BANK SCAMS AND THE INSIDERS

 Banks must pay more attention to curbing incidents of fraud

One of the most serious challenges facing Nigerian Banks and Other Financial Institutions (OFIs) remains incidents of fraud, particularly those that have the accoutrements of insiders. Data from the Nigeria Inter-bank Settlement System (NIBSS) and Financial Institutions Training Centre (FITC) which focus on electronic fraud is troubling. According to the NIBSS, there was a significant rise in fraud losses in banks from N11.6 billion in 2020 to N52.26 billion in 2024. The FITC also reported that in the first quarter of 2025, Nigerian banks lost N3.3 billion to fraud, signalling 137 per cent spike over the N1.39 billion recorded in the previous quarter.

Perhaps what appears more troubling is the involvement of bank staff in fraud incidents. In the first quarter of 2025, deposit money institutions reported the termination of 23 employees for their involvement in fraudulent activities. Although a 28.1 per cent decrease from the 32 terminations recorded in the last quarter of 2024, another 28 staff members were still under investigation for alleged involvement in bank frauds during the first quarter of 2025. Digital channels continued to be the main source of risk. “Computer and web-based platforms accounted for N10.6 billion of fraud attempts in Q1 2025, while mobile application fraud contributed N2.3 billion. Fraud through bank branches also rose sharply, reaching nearly N8 billion,” the report stated.

The Nigeria Deposit Insurance Corporation (NDIC) first raised the alarm in 2018. The NDIC had documented that fraud cases involving internal staff abuse surged from 231 in 2016 to 320 in 2017, signalling a 38.53 per cent increase. A recent case involving a First Bank staff who worked on the electronic products team is instructive. His job gave him legitimate access to process failed reversals for customers, and he capitalised on that access to credit several accounts with funds that were not theirs. The fraudulent postings went to his wife’s Nigerian bank account first, and from there to 34 other accounts, spreading to 1,190 secondary accounts across multiple banks. By the time First Bank noticed and reported it to the police on 25 March 2024, the figure had grown from N12 billion to N40 billion, by which time he was already on the run.

A system that allows any single person to trigger financial transactions without a second approval layer speaks volumes about its vulnerability. Wema Bank also lost N847.6 million that could not be recovered to fraud as seven people, including three of its employees, were arraigned by the Economic and Financial Crimes Commission (EFCC) over an alleged N8.5 billion banking fraud in Lagos. According to investigators, the scheme involved manipulating internal banking processes, and tampering with banking data and transaction records tied to accounts domiciled in Wema Bank.

Key obligations of banks and other financial institutions revolve around complying with regulatory standards to protect and ensure safe keeping of depositor funds. And this involves acting with reasonable care and skill in handling transactions, including prompt action against fraudulent attacks on accounts. While the banks and other financial institutions may be swift to claim that they have been doing a lot to nip incidents of fraud in the bud, it begs the question whether they have been acting promptly in checkmating fraudulent attacks on accounts, particularly those involving their employees. The question: What distinct bank-wide scams protection strategies and policies are in place to trigger early warning signals, particularly to thwart insider involvement?

While the CBN appears to be proactive with guidelines on how to checkmate bank frauds, the same may not be said of the Securities and Exchange Commission (SEC) which regulates digital assets like cryptos. The ease with which proceeds of bank frauds are converted into crypto as reported in some of the scams leaves much to be desired.