Back in May 2007, many of the newly elected governors complained about the debts they inherited from the outgoing governors and their inability to service or repay the loans. They implied that the borrowed funds were misappropriated. What I did not hear from the incoming governors was that they were going to hire banking and contract law lawyers to sue the banks. You may wonder why the banks should be sued if a state is unable to repay borrowed funds. I am going to do my utmost best to explain the reasons below.

We now know that between 1999 and 2007, Nigerian banks, almost all of them, loaned hundreds of billions of naira to irresponsible state governors. As security for the loans, the banks received Irrevocable Standing Payment Orders (ISPO). An ISPO is a charge on a states federal allocation. These ISPO’s often authorize deductions of millions of naira upfront from the states allocation and they have the effect of reducing the resources available to the state and its suffering citizens. Although President Yar Adua has indicated that his government may not be favorably disposed to the continuation of the practice, there are currently hundreds of the instrument in circulation and they collectively constitute liens worth hundreds of billions against sate allocations. Until these loans are fully repaid through the ISPO, the suffering citizens of the affected states would continue to wait basic services like water, electricity, security, education and healthcare. This article deals with the modalities for invalidating these instruments by invalidating the underlying contracts, freeing up the resources for development and leaving the lending banks with unenforceable loan agreements because of the shameful roles they played in plunging these states into debt.    

Considering the nature of international banking, commercial, contract and anti-money-laundering laws, I venture to argue that most of the loans in question are bogus loans that should be set aside by the courts. They are bogus for some of the reasons below:

Mallam Nuhu Ribadu and the EFCC are, within permissible limits, doing the best they can to recover the looted funds. However, this matter must go beyond the EFCC or any other law enforcement agency. The EFCC has proved itself unable to provide an encompassing definition of official corruption and such a definition is required in order to lay a proper foundation for the fight against corruption. This is why the struggle must be taken out of Nigeria and fought under international laws. On a balance of probabilities, most legal minds would agree that the Nigerian banks that assisted the  governors in looting are legally liable to the owners of the stolen funds - the people of the individual states.

On the role of Nigerian banks in aiding money laundering, my thinking is that the federal, state and local governments are only saber rattling and not prepared to take proper steps to recover their looted funds from the banks. I see the banks have very weak defenses to these charges or none at all. The states and the federal governments can bring civil proceedings against the banks to have the loan agreements set aside because the banks loaned these monies to the states by violating all proper lending benchmarks. They knew or ought to have known that the governors were going to loot the proceeds of the loans and the loans were not commercially sound. The banks granted these loans because their executives stood to benefit from the proceeds. In other words, the banks are parties to the fraud of the governors. 

When a few banks end up losing the right to collect on these loans through invalidation of the loan agreements by the courts, they will begin to think twice. They will seriously consider a decision to grant loans to these governors and or help them to launder the proceeds of the loans. The type of litigation discussed here will force the shareholders of these banks to call their executives to order because foreign banks will stay away from the Nigerian banks and the value of their shares will drop along with their market capitalization.

My legal opinion is that a bank and its officials that lend billions to a governor or any other government official and then turns around to help that official to launder the proceeds of the loan is not entitled to repayment. The court would view the bank as a party to the governor fraud and set aside the loan agreement or make the bank liable to the indebted state or local government. I think the states that have been affected by the massive looting of outgoing governors should start civil proceedings against the banks for the recovery of the looted loan proceeds.

I know what you maybe thinking. You sue a Nigerian bank, the case will not go anywhere for years. I know this and I have bad news for the banks. Since many of the Nigerian banks now have overseas branches or work with foreign affiliates, the litigation discussed above should be commenced in places like England, Canada, United States or South Africa. These countries have decent legal systems and national and international banking and anti-money laundry laws. I have confidence in their ability to determine that a bank that knowingly or negligently assists an individual, company or government in looting public funds and putting the proceeds of crime into the international banking system is guilty of money laundering and imposing the requisite severe legal sanctions. Regrettably, our courts, try as they may, the odds are stacked against them and may not be the best form for these cases.  

To speed up the resolution of these cases, the foreign banks that have collaborated with the Nigerian banks in question should be added to the litigation. These foreign banks are more likely to realize the severity of the legal consequences of money laundering and the damage a conviction would do their reputation. They are more conscious of the effect of negative publicity on their business, compared to some of our banks that will be shouting red from the mountaintop whereas the overwhelming evidence shows black. There are four reasons for going after the foreign banks and or branches that collaborate with Nigerian banks. The first is that they played a role in assisting the Nigerian banks to put the looted funds into the international banking system and in doing so, they choose willful blindness as the proper cause of action. They knew or should have known that the funds they were handling represented the proceeds of fraud.

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The second reason is that there is a warped definition of corruption in Nigeria. Consequently, you have a government that preaches zero tolerance for corruption and the superiority of the rule of law, yet the only beneficiaries of the latter are those who have looted the country blind and are now hiding behind dubious court proceedings and injunctions to stall proceedings against them. Does the rule of law not demand that justice be dispensed quickly, that justice delayed is justice denied and that the victims of crime are entitled to compensation in terms of sanctions being applied against the perpetrators and the stolen funds recovered from the thief in full (no negotiations over stolen funds)?.  In a country where those in the vanguard of the anti-corruption war are surrounded and visited regularly by shady (some of whom have been declared wanted) characters who looted billions from state and federal treasuries, ministers and departmental heads who deposit billions of federal resources in their personal account and a Senate that is too scared to mention the culprits and a serving vice-president’s whose wife is facing money laundering charges (I know Mallam Nuhu Ribadu has been quiet about this case since the election), the people must take over in defining the meaning of corruption. The above approach to the recovery of stolen funds will take the determination of the meaning of corruption out of the control of our government, local regulators and law enforcement officers and put it into an international arena that has become increasingly hostile to money laundering due to its links to terrorism. .

The third reason is that once the foreign banks and overseas branches of our local banks become legally liable for the funds looted by Nigerian governors, they are likely to stop dealing with the affected Nigerian banks. Hopefully, the Nigerian banks will in turn witness a bank run from scared depositors, decline in the value of their shares and market capitalization. Since the loss of money is one of the very few things that can compel human beings to act properly, the shareholders, along with some prodding from the EFCC and the other stakeholders will step in to bring the banks under a regulatory agency that will vigorously enforce our banking and anti-money laundry laws.

Talking about enforcement of our banking and anti money laundering laws,  I know there is an institution called the Central Bank of Nigeria. Despite all the “organized” international awards given to the CBN and governor Saludo, I do not believe that he is capable of regulating Nigerian Banks. This is because Governor Saludo is a part of the problem. I knew he was going to be a part of the problem from the very day that Nigerian banks organized a N50 million dinner to celebrate his appointment and he decided to attend. A N50 million dinner in a country where the minimum wage is less than N10,000.00 a month?  In a country like Canada or the United States, the Canada Revenue Agency or the United States Inland Revenue Agency will invoke the “unreasonable business expense” provisions of their tax laws to deny deduction for this dinner from hell. But this is Nigeria and anything goes. I have always wondered whether those who attended the above dinner ate human beings because of the price tag.

The central bank governor’s decision to accept a N50 million dinner spoke a lot about his ability to make sound managerial and conflict of interest decisions. Events since his appointment have confirmed my belief. Just take a look at how his Basic Traveling Allowance and daily foreign exchange transfer limits has encouraged round tripping of foreign currencies and deprived the local currency considerable appreciation to his expensive lifestyle and acquisition of Abuja based landed properties that cannot be justified by the meager salary he earns as governor of the country’s apex banking institution.    

The fourth and last reason is that right now, the banks and the governors are colluding to destroy documents and frustrate EFCC investigations. The Banks and the governors have a common interest in avoiding detection, prosecution and possible imprisonment. However, if the courts were to set the loan agreements aside and treat them as loans from the banks to the governors in their personal capacity, the parties would then have conflicting interests. The banks would then have to go after the governors for repayment of the loans. You can be sure that the banks will not be colluding with the governors or destroying documents anymore. This approach is a principle of tort or private law. The principle is that where the commission of a crime (tort) by more than one person (tortfeasor) or entity makes it impossible to determine the person who actually committed the crime, all the participants should be held responsible. Between the participants in the crime, they can and should spend their own time and resources to allocate individual fault. If two people decide to fire bullets indiscriminately and one of the bullets end up killing a bystander, the bystander should not be denied compensation simply because it is impossible to determine who fired the fatal bullet. The current state of the law is that they both compensate for the bystander’s death and after that, they can go figure out whose bullet killed the bystander. This is how the courts should treat the banks and the governors they connived with to loot state resources.         

Suing Nigerian banks outside the country for recovery of funds stolen by governors and the or the invalidation of the loan contracts will create a situation where fraudulent bank officials continue to be free to lend billions to governors and others and help them launder the money as long as they know that they may not have a valid loan agreement that is enforceable against a new state government.

I will not be surprised if the state governments refuse to go after the banks. Afterall, many of them are directors of these banks and going after them may result in their own skeletons being exposed. Many of the new governors are currently busy looting state funds in conjunction with the banks even as their colleagues are being arrested and arraigned in different courts.  They may not want to sue the banks because they will be counting on their assistance in accomplishing their own looting.

Governors or no governors, there is hope. Last year, Zambian citizens took former president Chiluba to court in England seeking the millions of dollar he stole while in office. Rather than answering the charges against him, Chiluba challenged the English court’s jurisdiction over the matter. After ruling that the transfer of the money into the British banking system gave a British court jurisdiction over the matter, it went on to convict the ex-president of money laundering. Like Nigeria, the ex-president has become “very sick” all of a sudden and is unable to face investigations in Zambia. I understand there is a movement involving Nigerians in the Diaspora to go after our banks in the manner described above. This movement that is still covert at the time of this article is hoping to turn the heat on the banks in a matter of a few months, if not weeks. It will be bringing cases in the names of individual citizens of different states against banks and governors in foreign countries in efforts to set aside the loans discussed above and recover assets of governors and bank officials in the foreign country. For the banks, bank executives and governors, maybe they should speak to the lawyer who represented Chiluba.

The banks can avoid the pending Tsunami of litigation by willingly negotiating with the states that have been cheated. The banks can invalidate the loan agreements and refund to the states any payments already received. That way, they take the losses for these bad loans, instead of the poor Nigerian whose suffering is increased by the negative effect of ISPO on monthly state allocations. The banks can then go after the governors if they want. This would be the proper alternative to risking an international conviction for money laundry. Such a conviction would be a terminal end to any banking career and could spell the beginning of an international manhunt and a long prison term.