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13 Dec 2018

Revealed: The Real Reason Why CBN Sanctioned MTN, Banks

In March 2018, CBN’s banking supervision department opened investigations into allegations that the four banks were complicit in a string of illicit transfers on behalf of some MTN offshore shareholders between 2007 and 2015.

Findings in an extract from CBN report seen by PREMIUM TIMES showed MTN conspired with the four banks to repatriate billions of its profits from Nigeria, part of which were later returned to the country as imported capital by shareholders.

Details of the findings showed Standard Chartered facilitated the repatriation of about $3.45bn; Stanbic-IBTC ($2.63bn); Citibank ($1.77bn) and Diamond ($348.9mn) over the period.

But, the purported imported capitals were recorded in MTN’s books and the banks’ as ‘new investments’ imported into Nigeria in the form of cash inflows and equipment.

MTN claimed the ‘investments’ were in accordance with its shareholders’ agreement reached at its board meeting of November 8, 2007. But, CBN considered them irregular.
Specifically, the report said the irregular transactions involved some MTN shareholders who claimed to have brought into Nigeria about $402.59 million of ‘new investments.’

In November 2007, CBN said MTN, through Standard Chartered, requested approval to convert its shareholders’ loan to preference shares.

CBN said an approval-in-principle was granted. But, a final approval was subject to fulfillment of certain conditions in the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, 1995 and the Foreign Exchange Manual, 2006.

The conditions required the submission to CBN evidence of legal compliance with the implementation of the board resolution on the loan conversion.

The other condition was the provision of an undertaking by Standard Chartered not to remit to MTN’s shareholders either interest or principal repayment from the date of the loan until they were converted to preference shares.

CBN said neither MTN nor Standard Chartered met these conditions.

Consequently, the final approval of the request to convert MTN shareholders’ loan/investment to preference shares was withheld.

But, MTN still proceeded to authorise Standard Chartered to issue Certificates of Capital Importation (CCIs) to convert the shareholders’ loan to preference shares, in defiance of regulations.

CBN spokesperson Isaac Okorafor said all CCIs issued by the four banks in respect of those transactions failed to comply substantially with stipulated foreign exchange regulations.

The main grouse of CBN, he pointed out, was that the repatriation of MTN’s profits over the period and the attempt to convert the ‘new investments’ to preference shares (interest-free loans) were not approved.

The report said all CCIs were issued outside the mandatory 24 hours of receipt of shipping documents required by the monetary, credit, foreign trade and exchange policy guidelines for fiscal years 2012 and 2013.

Besides, all CCIs were not accompanied with indemnity letters to the CBN against double remittances and transaction history, in line with regulatory requirements.

Besides, following the publication of MTN’s financial statement for the year ended December 31, 2007, the report said about $399.59 million was recorded as investments from shareholders’ loan and about $2.996 million as equity.

However, CBN said a routine regulatory review by its auditors revealed only about $59.4mn was imported by some offshore investors into Nigeria as shareholders’ loan, and about $343.15mn as equity.

The contradictions, the CBN noted, constituted a “rendition of false returns”. But, Standard Chartered, in responding to a regulatory inquest by CBN on December 10, 2009, described it as an “unintended omission.”

Tope Fasua, an economist and CEO, Global Analytics Consulting Limited, described the transactions masterminded by MTN as “complicated”, “more like round-tripping of profits generated from Nigeria.”

“What MTN did was clearly share manipulation, by taking profits from Nigeria and bringing the same back as cash inflows and equipment. It was purely round-tripping money from Nigeria and not allowing it to go into the foreign exchange market,” Mr Fasua told PREMIUM TIMES.

According to Mr Fasua, MTN’s attempt to convert the funds into preference shares was a way of bringing “diluted funds”, such that in the event of liquidation, it will easily take out its equity before other shareholders.

“Multinational corporations, particularly those engaging in opaque business deals, often prefer preference shares, perhaps to fend off hostile takeovers, as dividend payments on preference shares are always consistent and value stable,” he said.

MTN officials declined to comment for this story.

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