FORENSIC ACCOUNTANT CASTIGATES FEDERAL INLAND REVENUE SERVICES FOR PROTECTING OIL COMPANIES

Issues in appropriate auditing process and accountability have, over the years become a constant source of worries and had, often led to cases of finger pointing by Federal Government agencies responsible for regulating the oil and gas sector and the mostly multinational oil producing companies in the country.

The contentious issue had always revolved around the huge discrepancies between amount that up stream oil companies say they paid and what the government says it actually received.

Financial experts and officials of the Nigeria Extractive Industry Transparency Initiative had, since 2004 continued to dismiss the measure of transparency and accounting standards as generally poor.

But a United States of America based Nigerian forensic accountant has accused the Federal Inland Revenue Services of shielding the influential multinational oil companies from the investigative probing of forensic accounting. The Federal Inland Revenue Services is the primary government agency responsible for assessing tax and other revenue due to the government from oil and gas exploration and production activities of shielding.

Mr. Nat Cole, the Forensic Accountant observed that he had been aware of a flourishing practice of under reporting of revenue due to the Federal Government from the multinational oil companies in Nigeria and had approached the Chair person of the FIRS to approve for him, at no cost to the government, the responsibility of auditing the oil companies on the auditing model of forensic accounting’. Cole said.

“The Federal Government and other stakeholders in the oil and gas sector have always been suspicious of figures declared by multinational companies in the now vexed joint venture arrangement with the government in oil exploration and production. In fact, the Nigeria Extractive Industry Transparency Initiative had, in an audit covering the period 1999 to 2004, uncovered huge discrepancies in the figures returned to the government by the oil companies and the figures that are, actually, due to the government.

“As a veteran forensic accountant with more than 28 years auditing the oil and gas sector in the United States and other countries in Europe, I had volunteered my services to the FIRS to audit the books of the oil companies without charges to the Federal Government. I told the Chairman of the FIRS, Mrs. Omoigui Ifueko-Okauru of the limitations of the conventional auditing style to get the actual status of revenue accruable to Nigerians through payment to the government by the oil companies.

“The fact is that by deploying the forensic model of auditing one would be avoiding the what you see is what you get model of auditing. The fact is that with the auditing, you can only work within and by the figures the companies present to you. You won’t be able to ask questions beyond the figures presented. But with forensic accounting and auditing procedure you apply investigative techniques and that will uncover more facts that can be authenticated.

“But the FIRS seems not be to be bothered about what I all of us believe are the wrong things the oil companies are doing as they deliberately act to short change us. I offered my service and I think it is the responsibility of the FIRS management, if they are really serious about getting the right picture of what is happening in the oil and gas sector, to approve the forensic auditing of the companies in the sector.

“But I fear that the FIRS may not be willing to do this because it might be protecting the oil companies from what I can’t really understand. Well, the truth is that the oil giants have become so influential in government that they seem to do things at will and get away with these inappropriate things. It won’t be until we muster enough courage to confront them that the nation would be able to get what is rightfully its, from the oil giants.” Nat explained.

FRUSTRATION SETS IN FOR COMMANDCLEM INVESTMENT SCHEME’s INVESTORS

For expectant investors that had invested sums ranging between N20,000 and N1million before June 19 2008 in the Commandclem Social Security Scheme, it seems the promise of the wind fall from their investment in the scheme is taking too long to materialize. Those that spoke with FORTUNE&CLASS WEEKLY said the wait for the conclusion of the court process that will enable the operators of the scheme start paying them is becoming frustrating.

The story behind the wealth making potentials of the Commandclem scheme is quite interesting. Protagonists of the scheme market it to intending investors as the ultimate path to escaping poverty through registering to become a patentee of a special paint product invented by a Nigerian way back in the 1980s or 1990s, in truth, non of the marketers can be specific about the date of the invention. By registering in the scheme, the investor is said to become a co-patentee to the supposed inventor of the product, a man named King Clement Uwemediimo.

Registered patentees, according to the scheme’s marketers, would be positioned to earn a life time monthly allowance of N30,000. Even after the death of the patentee, his or her offspring would be entitled to the monthly payment. There are other categories in the scheme differentiated by registration fee. The highest possible class in the patentee category is the Knight. A patentee qualifies to this category on paying a registration fee of N4,000,000. The promised benefits to a patentee in this category can’t all be listed, but it include lifetime monthly earning of N300,000, constant contract jobs and holidays in exotic places around the world.

The promises are quite impressive. But the downside is that benefitting from the impressive promises of the scheme is tied to the success of a court case. According to the marketers, King Uwemediimo had sued Mobil Nigeria Unlimited to court for patent right infringement. Is said that Uwemediimo had sold the right of the product, a special paint with which crude oil tanks in the ocean are painted so as to preserve the tanks from corrosion by the salty ocean water. The demand of Uwemediimo, the marketers said is a sum of $39.3billion. However, perhaps to make the offer more juicer, some marketers quote some more humongous figures like $67 billion or $8.7 trillion depending on the marketer selling pitch.

Suddenly, an industry seemed to spring up around the Commandclem scheme at about November 2007 when it was made public that the an Akwa Ibom High Court was going to sit in the Nigerian Consulate in New York to hear witnesses from Mobil on the patent right infringement.

A group of young men must have smelt the opportunity in the Commandclem court case. An organized campaign was initiated to market conclusion of the scheme as an investment.

The first sales line of the marketer is that an interested investor must be registered with the scheme before the court’s final ruling on the matter on June 19 2008. The second sales line is that Commandclem is favoured to win the case no matter the odd. The third pitch is that the court will order the all oil producing companies in Nigeria to calculate two dollars on each barrel of crude oil produced in Nigeria since the invention was allegedly sold to Mobil, and that, the market added up would amount to trillions of dollars. It is from this judgment sanction that participants would be paid their life entitlements.

The marketing pitch, apparently worked. Advertisement jingles were placed on radio programmes, while alleged representatives of the scheme even went around television stations for awareness campaign. Newspapers advertisement spaces were also bought to announce the scheme that would turn Nigerian poors into overnight rich people that would share in the humongous back log of patent fee that would be paid to Uwemediimo. Even on the internet, blogs and sites were dedicated to invite investors to register before the final judgment of June 19. Offices were opened nationwide for people to register.

Not a few Nigerians were taken in by the pitch. FORTUNE&CLASS OBSERVED a high traffic of people in offices of the scheme in Lagos State. In fact, one Okaiwele Austin requested on his blog site that interested investors should pay N5000 into his account before he would post contact details of the scheme operators to them. The officials of the scheme warned that no registration would be allowed after the June 19 2008 final judgment, this further fueled the high traffic.

But now, the cold reality of some of the unreal expectations of the scheme may be dawning on the investors. In the first place, the decision of the court can not be contemplated by any party to the suit. While it has been confirmed that there is truly, indeed, a court matter pending on the subject of a patent, the ruling of the court case is that of no other person than the judge. And the ruling can favour either Commandclem or Mobil. Besides, even if it is assumed that Commandclem wins the case, the cost sanction against Mobil may not be as huge as expected. In fact, if the court sanctioned Mobil in the cost expected by the Commandclem marketers, it would be the first of such in the world.

Anyway, the situation report at the moment is that expectant investors in the scheme back in 2007 are becoming frustrated over waiting for so long and to make it even bad, nobody can assure them of how much longer they are going to wait. The court that was expected to sit and make its ruling on the matter on June 19 did not sit because the judge was absent. The case was said to be adjourned to July 22. Again, on the adjourned date nothing was heard of the suit. Now, in November, not even the marketers of the scheme can provide updates on the court process and when it would be disposed of.

For a scheme that is tied to the judgment of the court, investors have started grumbling aloud that they were cheated into believing that the case was near conclusion before they registered but now that some of them have their money tied down to the scheme for more than a year, they are saying it seems they were hoodwinked.

PS: It has been brought to our notice that an aggressive advertisement of  Commandclem Social Security Scheme is ongoing in popular media houses in Ogun State, Nigeria, therefore, we believe it is our duty to advise the investing public to look before they leap. Thank you.

BANK MDs TROOP TO FIRST BANK FOR BAIL-OUT…FINANCIAL INSTITUTIONS REJECT SHARES AND PROPERTY AS COLLATERAL

First Bank of Nigeria might have become the unofficial lender of last resort for many banks currently experiencing liquidity problems. A bank is said to experience liquidity crisis when it can not support its short term obligation to its customers by itself. Thus to continue to serve the needs of its customers, the bank may have a recourse to another commercial bank which may lend it the short term fund, usually for a period of between seven days and 90 days.

Traditionally, the Central Bank of Nigeria is supposed to be the lender of last resort for banks and other financial institutions, but FORTUNE&CLASS cross checks in the banking industry showed that rather than many commercial banks approach the CBN to augment their liquidity position, most of the banks managing directors opted to seek the support of the management of First Bank to provide short term funding support for their operations.

“I can tell you that most of the banks managing directors, these even include so called first tier (banks that are supposed to have more than a billion dollar capital base) troop to First Bank to negotiate funding support.” A banking industry insider said.

The option of adopting First Bank in the rather unusual role of a lender of last resort might not be unconnected with many commercial banks efforts to shy away from the official channel of funding provided by the CBN so as not to be labeled as desperate to survive and consequently provide ammunition for the de-marketing campaigners that are going around the sector, insinuating the parlous state of health of some banks on account of their liquidity position.

“It is easy for bankers to know who is applying for what with the CBN.” A senior banker said. “But negotiating and securing funds from a colleague banking institution has all the trappings of confidentiality and utmost secrecy. So, I think, these other banks would rather prefer to relate with First Bank on the inter-bank lending platform. At least, there is nothing illegal about that and as far as they are concerned, other practitioners and the public are not privy to these negotiations.” The banker explained.

Though the inter-bank lending platform is an organic relationship channel in the banking industry, however, concerned members of the board of directors of the bank are becoming quite uneasy with the load of demands from other banks.

A source in First Bank informed that the bank is becoming more serious with risks control measures.

“This is not a recent development. First Bank has been experiencing a deluge of demands for lending from other banks over the last six to seven months. I think that at one of the board of directors meeting, board members directed the management team to be more circumspect about their lending to these other banks.” A First Bank insider revealed.

The irony of banks seeking out bridging funds for their operations is not limited to beseeching First Bank, the industry is already abuzzed with banks chasing after deposits from the banking public in preference to approaching the CBN. The unofficial explanation for this action has the same texture with the one given by insiders for the First Bank option. Banks, industry sources said, would rather prefer to go after deposits in the public domain than to approach the CBN where data of their application for funding could be used against them when the CBN make public such data.

On the whole, nerves are gradually getting on the edge in the banking industry as interest rates and other related data show an escalation that are, increasingly becoming alarming signals.

“Even the illiterate can read the signs.” Ori Adeyemo, a forensic accountant said. “These banks are chasing after deposits with tempting offers beyond the market rate, they are not bothered with the implication for the cost of funds both to their operations and to the borrowers. Of course, we know that they are only interested in making their liquidity position look good as their different year end draw to a close. Despite the figures the CBN make public, you won’t believe that interest rate and other charges for loan in many banks are adding to about 34 percent of the loan offered. And that is where the borrower is lucky to get a bank to provide the loan. The simple truth is that lending activities have reduced significantly. That is a fact.” Ori argued.

The general impact on the liquidity position may have been further indicated with the considerable increase in the Nigerian Inter Bank Offer Rate (NIBOR) (the NIBOR is the rate at which banks lend short term funds to each other) CBN data on the NIBOR as at the preceding week, released last week, showed that the 7-day NIBOR at the inter bank market transactions increased by 123 basis point to close at 18.14 percent from the week before figure of 16.92 percent.

The 90-day NIBOR also closed higher in the same period from 17.42 percent to 17.96 percent.

“Is it not clear that there is a situation in the banking industry if banks are lending to themselves at these high rates? You can imagine what rate they will lend to their customers. Even at that, it is becoming increasingly difficult for some banks to secure funds from the inter-bank lending platform because the strong banks are considering exposures to them as highly risky.” Bisi Iyaniwura, a lawyer with specialized practice in banking and corporate law said.

Meanwhile, it has been revealed that some financial institutions now reject collaterals in the form of shares and property and even treasury bills as securities for loans.

“FORTUNE&CLASS gathered that a second tier bank had approached a discount seeking its (discount house) assistance to secure a N150 million short term fund for its operations. However, after the discount house which is a subsidiary of a another first tier bank sought the position of its principal, the first tier bank rejected all the traditional forms of securities like shares, treasury bills and property the fund seeking bank was willing to provide.

“This, ultimately, foreclosed the funding negotiation.” A source privy to the negotiation informed that the discount house demanded for trading securities.

“They said they would prefer collateral that can be easily turned to cash like goods in warehouses and some other strange stuffs.” The source informed.

ZAIN SUPPLIERS GRUMBLE

Suppliers of Zain who had waited out the mandatory 30days for payment have been compelled to extend their wait.

Heard the new Financial Head at Zain got finicky with the books, while the financial head is still perusing, no payment can be made. The suppliers who had anxiously waited smiled when they got the information.

In reality however, they (suppliers) are grumbling to high heavens over the delayed payment while marking the new likely date for payment on their calendar.

e-Gold Directors Convicted

Three directors of E-Gold, in addition to its Gold & Silver Reserve parent company, indicted in April 2007 of running a platform that have become a haven for criminal activities like processing investment scams and payments for child pornography on Thursday, 20 November, received their sentences. However, a United States of America federal judge decided last Thursday not to impose a prison sentence on the senior directors of E-Gold. Instead each of them was sentenced to three years of probation and 300 hours of community service with some fees to be paid.

Gold & Silver Reserve CEO, Douglas Jackson, who faced a maximum sentence of 20 years in prison and a $500,000 fine was spared the heavy fine because, according to his attorney, he’s deeply in debt. Thus he was sentenced to pay only $200 fine with 300 hours of community service time of supervision.

Reid Jackson, Douglas Jackson’s brother, and E-Gold director Barry Downey were each sentenced to three years of probation, 300 hours of community and ordered to pay a $2,500 fine and a $100 assessment fee each. Online sources say the maximum fine E-Gold and Gold & Silver Reserve faced could have been $3.7 million, but because neither company could pay that much, they were fined $300,000 with the condition that $10,000 be paid on Monday, with further monthly payments to start in May 2009.

E-Gold and its corporate affiliate, Gold & Silver Reserve Inc. had, each, pleaded guilty to conspiracy to engage in money laundering and conspiracy to operate an unlicensed money transmitting business. The principal director of E-Gold and CEO of Gold & Silver Reserve Inc. (Gold & Silver Reserve), Dr. Douglas Jackson, 51, of Melbourne, Fla., pleaded guilty to conspiracy to engage in money laundering and operating an unlicensed money transmitting business. E-Gold’s other two senior directors, Barry Downey, 48, of Baltimore, and Reid Jackson, 45, of Melbourne, each pleaded guilty to felony violations of District of Columbia law relating to operating a money transmitting business without a license. E-Gold, Gold & Silver Reserve and the three company directors were charged in an indictment returned by a federal grand jury on April 24, 2007.

Interestingly, when Douglas Jackson acknowledged the company was under investigation in 2004, the illegal activity still went on with E-Gold, the company during trial ascribed this to bad legal counsel, which convinced them the site does not have to be licensed as a money transmitting business. The court accepted the argument of Downey that he was unaware of the company’s need for a license, even though he is a practicing lawyer.

The defendants argued they made every effort to cooperate with investigators while the prosecutors questioned the use of E-Gold’s cooperation as the directors’ tried to circumspect government investigation.

In addition to the fines and prison sentences, each of the defendants agreed that E-Gold and Gold & Silver Reserve will move to fully comply with all applicable federal and state laws relating to operating as a licensed money transmitting business and the prevention of money laundering which includes registering as money service businesses. Also, as part of the plea agreement, the businesses will create a comprehensive money laundering detection programme that will require verified customer identification, suspicious activity reporting and regular supervision by the Internal Revenue Services’ (IRS) Bank Secrecy Act Division, to which the Financial Crimes Enforcement Network delegated authority according to federal regulations. E-Gold and Gold & Silver Reserve will hire a consultant to ensure their compliance with applicable law and hire an auditor to verify the companies’ claims that all transactions are fully backed by gold bullion.

Under federal law and District of Columbia law, in addition to other jurisdictions, the E-Gold operation was required to be licensed and registered as a money transmitting business. However, according to information in plea materials, the E-Gold operation functioned as a money transmitting business without registering with the federal government and without a license in the District of Columbia. Because these businesses and individuals illegally failed to register and follow applicable regulations under federal and District of Columbia laws, the resulting lack of oversight and required procedures created an atmosphere where criminals could use “e-gold”, or digital currency, essentially anonymously to further their illegal activities.

Specifically, according to information contained in plea materials, the E-Gold operation provided digital currency services over the Internet through two sites: www.e-gold.com and www.Omnipay.com

“By failing to comply with money laundering laws and regulations, the E-Gold operation created an environment ripe for exploitation by criminals seeking anonymity in conducting online transactions,” said Acting Assistant Attorney General Matthew Friedrich. “This case demonstrates that online payment systems must operate according to the applicable rules and regulations created to ensure lawful monetary transactions.”

“The operations of E-Gold Ltd. and the other defendants undermined the laws designed to maintain the integrity of our financial system and created opportunities for criminal activity,” said U.S. Attorney Taylor. “Because of the successful prosecution of these defendants, digital currency providers everywhere are now on notice that they must comply with federal banking laws or they will be subject to prosecution.”

The case was investigated by the U.S. Secret Service, IRS Criminal Investigation and the FBI. The case was prosecuted by Assistant U.S. Attorney Jonathan Haray of the U.S. Attorney’s Office for the District of Columbia, Senior Counsel Kimberly Kiefer Peretti of the Criminal Division’s Computer Crime and Intellectual Property Section and Laurel Loomis Rimon, Deputy Chief of the Criminal Division’s Asset Forfeiture and Money Laundering Section, with assistance from the Criminal Division’s Child Exploitation and Obscenity Section. William Cowden of the U.S. Attorney’s Office Asset Forfeiture Unit assisted with forfeiture issues involved in the case.