Reflections on the MTN Nigeria Communications case

February 2019 | EXPERT BRIEFING | LITIGATION & DISPUTE RESOLUTION

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On 29 August 2018, Nigeria’s Central Bank (CBN) announced the imposition of sanctions against MTN Nigeria Communications Limited (MTNN) and four commercial banks for the alleged “flagrant violation of extant laws and regulations of the Federal Republic of Nigeria”. The CBN demanded that MTNN return to Nigeria some US$8.13bn, which the CBN claimed had been improperly transferred out of the country as dividend payments to MTNN shareholders, the largest of which was MTNN’s parent company, MTN Group Limited, a company listed on the Johannesburg Stock Exchange. The banks alleged to have been complicit in the alleged infractions were also sanctioned by the CBN. The laws and regulations alleged to have been violated were the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act 1995 and the regulations issued periodically by the CBN and contained in its Foreign Exchange Manual.

The allegations against MTNN first surfaced in 2016, when a member of the Nigerian senate moved a motion in the senate demanding that the relevant senate committee investigate his allegation that MTNN had repatriated about US$12bn from Nigeria over a 10-year period. He accused the company of “unscrupulous violation of the Foreign Exchange (Monitoring and Miscellaneous) Act”, alleging that the amount moved by MTNN was about half of Nigeria’s foreign currency reserves. The senate committee’s investigation resulted in a report issued in 2017, which exonerated both MTN Group Limited and MTNN and, instead, recommended that the CBN sanction one particular bank “for improper documentation in respect of capital repatriation and loan repayments” on behalf of MTNN. The report caused outrage when presented on the floor of the senate, with some senators questioning why the report largely condemned the CBN and exonerated MTNN. The matter came to a head when the CBN issued its sanctions against MTNN, the bank that the senate committee had recommended be sanctioned, and three other banks.

MTNN is the largest single telecommunications provider in Nigeria and across Africa, and within the MTN Group, which is, in turn, Africa’s largest telecommunications operator, both in terms of revenue and subscribers. MTN Group is the 11th largest mobile network operator in the world, with operations in more than 20 countries in Africa as well as in Afghanistan, Iran, Syria and Yemen. MTNN, a wholly owned subsidiary of the MTN Group, had been directed by the Nigeria Communications Commission (NCC), early in August 2018 (shortly before the CBN announced the sanctions) to complete a listing on the Nigeria Stock Exchange by May 2019, after deadlines for this to have been done during 2018 had passed.

On 30 August 2018, MTNN responded to the CBN’s sanctions with litigation, contending that it had not violated any law or regulation and that the penalties imposed by the CBN were, in any event, unlawful. In its defence to the action commenced against it, the CBN maintained its position that MTNN had breached laws and regulations and counterclaimed against MTNN, contending that MTNN’s conduct had contributed to the depletion of Nigeria’s foreign currency reserves, exacerbating shortages caused by reduced earnings from crude oil following the sharp decline in prices in 2016. Crude oil sales are Nigeria’s primary source of foreign currency, making up more than 90 percent of the country’s foreign currency earnings.

In November 2018, in a Financial Stability Review, the South African Reserve Bank commented that if the MTN Group was required to return the US$8.13bn, its ability to meet its debt obligations might be called into question. The Review stated that the “immediate, or at least near-term, repatriation of the funds to the Nigerian authorities could affect MTN Group’s ability to continue meeting its debt obligations, including those in the South African banking sector, which, given the interconnected nature of the financial system could increase systemic risk”. A number of Nigerian bankers also expressed concerns over the CBN’s demand that such a large sum be returned, since the sum represented about half of MTNN’s market capitalisation, and the requirement that it be returned could threaten its Nigerian bankers.

Even before this commentary from the South African Reserve Bank, both the NCC and other operators in Nigeria’s telecoms sector had expressed concerns at this development. Barely three years earlier, the NCC fined MTNN approximately US$5.2bn, which was subsequently reduced to around US$3.2bn, for failure to disconnect subscribers for whom it had no biometric data. MTNN was also in dispute with Nigeria’s federal tax authority over income tax assessments. It therefore appeared that MTNN was either a bad corporate citizen or was being targeted by Nigerian regulators and other authorities for reasons other than actual wrongdoing. Given that this particular ‘investigation’ appears to have been a result of allegations made in the national assembly, suggestions that there were other motivations behind this matter are not surprising. The head of the NCC informed the media that the NCC was seeking to “facilitate an amicable resolution” of both the dispute with the CBN and the tax authority. This move was welcomed by other telecoms sector operators in Nigeria, concerned at the impact the disputes could have on investments in the sector.

At the beginning of the second week of December 2018, the head of the NCC was reported in the media as saying that MTNN’s dispute with the CBN would be resolved ‘soon’. Then, on 24 December 2018, both MTNN and the CBN issued statements announcing a settlement. MTNN’s statement indicated that the CBN had, “upon review of…additional documentation, concluded that MTN Nigeria is no longer required to reverse…dividend payments made to MTN Nigeria shareholders”. Its statement went on to say that “the CBN had instructed MTNN to take steps that would cost it approximately N19.2bn (approximately US$52.6m)”. The CBN statement did not mention any figures, but confirmed that an agreement that would lead to the “amicable disposal” and “final resolution” of the litigation had been reached with MTNN.

The litigation itself had been adjourned to 22 January 2019 for a report on whether a settlement had been reached, so it is expected that the court will terminate the action on that date, upon terms that may, or may not, be made public. While the resolution of this matter must be welcomed, questions will inevitably be asked as to how a demand that US$8.1bn be returned to Nigeria because of alleged infractions by MTNN turned into an acknowledgment by the CBN that these infractions were not such as to warrant such, or any other sanction, other than the “notional reversal” of certain transactions at a cost of US$52.6m. On what basis did the CBN reach its initial conclusion, which ran counter to that reached by a senate committee? Given the disparity between the initial sanction and the final resolution, how much reliance can be placed upon such exercises by the CBN, going forward?

Babajide Ogundipe is a partner and Benita David-Akoro is an associate at Sofunde Osakwe Ogundipe & Belgore. Mr Ogundipe can be contacted on +234 1 462 2502 or by email: boogundipe@sooblaw.com. Ms David-Akoro can be contacted on +234 1 462 2502 or by email: bdakoro@sooblaw.com.

Babajide Ogundipe and Benita David-Akoro

Sofunde Osakwe Ogundipe & Belgore