Bank Customers Anxious over Illegal Transactions on Domiciliary Accounts

Many  customers operating domiciliary accounts with banks in Nigeria are now anxious over revelations that their banks are performing illegal transactions  on  these accounts.

The transactions are said to be carried out in connivance with bank staffers to assist unscrupulous individuals launder money.

The complicit bank staffers carry out unauthorised deposits and withdrawals on the accounts, on behalf of their cohorts and thereafter delete the transaction history, informing the genuine  customers on inquiry that there has been no activity on their accounts.

The hitch sometimes however, is that the culprits are unable to subvert the Information Technology process which delivers alerts through text and e-mail messages, notifying a customer of every transaction on his or her account.

Informed sources however say, that where the plot runs really deep, the technology alert process can be temporarily disabled, such that the tell-tale alerts are not delivered in the case of specific fraudulent transactions.

The culprits outside the bank are said to include persons seeking to transfer ill-gotten funds, as well as those seeking to misappropriate funds arising from  waivers and other incentives, mostly originating from government and its establishments.

When BusinessDay asked a bank official to respond to the transaction alerts received by some customers, the official of the  Ikeja branch of a tier one bank,  said it was a mistake that the alerts were being sent, promising to correct the anomaly.

But two days later, transaction alerts were again received, but the operations manager of the branch insisted that only the bonafide owner of the account could complain on the issue.

The development is compounded by a recent order from the Central Bank of Nigeria (CBN) requesting for details of domiciliary accounts and their holders, from deposit money banks in its efforts to check capital flight and other malpractices being aided by the lenders.

Some banks are said to have resorted to the unwholesome practices of transacting on domiciliary accounts of customers, to increase income, following  the increasingly tough operating environment, typified by higher cash reserve ratio, (CRR), Monetary Policy Rate (MPR) and abolition of Retail Dutch Auction System (RDAS) which have eliminated arbitrage and round-tripping.

Although sources at the CBN expressed surprise over the development, they promised to increase surveillance at the relevant points.

“I have already escalated the issue before my response to your message. We will increase our surveillance” a source at the CBN told BusinessDay.

Some analysts said that unless urgent steps are taken to check these malpractices, the campaign for banking inclusion would suffer a major setback.

Responding to this development, industry sources say some customers are contemplate alternative outlets for the safe keeping of their money.

Narrating his ordeal, another customer of the Allen Avenue branch of a tier one bank with head office on Marina, Lagos said, “In the last few months, I have been receiving alerts from my bank on illegal transactions on my domiciliary accounts.

“I lodged verbal complaints three times and after they checked my account, they said there was no activity, but I kept receiving the alerts.”

Another customer  customer said he was surprised that his domiciliary account with a tier two bank was being operated with only alerts being sent to him every time.

Ayodeji Ebo, Head, Investment Research, Afrinvest Securities limited, observed that “The huge spread (average: N30.00) between the CBN’s official exchange rate and the interbank before the closure of the CBN’s official window, may have created the incentive for banks to indulge in this unethical act.

“This may further be compounded by the RDAS system introduced by the CBN, which requires that banks should leverage on the (KYC) for all customers, hence the use of existing customers’ domiciliary accounts.

“The onus is on the apex regulatory body, CBN to intensify monitoring of the banks’ foreign exchange activities and any bank found wanting should be sanctioned.”

However, the recent closure of the CBN’s official window should help curb this unscrupulous act (round tripping or arbitraging), albeit pressure remains on banks to generate income, against the backdrop of hawkish monetary policies pronounced on them in the last two years.”

Razia Khan, analyst with Standard Chartered Bank, London said, “The CBN could release a directive discouraging this practice, but I wonder if it would have any unforeseen impact on FX liquidity.”

Abdul Ganiyu Garba, a member of the Monetary Policy Committee, contributing to discussion at the last meeting before the recent devaluation, noted that the CBN’s action should not stop at scrapping the RDAS alone, but that it should go further to ensure that banks comply with the rules.

“In the short term therefore, the more potent tool in my reasoned view, is changing the forex game by institutional and operational changes that eliminate the arbitrage gap and the leakages.

“Removing the subsidy in the forex market is an important first step. However, it must be backed by an efficient and effective operational system for ensuring that all players play by the rules and infractions are such that the net potential gains are negative,” Garba said.