The Damning report of the Financial Reporting Council of Nigeria and the suspension of Lamido Sanusi


Dele Awogbeoba
As the fog gradually starts to clear, one begins to see a large picture evolving. What is still to be determined is how to frame this picture. The frame provides a reference point through which an interpretation of the contents of the picture can be made. The reference point we use allows us (the observer) to appreciate our own biases from the assumptions we make from what we see.

The federal government has, at this point, suspended the current Governor of the Central Bank. The basis of its actions was the report signed by Mr Obazee (the CEO of the Financial Reporting Council of Nigeria) in December 2012.

The CBN Act of 2007 is the law that codifies the powers, duties and limitations of the CBN, its governor and its deputy governors. Section 1(2) of that Act ensured that the CBN is a separate legal entity and personality that can sue and be sued. It is therefore not a part of the Federal Government. The Act clearly lays down the grounds on which a Governor or Deputy Governor can be removed. Six instances were mentioned. Of the six, two are relevant for present purposes. The first states that he/she will cease to hold office if that person is “guilty of a serious misconduct in relation to his duties” under the Act and the second is the oft quoted one (where removal is done by the President with the concurrence of 2/3 majority of the senate). Section 7(1) of the Act says that the Governor shall be answerable to the Board of the CBN for his acts and decisions.

The power to suspend has not been explicitly stated in the Act. Mike Ozekhome SAN posits stated that the law allows what is not prohibited or forbidden. I have no reason to doubt him. The issue then is who has the power to suspend? It is clear that the sitting Governor is an employee of the CBN. The Act clearly states that he is answerable to the Board of the CBN for his acts and decisions. Serious misconduct in his duties will therefore be an issue that must be determined by the Board and only after the Board has made such a finding of guilt will the Governor automatically cease to be Governor. The President itself has no power to suspend pending an outcome of an investigation commenced by the presidency. It only has a shared power to appoint and remove. The Board of the CBN (by all public accounts) is the entity with the power to suspend the Governor whilst an ongoing investigation is subsisting. The Board of the CBN (by all accounts) is not investigating and has not investigated, probed or reached a determination that the CBN governor has been “guilty of serious misconduct” in his duties. The Governor can therefore not be lawfully suspended on the basis of the Report.

The Report
The Financial Reporting Council of Nigeria is a body charged with updating and developing accounting standards in Nigeria. It is not itself an audit or accountancy firm.

The report, at times, makes determinations of law (which is clearly outside its area of competence). Some of its other determinations were clearly unsupported by any specified facts stated in its report. The report claims that is “unlawful” for the CBN to embark on the level of “Intervention Projects” but does not state what the law says the cap was for such projects (if at all any exists). The budget of the CBN is approved by the Board of the CBN (in accordance with the Act). There was no suggestion that the CBN spent money that was not approved by the Board (which consists of the Governor, deputy governors, permanent secretary of the Finance ministry, the Accountant-General of the federation and a number of directors appointed by the Federal government).

It is clear that the intervention projects embarked upon by the governor is not within the principal objects of the Bank (Section 2 of the Act).  The Board of the CBN will need to take legal advice on whether such projects can lawfully be carried out by the CBN and to what extent (if any). That determination should not be made by an organization that sets broad accounting standards for accountancy firms in Nigeria because it is not within its area of expertise. What is clear is that such projects have been carried out in the past by previous holders of the office and is carried out by central banks the world over. That however does not make it moral,  right, lawful or unlawful. The report seems to have issues with the extent of payment on intervention projects and not on the principle that such Intervention projects were made in the first place. A company law lawyer is the best person to make legal determination on the power and extent of any monies budgeted by the CBN under its corporate responsibility banner..

The Report highlights that the Federal Government was not made aware of certain bonds issued by AMCON and due to mature in December 2013. The fear was that if AMCON defaulted then the federal government would have to make good such obligation to the holders of the bonds.  The Federal Government is a guarantor of those bonds. The Federal Government had not made any provision for this in its budget for 2013 because it was not notified of that potential obligation by the CBN.  The obligations of the Federal Government would kick in only after there is a default in payment by AMCON itself. There is no suggestion that AMCON had defaulted on its debt payment last December or that it was in serious risk of such a default at the time of the report.

The Report criticized the specific absence of approval of certain transactions embarked upon by the CBN. That is bizarre. A board generally gives broad approval to broad types of activities and not to specific individual activities. Otherwise, bottlenecks will exist and no work will ever be done by a complex organization like the CBN.

The indictment of the Deputy Governors is also bizarre. Each Deputy Governor has their respective core duties. The report at no time specified which of the many issues it identified was within the core function of the various Deputy Governors. The blanket indictment is unsupported by any facts attributable to any individual deputy governor in that Report.

The report clearly had issues with the extent of legal fees incurred by the CBN. The Report also seemed to make many determinations on the sheer numbers of statutes that the CBN, in its judgment, had failed to abide by. In order to act in accordance with the law it needs to get legal advice on what its obligations are. Law firms and their army of associates charge rates per hour that are equivalent to what is charged by the bigger firms in London and New York. One will be surprised how fast these costs add up. Most banks worldwide have legal bills running into hundreds of millions of dollars a year. Some even have legal departments bigger than many mid sized US and UK law firms. The criticism within the report seems to me to be divorced from reality.

What cannot be disputed is that report called into question some of the acts and judgments of the CBN under the leadership of the suspended governor. Some of which most be examined by the board of the CBN. The Report however strays many times into areas clearly beyond the competence, expertise and function of the Financial Reporting Council of Nigeria. If anything, the council should have limited its review to the quality of the annual reports as prepared by the auditor of the CBN. After all, that is where its expertise and competence lies.

If anything, the report should have been sent to the Board of the CBN for consideration and action. It was then for the board to examine the issues raised that were actually within the core competence of the Financial Reporting Council of Nigeria. Not sure of the extent of co-operation given to the reporting council during the investigation (especially as the council is not an auditor of the CBN but simply a regulator of general accountancy standards in Nigeria).

In a nutshell, if it had problems with the audited accounts of the CBN, its legitimate course of action would be to discuss or query the auditors of the CBN. It has no power, authority or jurisdiction to demand answers from the CBN nor are the staff of the CBN required to give any response to its demands. The Report in part made reference to the non provision of some information requested by the council. The council may well have felt affronted by the less than fulsome co-operation extended to it by the CBN. That in itself is reason enough to treat the basis of the report with some caution.

The Report in places makes findings of law that are suspect at best, makes determinations of fact based on little or no information contained in the Report and makes implications of dereliction of duty against the deputy governors that are unsupported by any facts listed in their own report. In Paragraph 1(g) of the report, it advised the President that the President had the power under Section 11(2) of the Act to find the governor guilty of “serious misconduct”. I doubt that is accurate for the reasons stated earlier. It is even more worrisome that the President appears to have acted on the basis of “legal” advice given by an entity not licensed to practice law in Nigeria.

The report in large parts appeared more like the work of an entity scrapping at the bottom of the barrel. In some cases it noted significant falls in expenditure by the CBN on legal fees and other sundries from 2011 to 2012. It then asks  “what could the CBN have had to spend N20.202 billion on in 2012”? Curiously, the question implies that (x) that question was never addressed to the CBN itself and (y) an adverse inference was made without verifying the make-up of the legal bills.  The report is replete with inferences drawn on a questionable basis. In one instance, the Report claimed no board approval was obtained because it was not given evidence of board approval on request. An inference I will not myself make in such a definitive manner especially when viewed in conjunction with the questionable jurisdiction that the Council had to do what it was doing in the first place.

It is even more bizarre, that such a report would serve as a catalyst for the unlawful “suspension” of a Governor of the CBN by an extraneous entity, the precipitous fall of the stock market, the halting of bond market trading and the precipitous fall in the value of the Naira (which led to the use of our precious foreign currency reserves to halt the fall and stabilize the Naira).

Dele Awogbeoba
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