CBN Moves to Unveil, Prosecute Companies for FX Abuse, Over-invoicing

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•Analysts hail new measures

Obinna Chima

In a bid to give teeth to its new policy coup against over-invoicing and forex overpricing, the Central Bank of Nigeria (CBN) has begun moves to unveil and prosecute “buying companies” that had been engaged in the unwholesome practice, THISDAY learnt yesterday.
Its Economic Intelligence Unit and Nigerian Financial Intelligence Unit (NFIU), THISDAY gathered, are working with Interpol and the Federal Bureau of Investigation (FBI) to uncover companies that had been engaged in the forex fraud.

According to information available to THISDAY, the forex fraud is perpetrated by these companies buying houses that are invoiced at inflated prices abroad, which they then offer to original equipment manufacturers (OEM). The companies then go abroad to cream off the forex often at 40 to 60 per cent of the transaction amount.

Many multinational companies, including Chinese, Indian and Middle East, it is learnt, may be caught in the investigation.
“The practice has gone on for decades and the apex bank thinks it is important to step back a bit and not only put a stop to it but also ensure that the abusive companies face the law,” a source in the know of the investigation said.

The CBN had in a bold move to arrest the abuse on Sunday directed banks and other authorised dealers to desist from opening Forms ‘M’ whose payment are routed through a buying company, agent, or other third parties.
In addition, the apex had announced the introduction of a product price verification mechanism, which is to help prevent overpricing or mispricing of imported goods and services.

It said the move was part of its continued efforts to ensure prudent use of the scarce foreign exchange resources and eliminate incidences of over-invoicing, transfer pricing, double handling charges and avoidable costs that are ultimately passed to the average Nigerian consumers.
The measures attracted praise by the Chairman of United Bank for Africa (UBA), Mr. Tony Elumelu, who said bolder and more cohesive measures like these would make the difference in the spirited efforts to revive the nation’s ailing economy.

Some financial market analysts in separate interviews with THISDAY also praise the CBN’s anti-forex fraud measures yesterday.
The CBN had taken the measures in a circular titled: “Destination Payment for All Forms M, Letter of Credit and Other Forms of Payment,” dated August 24, 2020.

The circular addressed to all authorised dealers and members of the public was signed by the Director, Trade and Exchange Department, CBN, Dr. Ozoemena Nnaji.
A Form M is a mandatory statutory document to be completed by all importers for the importation of goods into Nigeria. It is mandatory for all importers to complete and register Form ‘M’ with authorised dealers at the time of placing orders.

THISDAY gathered yesterday that preliminary investigations had shown that many foreign companies, including Flour Mills Limited, Nestle and several other Indian related businesses have already been implicated and the Interpol has begun to trail their transactions.

Analysts Hail New Measures

Meanwhile, some financial market analysts yesterday commended the decision by the apex bank to end the age-long practice of FX over-invoicing.
The analysts, in separate interviews with THISDAY said the policy was a major move against FX abuse.
The Director-General, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Mr. Ayo Olukanni, said: “Whatever could be done to block leakages and ensure the prudent use of the country’s foreign exchange, which is now scarce, would be viewed as a good strategic policy move.

“Consequently, we welcome this measure to block over-invoicing and overpricing at this critical period when the country’s main source of foreign exchange through the sale of crude oil is at another phase of the burst and boom cycle.
“Other loopholes such as round-tripping also deserve attention as part of the strategic goal of conserving our scarce foreign exchange and encouraging its judicious use in a manner that will benefit the real sector and ensure that we use it for much-needed development of our infrastructure.”

Olukanni added that the key issue, however, “is to ensure effective and transparent implementation of this policy designed to curb over-invoicing and over-pricing.”
Professor of Finance at the University of Lagos, Prof. Wilfred Iyiegbuniwe, said the policy was an appropriate step to checkmate illegitimate draining of the country’s scarce foreign exchange.

Iyiegbuniwe, who described the directive as “better late than never,” urged the apex bank to do more because there are a lot of loopholes in the economy that should be plugged.
“The operators all knew what is going on because it is all about round-tripping and corrupt practices as the beneficiaries could use the money to do other things it is not meant for. Even the third party could eat out of it while some of them might end in the hands of crooks,” Iyiegbuniwe said.

He added that the CBN should not renege on implementing the policy even when the flow of foreign exchange into the country’s economy is improved.
Also, Head of Research at Afrinvest West Africa Limited, Mr. Abiodun Keripe, said the introduction of the policy showed that CBN was serious about blocking leakages.

“It’s a time such as this that the economy is grappling with FX shortages, the CBN has just gotten a little smarter with the introduction of this circular aimed at blocking over-invoicing of imported products.
“It is worthy to note that this only is not a challenge in the private business environment but also in the public sector. The key takeaway is that there are FX shortages and the CBN is compelled to take initiatives at prudently managing the scare FX resources,” he added.

Head of Research at United Capital, Mr. Wale Olusi, said the policy would reduce abuse which could occur in the previous structure.
He said: “Over-invoicing/under-invoicing is age-long trade malpractice that has been around for decades; however, most banks do invoice verification before parting with value for their credit clients before now, to lessen the incidence of over-invoicing.

“The policy from CBN will majorly affect freight forwarders since the rule says you can only deal with ultimate beneficiaries. Some exporting companies outsource their exports to third parties or agents. However, the circular was silent on what will happen to Forms M opened prior to now that does not conform to this new policy.

“Overall, we think this is a major shift for most of the multinationals and large local manufacturers, especially in the FMCG space, with huge FX needs. We understand that most of them have related-party procurement agents in Europe or Asia who purchase raw material, machinery, equipment, etc on their behalf.

“Certainly, the previous structure provides an avenue for abuse, but it is the structure they are used to. Hence, we expect some form of pushback. In the interim, this may further pressure parallel market rates amid the never-ending speculative attacks on the local unit.”