The Central Bank of Nigeria (CBN) has revealed significant irregularities in the handling of foreign exchange (FX) forward contracts, prompting an ongoing review of legal actions against those found responsible.
In a document titled “Frequently Asked Questions (FAQ) on the Settlement of Undelivered Forward Contracts,” the CBN detailed several issues uncovered during a forensic audit, including mismatched beneficiary identities, exaggerated FX requests, the use of incorrect or blank Form M submissions, and approvals for non-permissible imports.
According to the CBN, the audit, which was carried out by Deloitte starting in September 2023, scrutinized transactions under the Retail Secondary Market Intervention Sales (RSMIS) window. These contracts involved upfront naira payments in exchange for promised future dollar deliveries many of which were left unfulfilled.
“The forensic audit uncovered significant irregularities in the execution of some of the foreign exchange forward contracts,” the CBN stated in the document, noting that the findings were based on objective, verifiable data. “Each affected counterparty was given the opportunity to respond before final decisions invalidating these contracts were made.”
The CBN revealed that some of the contracts were found to be invalid due to various infractions, such as discrepancies between the company names listed on approved sales results and those on the Form M portal, among others.
Examples of the irregularities include:
- Discrepancies in company names listed on the approved sales results compared to those on Form M portals.
- Exaggerated sales figures, where the total value of the forex Form Number exceeded the amount approved in the auction.
- Non-permissible imports, including unauthorized companies importing items like milk.
- Vague descriptions of items to be imported or sales without any clear demand.
- Blank or incorrect Form M submissions, leading to canceled contracts.
The CBN emphasized that contracts tainted by illegality, misrepresentation, or non-compliance with binding regulations cannot give rise to FX settlement under Nigerian law.
Legal Consequences for Non-Compliance
The CBN clarified that it has canceled invalid contracts based on audit findings, stating that no FX payments were made for these contracts because they did not meet the required standards for settlement.
“Paying invalid contracts would have rewarded non-compliance, encouraged abuse of the FX system, and unnecessarily depleted the nation’s FX reserves,” the CBN noted, underlining its commitment to maintaining market integrity and protecting Nigeria’s financial stability. Settling such contracts, the bank said, would have been in violation of its statutory responsibilities and could have led to legal liability and a loss of public trust.
Audit Process Concluded, No Room for Appeal
The apex bank also clarified that the audit process has now been concluded, and it is not open to appeal. The conclusions were reached after a rigorous, independent forensic review, with Deloitte contacting authorized dealer banks for explanations on the infractions before making final decisions.
“The findings have therefore met procedural fairness standards, and the case of undelivered forward contracts is now concluded and closed,” the CBN asserted.
The bank urged banks and their clients to ensure they maintain proper documentation, strictly adhere to FX regulations, and submit only valid transactions for settlement in the future.
While reaffirming its commitment to honoring all valid obligations, the CBN emphasized its focus on strengthening oversight to prevent future abuses of the FX system.
