Thread by @yinkanubi

There has been a lot of misconceptions about the recent guidelines released by NFIU to banks regarding the treatment of LG funds. The purpose of this thread is to clear the air on these misconceptions so we can debate the real “Issue”. #NFIU

A THREAD!

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What is the background story and what is the real issue?

The background to this issue has to do with LG autonomy. Section 7 of the Nigerian constitution guarantees the autonomy of the LG in terms of governance & financing. However, because of the provisions of S.162 (5-8)...

... the Governors have been able to usurp the autonomy of the LG through the control of the State Joint LG accounts. This has led to gross mismanagement of funds & allegations of fraudulent diversion of LG funds by Governors. The guidelines came within the context of this problem

What does S.162 (5-8) of the Nigerian Constitution say about the LG Funds?

It addresses the issue of the treatment of LG funds. SS6 specifically says “Each State shall maintain a special account to be called "State Joint LG Account" into which shall be paid all allocations..

....to the Local Govt Councils of the State from the Federation Account and from the Government of the State”. From this section, we can see quite clearly that LG allocations from FAAC and State are to be paid into a State Joint LG Account. There is no dispute about that. #NFIU

But SS6 does not stand in isolation. It is complemented by SS7 which says that “Each State shall pay to LG Councils...such proportion of its total revenue on such terms and in such manner as may be prescribed by the NASS” Meaning that the proportion of the revenue of each LG...

....as paid into the State Joint account is expected to be transferred to the LG Accounts. It is important to note that SS6 and SS7 do not stand alone. They cannot be applied independent of each other. The provisions go hand in hand. #NFIU

Why did the Constitution create a State Joint LG Account?

The constitution envisaged that there will be revenue from the Federal and State Govt to the credit of Local Govt. So for the purpose of better accountability, the revenues should be paid into a State Joint Account. #NFIU

So what are the NFIU Guidelines?

1. That the State Joint LG account is a “Collection Account” for the transmission of LG funds to respective LG Accounts meaning that “the amount standing to the credit of LGs shall be distributed among the LGs of that State & for no other purpose

2. It also set a daily cash withdrawal limit of N500,000 per day of which anything higher has to be done by cheque and/or transfer. #NFIU

vanguardngr.com/2019/05/fg-blo…

So did the NFIU instruct that funds be paid directly to LG accounts?

No. The NFIU does not have such powers. Rather it merely insisted that funds already in the State Joint LG Account (the collection account) MUST be transferred first into the respective LG accounts before it...

... can be spent in compliance with S162 (5-7) of the Nigerian Constitution. The issue here is "transaction". The Unit mandates that no "transaction should occur from the Collection Account. The NFIU was not breaking the law, it was merely affirming it. #NFIU

So under what powers did the NFIU issue its guidelines to banks? Do they even have such powers?

The NFIU was previously a unit under the EFCC until 2018 when the NFIU act was signed into law. That act empowers the NFIU to request, receive, collect, process, interpret and...

....analyses financial intelligence report on money laundering, terrorist financing and or other unlawful activities taking (or about to take) place. It has the powers to collaborate with other regulatory agencies in combating money laundering and also to review counter measures.

In the operation of this power, the NFIU can place “any” account on surveillance relating to a financial intelligence inquiry of a money laundering nature or if there are “reasonable grounds to suspect that the owner or owners of the account obtained it from “unlawful activity”.

The Unit also has the powers to consult with relevant agencies in developing enforcement measures, and guidelines necessary for the mitigation of risk of money laundering. In other words, if it can be linked to possible “Money Laundering”, it'll fall under the scope of the #NFIU.

That means cash withdrawals, cheques, transfers etc from any “reporting institution” in an account will fall under the scope of the #NFIU. To the extent that LG funds are cashed or transferred through banks, the operations of those accounts falls under the guidance of the NFIU.

Why can't the FG just amend the constitution?

This on paper looks like the easiest thing to do. However, if you're a Governor with influence over the State Joint accounts and knowing that to amend the constitution the FG will need 2/3 of State Assemblies to pass the amendment..

.... would you work to ensure that the amendment is passed or not? My best guess is that the FG knows that if an amendment is pursued, the Governors will defeat it since most of them have the HoA in their pockets. Nevertheless, an amendment is still the best option. #NFIU

Why do you think an amendment is still the best option?

Because it offers us the opportunity to fix this problem once and for all. S.162(8) of the constitution seem to suggest that the State House of Assembly have the powers to re-allocate the LG revenue as they deem fit. #NFIU

So in one breath, the constitution in S.7 grants LG financial autonomy and in another breath S.162(8), it takes it away. This IMO is a lacuna in the law and it needs to be amended. It is what States like Lagos State is using to redistribute LG revenue among the 37 LCDA it created

So does NFIU have any powers to supervise and monitor LG funds?

The Unit does not have the powers to supervise LG funds. But it has the powers to MONITOR all accounts as well as request, receive, collect, process, analyse and interpret any financial intelligence report that ....

....bothers on money laundering even if it from a mere suspicion of unlawful activity. It doesn’t end there, it can also go ahead in conjunction with supervisory regulators to issue guidelines for the purpose of better combating money laundering. #NFIU

So while the NFIU does not have any powers over local governments, it has powers to work with a supervisory regulator like the CBN to impose new guidelines to combat money laundering. #NFIU