A CRITIQUE OF THE POWERS OF THE CENTRAL BANK OF NIGERIA TO FREEZE BANK ACCOUNTS. by Omobolaji O. Oyeniran Esq.
INTRODUCTION
The Central Bank of Nigeria (CBN) is saddled with the responsibility of regulating the financial sector in the country, a role it performs with Banks/Financial Institutions, and other stakeholders in the financial sector. This article analyses the power of the CBN to freeze bank accounts under the Banks and Other Financial Institutions Act (BOFIA) 2020; the Terrorism (Prevention) Act 2011, as amended 2013 and the Central Bank of Nigeria (Anti-Money Laundering and Combatting the Terrorism in Banks and Other Financial Institutions in Nigeria) Regulations, 2013. The article further discusses the conditions precedent before the power is exercisable; the consequence of not fulfilling the conditions; and clarifications on the roles of the CBN as distinct from that of an individual Bank/Financial Institution. The article concludes with a recap of the article; calls for optimal service by the CBN; and exposes the need for Banks/Financial Institutions to uphold the duties owed to their customers.
GENERAL FUNCTIONS OF THE CBN
Under section 2 of the CBN Act, 2007, the CBN is charged with the overall control and administration of the monetary and financial sector and policies of the Federal Government. The objects of the Bank include inter alia:
- ensure monetary and price stability;
- issue legal tender currency in Nigeria;
- maintain external reserves to safeguard the international value of the legal tender currency;
- promote a sound financial system in Nigeria; and
- act as Banker and provide economic and financial advice to the Federal Government.
The apex Bank is further saddled with the responsibility of administering the Banks and Other Financial Institutions (BOFIA) Act, 2020 as amended, with the sole aim of ensuring high standards of banking practice and financial stability through its surveillance activities, as well as the promotion of an efficient payment system[1].
POWERS OF CBN TO COUNTER TERRORIST AND PROLIFERATION FINANCING VIS A VIS FREEZING BANK ACCOUNT.
Being the agency charged with the overall control and administration of the monetary and financial sector and policies in Nigeria, the CBN is empowered under several legislations to employ all possible means to curb money-laundering; counter-terrorist financing; and proliferation financing. The CBN performs this function in collaboration with individual Banks and Financial Institutions through its Financial Intelligence Unit. The Nigerian Financial Intelligence Unit (NFIU) is an autonomous unit, domiciled within the Central Bank of Nigeria and the central coordinating body for the country’s Anti-Money Laundering, Counter-Terrorist Financing and Counter-Proliferation Financing (AML/CFT/CPF) framework.[2]
This section discusses the powers of the Central Bank of Nigeria to investigate and place a Post-No-Debit directive on any Bank account in Nigeria under the Banks and Other Financial Institutions Act (BOFIA) 2020; the Terrorism (Prevention) Act 2011, as amended 2013; and the Central Bank of Nigeria (Anti-Money Laundering and Combatting the Terrorism in Banks and Other Financial Institutions in Nigeria) Regulations, 2013, amended 2019[3]. Thus, in discussing the powers of the CBN in placing PND on a customer’s bank account, reference will be made to the NFIU (the CBN unit in charge) and individual bankers and financial institutions.
- BANKS AND OTHER FINANCIAL INSTITUTIONS ACT (BOFIA) 2020
The Banks and Other Financial Institutions Act (BOFIA) 2020 empowers the CBN to freeze any bank account where the CBN Governor has any reason to believe that transactions undertaken in such an account involves the commission of any criminal offence. Section 97(1) of the 2020 Act provides:
97(1) “Notwithstanding anything contained in any other enactment, where the Governor has reason to believe that transactions undertaken in any account with any bank, specialised bank or other financial institution are such as may involve the commission of any criminal offence under any Law, the Governor may make an ex-parte application for an Order of the Federal High Court verifying on oath the reasons for the Governor’s belief, and on obtaining such a Court Order direct or cause a direction to be issued to the manager of the bank, specialised bank or other financial institution where the account is situated or believed to be or in the alternative to the head office of such bank, specialised bank or other financial institution directing the bank, specialised bank or other financial institution to freeze the account.”
- CENTRAL BANK OF NIGERIA (ANTI-MONEY LAUNDERING AND COMBATTING THE TERRORISM IN BANKS AND OTHER FINANCIAL INSTITUTIONS IN NIGERIA) REGULATIONS, 2013, AMENDED 2019
“30 (1) A financial institution shall pay special attention to all complex, unusually large transactions or unusual pattern of transactions that have no visible economic or lawful purpose.
(2) A financial institution shall investigate suspicious transactions and report its finding to the Nigerian Financial Intelligence Unit(NFIU) immediately, in compliance with the provision of section 6 (2) (c) of Money Laundering (Prohibition) Act 2011 (as amended)”
‘Complex or unusually large transactions’ or ‘unusual pattern of transactions’ include transactions that exceed certain limits, very high account turnover inconsistent with the size of the balance or transactions which fall outside the regular pattern of the account activity[4]; that involves a frequency which is unjustifiable or unreasonable; is surrounded by conditions of unusual or unjustified complexity; appears to have no economic justification or lawful objective; or in the opinion of the financial institution involves terrorist financing. In such instance, the transaction shall be deemed to be suspicious and the financial institution shall immediately report the matter to the NFIU.
- TERRORISM (PREVENTION) ACT 2011, as amended 2013.
Under section 14 (1) of the Terrorist (Prevention) Act, 2011, as amended 2013, a financial institution/bank is mandated to forward reports of suspicious transactions to the NFIU within 72 hours. The sub-section provides thus:
“A financial institution or designated non financial institution shall, immediately, but not later than 72 hours, forward reports of suspicious transactions relating to terrorism to the Financial Intelligence Unit which shall process such information and forward it to the relevant law enforcement agency where they have sufficient reasons to suspect that the funds –
(a)are derived from legal or illegal sources but are intended to be used for any act of terrorism:
(b) are proceeds of a crime related to terrorist financing; or
(c) belong to a person, entity or organization considered as terrorist.”
Such financial institution or designated non-financial institution is not liable for violation of the confidentiality rules for every lawful action taken in furtherance of its obligations under sub-section (I) of this section[5].
CONDITIONS PRECEDENT TO ACTIVATION OF THE POWER TO FREEZE BANK ACCOUNT.
At this juncture, it is good to note that before a PND placed on a customer’s bank account is activated, an ex parte order of the court must be obtained[6]. Failure to obtain the court order before freezing the customer’s account makes such action unlawful. This issue has been laid to rest by the Court of Appeal in the case of MEGAWEALTH LTD Vs SEC [2017] 13 NWLR PT 1583 P.345 in which the Court considered the provisions of Section 13[x] of the Investment and Securities Act, 2007 which is in pari material with the provisions of Section 97(1) of BOFIA, 2020 as it empowers the SEC to freeze bank accounts of customers under the Securities and Exchange Commission Act held at page 378 that:
“The Securities and Exchange Commission must seek judicial order to freeze the account of any person whose assets were derived from the violation of the Act. In the instant case, the respondent did not obtain judicial order before freezing the appellants account. In the circumstance, the action was declared unlawful.”
Also inGTBANK PLC Vs ADEDAMOLA [2019] 5 NWLR PT 1664 at P.30, the court held inter alia that;
“By the provisions of section 34[1] of the Economic and Financial Crimes Commission Act, 2004 the Economic and Financial Crimes Commission has no power to give direct instructions to Banks to freeze the account of a customer without an order of court, so doing constitutes a flagrant disregard and violation of the rights of a customer”
CLARIFICATION OF THE ROLES OF THE CBN AND FINANCIAL INSTITUTIONS IN FREEZING OF BANK ACCOUNTS.
As earlier stated, the CBN works with financial institutions in achieving its functions outlined in several legislations. To this end, there is little clarity as to the role/duty of each in achieving these functions, especially on the issue of freezing bank accounts. It is good to note that regardless of this fact, each party has unique roles/duties and the beneficiaries of these roles vary. Outlined below are some of the gray areas and the duties of each party.
- OBTAINING COURT ORDER
In deciding whose duty it is to obtain a court order, whether it is the CBN or the Bank/Financial Institution where the account is domiciled, the Court has held in plethora of cases that where the CBN places a Post-No-Debit (PND) on a bank account, the Bank with which the account is domiciled, who has a duty of care towards its customer, should ensure that a Court order has been obtained before freezing such account as directed by CBN. In GTBANK PLC Vs ADEDAMOLA [2019] 5 NWLR PT 1664 at P.30, the Court of Appeal in consideration of the provisions of Section 34[1] of the Economic and Financial Commissions Act, 2004, which is in pari material with the provisions of Section 60B of BOFIA held at page 43 stated categorically that:
“Before freezing customer’s account or placing any form of restrain on any bank account, a bank must be satisfied that there is an order of court.”
The implication of the court decision is that, where a PND directive is not supported with a court order, the receiving bank is expected to obtain one before freezing the account of its customer. This rationale being that the Banks/financial institutions owe their customers duty of care, which they must protect and must not be complacent, reticent, and toothless in the face of brazen and reckless violence to the rights of their customers.[7] In addition to this, failure of a Bank/Financial Institution to obtain a court order before it freezes its Customer bank account amounts to breach of duty and the customer can obtain damages for such breach[8]. see ADETOKUNBO ODUTOLA VS DIAMOND BANK PLC SUIT NO: LD/ADR/800/17 (UNREPORTED)[9]
- BREACH OF CONFIDENTIALITY RULES
Most times, Customers who have had their bank accounts frozen on the authority of CBN oftentimes call out their respective Banks/Financial Institutions on Social media for breach of their confidence. In as much as the Banks have the duty to protect the data of their Customers, the law mandates them to disclose such data in certain circumstances during which they would not be held liable for breach of confidence, so far it is done in compliance with the provisions of the law.
For instance, section 31 (2) & (3) of the CBN(AML/CFT) Regulations, 2013, amended 2019 mandates a financial institution to immediately report ‘complex or unusually large transactions’ or ‘unusual pattern of transactions’ to the NFIU and such financial institution shall not be liable for violation of the confidentiality rules and the Banking sector secrecy obligations for any lawful action taken in furtherance of the obligation[10]. The same requirement and protection is provided under section 14 of the Terrorism (Prevention) Act, 2011, as amended 2013[11] which includes penalty for any financial institution that discloses such information to other party other than the NFIU.[12]
CONCLUSION
This article has reviewed the powers of the CBN, in conjunction with Banks/Financial Institutions, to freeze bank accounts in the bit to curb financial terrorism and financial proliferation. Also, this article has identified the roles of each party in achieving this goal.
The writer wishes to enjoin the CBN to carry out due diligence in carrying out its duties, as it is being called out by stakeholders on the arbitral use of its powers. As a reference, the National Assembly, in its response to plethora petitions against the apex bank for arbitrary freezing of bank accounts, ordered the Bank to commence review of all currently frozen accounts in Nigeria and to, after one week, remove the freeze order on accounts frozen before a valid court order was obtained; accounts frozen without obtaining a court order from the required court of competent jurisdiction; accounts frozen without providing the opportunity for a fair hearing to the account holder; accounts frozen but till date have not been referred to the Nigeria Police Force, National Drug Law Enforcement Agency (NDLEA) or any other appropriate regulatory authority for investigation; accounts frozen that are unconnected to the account suspected for involvement in the commission of a crime; accounts remaining frozen after a court authorised period of freeze has elapsed without obtaining a fresh order from a court of competent jurisdiction; accounts remaining frozen even after the concluded investigation has not indicted the account holder; accounts frozen without documentary proof of petition or reason for suspicion of involvement in the commission of a crime.[13] The CBN is thus expected to ensure that due processes are observed in the execution of its duties so that the confidence reposed on it by the Nigerian citizenry does not dissipate on the altar of incompetence and lack of due diligence.
In concluding this article, the writer believes that even though the CBN, and at large other government agencies, is required to obtain a court order before freezing a customer’s bank, the duty to ensure that proper procedure is followed before placing the PND behoves more on the Bank where the account is domiciled than the CBN. It is imperative for Banks to identify and duly execute their roles in a bid to save themselves from the loss of millions of naira awarded as damages against them, and to protect their credibility.
Omobolaji O. Oyeniran is an Associate Counsel in Path Solicitors. She specialises in Corporate Litigation; Banking and Finance; Corporate Governance; and Intellectual Property Law.
[1] Section 1 (3) Central Bank of Nigeria Act, 2007.
[2] https://www.nfiu.gov.ng/Home/About
[3] CBN(AML/CFT) Regulations 2013, amended 2019
[4] Section 30 (3) Central Bank of Nigeria (Anti-Money Laundering and Combatting the Terrorism in Banks and Other Financial Institutions in Nigeria) Regulations [CBN(AML/CFT) Regulations] 2013, amended 2019
[5] Section 14 (2) Terrorism (Prevention) Act, 2011, amended 2013.
[6] Section 97(1) BOFIA, 2020; GTBANK PLC Vs ADEDAMOLA [2019] 5 NWLR PT 1664
[7] Tijani Abubakar J.C.A in GTB PLC Vs Adedamola at Pg 43 par. F supra
[8] In our earlier article titled POST-NO-DEBIT DIRECTIVES: LEGAL DUTIES AND LIABILITIES OF BANK posted at https://pathsolicitors.com/post-no-debit-directive-legal-duties-and-liabilities-of-banks/ we extensively laid foundation on the legal duties a bank owes to its customer anytime a PND is placed on the Customer’s account by any government agency.
[9] In ADETOKUNBO ODUTOLA VS DIAMOND BANK PLC SUIT NO: LD/ADR/800/17 (UNREPORTED) the Court held that the Defendant bank failed in its duty of care to the Claimant/Customer and was therefore liable for the injury that arose from freezing the Claimant’s account. The court further awarded the sum of 25million naira as damages for unlawfully freezing the Claimant’s bank account.
[10] Section 31(2) CBN(AML/CFT) Regulations supra
[11] supra
[12] Section 14 (3) & (4) Terrorism (Prevention) Act, 2011, as amended 2013
[13] https://www.thisdaylive.com/index.php/2020/10/21/house-gives-cbn-deadline-to-unfreeze-over-5000-accounts/
