Stanbic IBTC gives detailed response to CBN over fine

Tier two lender, Stanbic IBTC has responded to the Central Bank of Nigeria (CBN) over a N1.8 billion fine imposed on the bank for what it termed breach of Nigeria’s extant laws and forex rules when they facilitated illegal repatriation of funds to South Africa on behalf of telecommunication giant, MTN.

The bank had subsequently issued a notice denying any form of wrongdoing.

Here are the details of the letter to the CBN:

We refer to your letter with reference number GVD/GOV/CON/DGF/118/119 dated 28 August 2018, which was received on 29 August 2018.

Stanbic IBTC Bank PLC (the Bank) has carefully considered the weighty allegations and issues raised in your letter, and respectfully responds as follows: –

Your letter and the conclusions reached on the allegations contained in it are based on factually incorrect premises.

• At no time did the Bank use irregular Certificates of Capital Importation (CCIs) to make remittances on behalf of MTN Nigeria Communications Limited (MTNN) as alleged.
• On the contrary, all remittances were done with the knowledge and approval of the Central Bank of Nigeria, and in accordance with the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, 1995 and other extant Regulations.

In paragraph (i) on page 1 of your letter,

Your letter stated that “The shareholders of MTN Nigeria Communications Limited invested the sum of USD402, 590,261.03 in the company from 2001 to 2006”;

• It is pertinent to state that the twenty Certificates of Capital Importation (CCIs) transferred to our Bank by Standard Chartered Bank, which was in the above-quoted sum, were re-issued from existing CCIs that had been issued by Standard Chartered Bank to the original investors in MTNN. These CCIs were transferred to our Bank to facilitate the repatriation of the proceeds of the MTNN’s Private Placement, which took place in February 2008.

In paragraph ii on page 2 of your letter, a. Your letter stated that

“The investment was carried out through the inflow of foreign currency cash transfers and equipment importation, which was evidenced by the CCIs issued by Standard Chartered Bank, Diamond Bank and Citibank, out of which eight of the CCI’s totallingUSD377,216,508.30 were transferred to your bank by Standard Chartered Bank. Consequently, your bank repatriated the sum of USD929,051,331.83 as proceeds of divestment from the CCls valued at USD42, 704,408.61.”

• The factual position is that the CCIs transferred by Standard Chartered Bank Limited were duly transferred to Stanbic IBTC Bank PLC for the repatriation of the MTN Private Placement proceeds. The amount transferred was USD936,017,265.91, which was paid for by new investors and which represented the proceeds attributable to parts of the shares that were covered by the CCIs. This was done in consonance with the extant Regulations.

In paragraph iii on page 2 of your letter, Your letter alleged that “On account of the illegal conversion of the shareholders loan to preference shares (interest free loan) of USD399,594,146.00, the sum of USD8,134,312,397.63 was illegally repatriated by your bank and other banks on behalf of MTN Nigeria Communications Limited between 2007 and 2015.”

• The truth is that Stanbic IBTC Bank PLC was not involved in the conversion of the shareholder loans, nor did it carry out any amendments to the CCIs issued in respect of such loans to accommodate these conversions.
• The CCIs issued by and received from Standard Chartered Bank Limited indicated/reflected inflows that had been received for preference shares and made no reference to any shareholder loans.
• It should also be noted that the repatriations effected by Stanbic IBTC Bank PLC related to the sale of Linked Units (comprising ordinary shares and preference shares) by existing shareholders of MTN as well as dividends validly declared and paid by MTN, and the repatriations were effected on the basis of the CCIs transferred to us by Standard Chartered Bank which indicated that they had been issued in respect of investments in such ordinary and preference shares.
• Stanbic IBTC Bank PLC in effecting the said repatriations acted professionally and in line with the extant Regulations on the issuance of CCIs at all times.

In paragraph a, page 2 of your letter titled ‘Other Findings

Your letter alleged and stated that “Your bank falsely reported thirty-five CCIs valued at USD313,683,925.84 inappropriately as “other purchases” in your MTR 203 returns for February 2008 instead of “capital importation”.”

• On the contrary, the thirty-five (35) CCIs referred to were issued on the same day that the conversion of USD313, 683, 925. 84 to Naira occurred. At this relevant time (in 2008), banks were only required to render DTR203 to the Central Bank of Nigeria (CBN), which was a daily return.
• The other CCIs that related to private placement, and which were not issued at the same time as the CCIs under reference — (i.e. they were issued subsequently) were also classified as “other purchases” on a DTR203 but were later re-classified in our monthly returns. The fact that we promptly reported them to you of our own accord clearly showed that there was no effort or intention to conceal the information regarding these 35 CCIs.

In paragraph b, page 2 of your letter titled `Other Findings

Your letter alleged and stated that “Your bank issued eight CCIs of USD58, 359, 616. 67 in respect of foreign exchange sourced locally as shareholders loan. This constituted a contravention of the requirement of section 15 of the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, 1995 and Memorandum 20(1.3) (Ill) of the Foreign Exchange Manual, which stipulates that CCIs should be issued on capital imported.”

• Stanbic IBTC Bank PLC was not aware, at the relevant time, that the affected investors in the MTN Private Placement had obtained foreign exchange loans from local banks for the purpose of their investments. Like all Issuing Houses selling shares, our responsibility was to determine that we were dealing with bona fide citizens who were applying for shares of a monetary value that was not out of line with their known income and wealth profile.
• There is no mandatory requirement for Issuing Houses to investigate whether an investor borrowed funds or not. As far as we know, borrowing funds to facilitate an investment is a legitimate activity except in connection with the purchase of bank shares, where CBN had indicated that such should not be allowed. All that we were obliged to do was what every Nigerian bank always does which is to simply confirm an inflow of foreign exchange transferred by the investors to the Deutsche Bank New York account that received USD subscription monies to pursuant the Private Placement, which USD was thereafter converted into Naira for the sole purpose of making an investment in MTN shares.

In the paragraph, c, page 3 of your letter titled `Other Findings

Your letter alleged and stated that “Your bank issued eight CCIs for capital inflows in form of machinery outside the 24 hours regulatory requirement of receipt of shipping documents in contravention of paragraph 4.1.1 (IV) of the monetary, Credit, Foreign Trade and Exchange Policy Guidelines for Fiscal Years 2012 to 2013.”

• On the contrary, Stanbic IBTC Bank PLC acted in line with all known rules at the time regarding the issuance of CCIs on plants and machinery. We would also like to remind you that prior to the issuance of the CBN 2012/2013 Monetary Policy, there had been no clear directive that the CCIs issued for plants and machinery were subject to the 24-hour rule.

In the paragraph, d), page 3 of your letter titled ‘Other Findings

Your letter stated that “Your bank failed to issue a letter of indemnity to the CBN against double remittance in respect of twenty CCIs transferred by Standard Chartered bank to your bank as required under subsection 5(111) of Memorandum 24 of the Foreign Exchange Manual.”

• The non-issuance to the CBN with the specified indemnities was a direct result of Standard Chartered Bank’s protracted delay in issuing our bank with the required indemnities specified by Memorandum 24(5) ii of the Foreign Exchange Manual, which would have then formed the basis for our indemnity to the CBN. In this regard, it is of note that after a number of requests, Standard Chartered Bank, on 22 June 2016, eventually handed over the required indemnities.

In the paragraph, e), page 3 of your letter titled ‘Other Findings

Your letter alleged and stated that “Your bank repatriated dividendstotallingUSD905, 260. 20 in respect of CCIs illegally issued on the strength of locally sourced capital.”

• Contrary to this allegation, the USD905,206.20 mentioned in your letter relates to the dividend remittances processed on behalf of one of the investors that apparently moved funds (believed to be a loan) from a local bankfor the purpose ofinvesting in the MTN Private Placement.
• Stanbic IBTC Bank PLC was not aware, at the relevant time, that the affected investors in the MTN Private Placement had obtained foreign exchange loans from local banks for the purpose of their investments. Like all Issuing Houses selling shares, our responsibility was to determine that we were dealing with bona fide citizens who were applying for shares of a monetary value that was not out of line with their known income and wealth profile.
• There is no mandatory requirement for Issuing Houses to investigate whether an investor borrowed funds or not. As far as we know, borrowing funds to facilitate an investment is a legitimate activity except in connection with the purchase of bank shares, where CBN had indicated that such should not be allowed.
• All that we were obliged to do was what every Nigerian bank always does which is to simply confirm an inflow of foreign exchange transferred by the investors to the Deutsche Bank New York account that received USD subscription monies to pursuant the Private Placement, which USD was thereafter converted into Naira for the sole purpose of making an investment in MTN shares.