CBN uncovers ‘irregularities’ in unpaid FX forward contracts, culprits to be sanctioned

The Central Bank of Nigeria says it has uncovered extensive irregularities in the unpaid foreign exchange (FX) forward contracts under probe.

In a document, titled ‘Frequently Asked Questions (FAQ) on the Settlement of Undelivered Forward Contracts’, the regulator said some of the irregularities include mismatches in beneficiary identities.

Others, according to the document published on CBN’s website on Thursday, are exaggerated foreign exchange requests, use of incorrect or blank Form M submissions, and approvals for non-permissible imports.

The bank said it is reviewing appropriate legal action against parties found to have violated applicable rules and regulations, based on the findings of the forensic audit.

“The Bank will collaborate with law enforcement and regulatory agencies to pursue civil, administrative, or criminal sanctions, as necessary,” the document reads.

The audit, said to have been conducted by Deloitte from September 2023, reviewed transactions under the retail secondary market intervention sales (RSMIS) window.

The apex bank said the contracts involved upfront naira payments in exchange for promised dollar delivery on future dates — “many of which went unfulfilled”.

The CBN said the audit was necessary to verify the legitimacy of the contracts, protect FX reserves, and uphold regulatory standards.

“The forensic audit uncovered significant irregularities in the execution of some of the foreign exchange forward contracts,” the bank said.

“Each finding was based on objective and verifiable data, and all affected counterparties were given an opportunity to respond before final decisions invalidating these contracts were made.”

The CBN said the findings revealed that some undelivered forward contracts were found to be invalid for various infractions and reasons, such as  company name on approved sales result being different from company name on Form M portal.

“The cumulative value of the approved FX Forward Sales on this Forex Form Number from Auction 1 in 2021 to date of this auction exceeds the total value of the forex Form Number,” the CBN said.

“Sales Higher Than Demand, Non-permissible Item of Import, Unauthorized Companies Importing Milk, Vague Narration of the Item of Import, Sales Without Demand, Incorrect Forex Form Number, Forex Form not Indicated, Blank Form M.

“Rejected Form A Application on Form A Portal with Approved Sales. Approved Sales Value Higher than the cost of import item on Form A portal.

“Approved Sales Value Higher than the cost of import item on Form M portal.

“No right to FX settlement can arise under Nigerian law where the underlying transaction is tainted by illegality, misrepresentation, or non-compliance with binding regulatory rules.”

The regulator also said invalid contracts were cancelled in line with audit findings.

The bank said “no FX payments were made on these contracts, as 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 report further reads.

“The CBN’s mandate is to maintain market integrity and protect Nigeria’s financial stability. Moreover, settling contracts that were legally void or irregular would have contravened the CBN’s statutory responsibilities and potentially exposed it to legal liability and loss of public trust.”

‘AUDIT PROCESS CLOSED AND NOT OPEN TO APPEAL’

The CBN also said the audit process is closed and not open to appeal, citing the independence and procedural fairness of the review.

“The audit conclusions were based on a rigorous process carried out by an independent forensic expert (Deloitte), acting pursuant to a transparent mandate,” the apex bank said..

“The auditor contacted the authorised dealer banks concerning those contracts to get their explanations of the infractions before reaching conclusions on them. The findings have therefore met procedural fairness standards.

“The case of undelivered forward contracts is now concluded and closed.”

The CBN urged banks and their clients to maintain proper documentation, adhere to FX regulations, and submit only valid transactions for settlement.

The apex bank reiterated its commitment to honour all valid obligations while strengthening oversight.