from other developed economies.
However, with this development, regulators are clearly going to pay more attention to 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 for 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.

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