The Central Bank of Nigeria (CBN) has implemented new measures to protect the country’s foreign exchange (FX) reserves, which includes a forensic audit of outstanding forward contracts.
According to an update on the CBN portal on Thursday, the action follows a comprehensive forensic audit conducted by Deloitte, which uncovered “significant irregularities in some of the foreign exchange forward contracts.”
A foreign exchange forward contract is an agreement where two parties agree to exchange a specified amount of one currency for another at a predetermined exchange rate on a future date.
In this case, counterparties entered into a unique FX contract with the apex bank, where they provided Naira upfront in exchange for the future delivery of US Dollars from the CBN.
The audit was initiated to confirm that all outstanding contracts were legitimate, valid, and met all contractual and regulatory requirements, and was deemed necessary to safeguard Nigeria’s FX reserves and promote market discipline.
The forensic audit involved a thorough review of contract documentation, verification of underlying trade transactions, and confirmation that contracts complied with CBN circulars and FX market guidelines.
However, the audit found that some contracts were invalid due to infractions such as the company name on the sales result being different from the name on the Form portal, sales values exceeding the cost of the import item, and the import of non-permissible items.
As a result, all valid and verified contracts were “honored with payments made in line with the agreed settlement terms”.
Unfortunately, the invalid contracts were canceled, and no FX payments were made on them. The Naira that the CBN had previously received for these invalid contracts has been returned to the counterparties.
According to the Nigerian apex bank, paying on these invalid contracts would have rewarded non-compliance and unnecessarily depleted the “nation’s FX reserves.”
The CBN’s message to banks and market participants is a commitment to honoring all legitimate obligations while ensuring strict adherence to market rules. The bank is urging banks and their clients to maintain proper documentation and submit only valid transactions for settlement.
Meanwhile, CBN is also collaborating with law enforcement to determine appropriate actions for cases involving potential fraud or abuse of the FX system. The bank is reviewing “legal actions against parties that violated rules and regulations and will pursue civil, administrative, or criminal sanctions as necessary”. CBN noted.
Also, the apex bank has stated that the audit conclusions are final and that the case of undelivered forward contracts is now closed.
