On direct allocation of funds to LGA: Between NGF and NFIU


On direct allocation of funds to LGA: Between NGF and NFIU

As the new guidelines on direct allocation of funds to Local Governments (LG) from the Federation Account take effect from today, June 1, state governors across the country have vowed to defy the directive issued by the Nigerian Financial Intelligence Unit (NFIU).

The anti-graft agency has however warned that it would not back down on its plan to monitor the disbursement of funds to the third tier of government.

It said it has no business joining issues with the state chief executives but would rather focus on banks where the monies pass through to ensure total compliance.

The NFIU directive is believed, was issued to ensure financial autonomy of the local councils.

The new guidelines impose a daily N500,000 cash transaction limit on all the 774 LGs. They also bar banks, financial institutions, public officers and other stakeholders from tampering with local government statutory allocations.

The agency vowed to deal with individuals and firms abetting the diversion of the funds. It warned that defaulters will face international and local sanctions, such as “likely blacklist of erring governors and the chief executive officers of the affected banks; shutdown of any erring bank; and watch-list of violators in 160 countries where they cannot transact business or pay bills.”

But some stakeholders including lawyers said the guidelines are unconstitutional while some declared their total support for it, claiming it is a legal directive with constitutional backing.

Governors Fail to Stop NFIU

In what appears to be the initial defeat for the 36 state governors, a Federal High Court sitting in Uyo, presided by Justice A. A. Okeke has declined to grant the request of Akwa Ibom State government to stop the implementation of the guidelines on local government funds issued recently by the Nigerian Financial Intelligence Unit (NFIU).

The NFIU had on May 6 issued the ‘guidelines to reduce vulnerabilities created by cash withdrawals from local government funds throughout Nigeria’, which restored the full mandate of the operations of State/Local Government Joint Accounts to be used solely for the distribution of funds directly to the accounts of the local governments.

Banks were requested to ensure the full implementation of the guidelines with effect from June 1, 2019.

However, all local government areas in Akwa Ibom State, alongside the state government through the Attorney General of the state approached the Uyo division of the FHC seeking to nullify the guidelines issued by NFIU. The court on Friday declined the request after listening to counsels from the state government and the NFIU.

The plaintiffs, who were represented by the State Attorney General, Uwem Nwoko, SAN, also urged the court to grant a restraining order against the NFIU stopping the commencement  of the guidelines on the 1st of June,2019.

Arthur Obi-Okafor, SAN, who represented NFIU challenged the locus standi of the plaintiffs and urged the court not to grant any order “in favour of persons who are nothing but busy bodies”.

He informed the court that the matter is of grave national security concern and that the urgency raised by the plaintiffs is self-induced since the guidelines were released on the 1st of May, 2019. The court adjourned the matter to 21st June, 2019 to hear all pending applications while declining to issue any restraining order.

We Won’t Obey Anti-Graft Agency

The governors of the 36 states, acting under the aegis of the Nigeria Governors Forum, told Saturday Sun that they are not concerned that the new guidelines to guarantee financial autonomy to the 774 local government areas in the country would take effect today, because they won’t obey them.

They had approached President Muhammadu Buhari on the actions taken by the NFIU, which they accused of dabbling into a matter that was “beyond its mandate.” In the letter, the governors expressed dismay and angst at the NFIU’s “brazen attempt to ridicule” their collective integrity and “show total disregard for the constitution of the Federal republic of Nigeria (1999) as amended.”

Head, Media and Public Affairs of NGF, Abdulrazaque Bello-Barkindo, in a statement in Abuja said the governors, via the letter, also accused the NFIU of usurping their powers.

Recall that the NFIU, which was excised from the Economic and Financial Crimes Commission, set June 1, 2019, as the take-off date of the new order, making it compulsory for all LGA allocations to go straight to their respective bank accounts.

The decision is contained in the guidelines released by the NFIU after a lengthy meeting with officials of commercial banks in Abuja.

But the NGF, in its letter to President Buhari, dated May 15, 2019, argued that nothing in the NFIU Act 2018 gave the body the powers that it tried to exercise in the guidelines that it released, adding that the unit was acting in excess of its powers and in doing so, it showed complete disregard for the constitution.

The governors said that local government councils were not financial institutions, but creations of the constitution. They added that they are not reporting entities and therefore, not under the NFIU in the manner contemplated by the latter’s so-called guidelines.

The statement added, “In principle, the NFIU should concentrate on its core mandate of anti-money laundering activities and combating financing terrorism as prescribed in the Act establishing it. It should desist from encroaching on or even breaching constitutional provisions.

“The NFIU is the Nigerian arm of the Global Financial Intelligence Units. It was once domiciled within the EFCC, but now, for the purpose of institutional location, it is domiciled in the Central Bank of Nigeria.”

The governors, according to the statement, further told President Buhari that the NFIU was only mandated to trace or track laundered money that finds its way into terrorism financing and report such to the nation’s security agencies.

The governors, therefore, contended that the NFIU should comply with “those standards on combating Money Laundering and Financing of Terrorism and its proliferation as stipulated and not dabble into matters that are both constitutional and beyond NFIU purview.”

Reiterating its earlier position when speaking with Saturday Sun on Thursday, the NGF through its spokesman, Bello-Barkindo said the guidelines remain unconstitutional and the governors would not obey them.

“The governors are insisting that the NFIU guidelines are unconstitutional, that has not changed, they stand by that position”, he said, warning that “the governors cannot be stopped.”

But in a swift reaction to the governors’ stance,  the NFIU warned that it will not tolerate any disobedience from banks on the guidelines.

Spokesman of the agency, Malam Sani Tukur said the organization expects every bank to comply with the directive.

Specifically addressing the threat by state governors not to obey what they called unconstitutional directive, Tukur said the agency had no issue to sort out with governors.

“Our directive was very clear , we are dealing with banks not governors. We will know what to do if any bank flouts the directive,” Tukur said.

Tukur said the body was in touch with banks and expressed confidence that they will comply with the directive.

Clarifying the agency’s motive of formulating the new guidelines, NFIU’s Chief Media Analyst, Mr. Ahmed Dikko had in a statement earlier explained, that although the basic aim of the guidelines is to protect local government allocations but there were deeper benefits.

In line with the new guidelines, Dikko explained, that funds from the Federation Account, will henceforth, go directly into every local government’s statutory account, meaning that LGs would be free to spend their funds without taking directives from governors who have allegedly hijacked their monthly allocations under the guise of State Joint Local Government Accounts.

The agency said the guidelines are in accordance with its legitimate powers under the NFIU Act 2018 and that any violations of the guidelines would be sanctioned appropriately.

“The NFIU requests all financial institutions, other relevant stakeholders, public servants and the entire citizenry to ensure full compliance with the provisions of the guidelines already submitted to financial institutions and relevant enforcement agencies, including full enforcement of corresponding sanctions against violations from 1st June, 2019.

“We observed isolated comments to the contrary in the past few days which in our assessment only amounted to wilful misinterpretation of the 1999 Constitution and, therefore, of no consequence to the operations of the entire financial system,” Dikko said.

Dikko stated that the directive was sequel to findings, which indicated that cash withdrawals and transactions of the State and Joint Local Government Accounts posed the “biggest corruption, money laundering and security threats at grassroots level and to the entire financial system and the country as a whole”.

The anti-graft agency further explained that the measures were necessitated by the threats of isolation of the Nigerian financial system by other international financial systems for the deficiencies in the nation’s anti-money laundering and counter-terrorism financing implementation.

Saturday Sun findings in the banks however indicate some confusion within the system.

“Why didn’t you allow the process to start first before you want to know whether the banks are complying or not?

“There is still a controversy over that issue. I would have loved that you wait; let June end first. When the month of June ends, after one month, you can then ask whether the banks are complying or not.

“You have heard some governors saying that the NFIU has no constitutional rights to issue the directive. There is no way it can start. If it will start, the Central Bank of Nigeria (CBN) will tell the banks to act (comply).

“When that happens , we will be able to engage you. Even if we will not want you to use our name, we will give you details that you will use to write your report”, a top official of one of the nation’s big banks told Saturday Sun yesterday. He pleaded not to be named because of the sensitive nature of the controversy.

Trade Unions Back Guidelines

Trade unions, including the National Union of Local Government Employees (NULGE) and the Trade Union Congress (TUC), which believed the guidelines will help curb reckless spending of LG funds have also joined the fray.

Reacting to the state governors’ position on the issue, LG workers have called on President Buhari to ignore the petition of state governors on the new guidelines issued by NFIU.

The workers, under NULGE, in a letter to the Presidency, said the governors were behaving like wounded lions, because they see the source of funds that they have habitually misused and abused drying up.

The union’s president, Comrade Khaleel Ibrahim, commended President Buhari and his administration for the courage to come up with the NFIU guidelines.

“Before now, as Your Excellency is aware, local government funds sent to the joint state-local government account have been subjected to the most unimaginable abuse by state governors across the federation.

“The governors almost without exception have since 2003 turned this account into a source of ‘slush fund,’ from which they routinely withdraw funds without any form of accountability or restraint, Khaleel said.”

One of NULGE officials told one of our reporters yesterday that the union’s next reaction would be guided by the governors’ compliance with the guidelines or otherwise.

He said the union had written to President Buhari on its position and is awaiting a response from the presidency.

“The union would definitely not fold its hands on the issue and would support the presidency to ensure that the local governments get what belong to them”, he stated.

Already, the Senate had on May 8 adopted a motion moved by Senator Sabi Abdullahi (Niger North) over the NFIU guidelines.

The Upper Chamber adopted a motion asking the presidency, State Houses of Assembly and relevant stakeholders to expedite action on financial autonomy for all the 774 Local Government Councils in the country.

The Senate enjoined the 36 state governments and the Federal Capital Territory (FCT), to fully support the implementation of the guidelines to promote good governance at the local government areas and restore governance at the grassroots level.

Abdullahi argued that it would reinforce the existence of the local government as an independent government established by the Constitution at the grassroots level with sovereign and elected officials.

Deputy Leader of the Senate, Bala Ibn Na’alla, said: “If we succeed in executing this, 60 per cent of corruption in Nigeria will be resolved.

This will be a major landmark, if the Senate decides to follow through its resolution. Let all financial institutions agree, and all of us agree that we must follow these guidelines and let the local governments be autonomous.’’

Deputy Senate President and Chairman of Senate Committee on Constitution Review, Ike Ekweremadu, also approved the NFIU’s move.

Ekweremadu suggested the amendment of various sections of the Constitution to grant full autonomy to local governments to prevent the newly sworn in governors from challenging the new development in court.

Agbakoba, Ozekhome, Others Wade In

Based on the arguments and counter-arguments by both sides of the divide on the issue, opinions of prominent lawyers were sought and they were as divided on the new guidelines.

For Olisa Agbakoba (SAN), NFIU has technically no power to monitor and supervise local government funds but it is possible to stretch their mandate and say the interest is to keep an eye on money laundering and related financial misconduct.

“Whatever is the nature of power possessed by NFIU, local government funds are in the hands of unelected and often unaccountable people who have received trillions of naira with absolutely nothing to show for it.

“I was compelled to file a suit at the Federal High Court to stop funding to local governments on grounds that they are not elected contrary to Section 7 of the Constitution.

“Unfortunately, I lost the case to make local governments accountable by first compelling state governments to organise elections at that level.

“I see the work of NFIU as an extension of my case, and I am prepared to give the widest possible interpretation to NFIU work so they can monitor the huge fraud occurring at local governments who have failed to hold elections, in some cases up to 10 years ago, Agbakoba.”

Mike Ozekhome (SAN) in his own submission on the issue said by creating a “State Joint Local Government Account,” the Constitution completely puts the LGAs at the mercy of greedy and rampaging states.

“To underscore state’s sovereignty over LGAs’ finances, Section 162(7) sounds the death knell by providing that ‘each state shall pay to the Local Government Councils in its area of jurisdiction such proportion of its total revenue on such terms and in such manner as may be prescribed by the National Assembly.’

“Even when the amount finally grudgingly and tortuously wangles its way into the state, the House of Assembly of that state again ambushes the miserly remnants of funds as Section 162(8) of the same Constitution laconically admonishes that ‘the amount standing to the credit of Local Government Councils of a State shall be distributed among the Local Government Councils of that state on such terms and in such manner as may be prescribed by the House of Assembly of the State,” Ozekhome said.

Former second Vice President of the Nigerian Bar Association (NBA), Monday Ubani also backed the NFIU.

According to Ubani, the guidelines will ensure that local government funds are spent to develop local council areas.

Contrary to arguments by some state governments, Ubani said the local governments are not the creation of the states, but that of the National Assembly.

Ubani recalled that when the Bola Tinubu administration created new local governments in Lagos State, the Olusegun Obasanjo-led Federal Government did not accept the new creations and that was why they ended as Local Council Development Authorities (LCDAs).

“The issue is that we must look at the spirit and letters of the Constitution. Particularly, that section of the law that places local government funds from Federation Account into Joint Local Government Account.

“What was the reason for that? It is to ensure that money from the Federation Account gets to the local governments to enable them carry out their responsibilities under the Constitution”, Ubani said.

In his own analysis, right activist  and lawyer, Kunle Adegoke said the recent effort by the Federal Government to ensure that LGs in the country have direct control of their finances by having direct allocation of their funds from the centre is dictated by good intention, no doubt.

According to Adegoke, “It is true that the State Governments have abused their powers in the control of the Local Governments as many state governments only survive on Local Government’s allocations, which they purloin monthly thereby starving the Local Governments of their due entitlements.

“There is the need to make immediate intervention, otherwise the essence of creation of Local Governments by the drafters of the Constitution, which is to bring the benefits of governance to the grassroots has been defeated by the rapacious guts of most State Governors.

“By Section 162 of the Constitution, subject to certain exceptions, all revenues of the Federation shall be paid into the Federation Account while all amount standing to the credit of the Federation shall be distributed among the Federal, State and Local Government on such terms as may be prescribed by the National Assembly.

“By subsection 5 of Section 162, the amount standing to the credit of local government councils shall be allocated to the states for the benefit of their local government councils on such terms and in such manner as may be prescribed by the National Assembly.

“Pursuant to the above, each State is required to maintain special account to be called “State Joint Local Government Account” into which the allocations to the local governments in a State shall be paid from the Federation Account.

“It is the function of the state to then distribute such amounts standing to the credit of the local governments accordingly.

“That is the position of the Law as enunciated by the Supreme Court in AG Bendel v. AG Federation (1983) All N.L.R 208.”

Adegoke who is  a former gubernatorial aspirant in Osun State under APC added that  it was certain that the State Governments will challenge the power of the Federal Government to promulgate the new guidelines by NFIU and they are going to win.

While the step is aimed at fiscal autonomy for the local governments, which is most desirable, without amending the Constitution, the new regulations cannot survive, he stressed.

Also, a senior lecturer at the Lagos State University ( LASU)  Faculty of Law,  Gbenga Ojo  said: “This matter arose in the matter of AG, Lagos and AGF, when the Federal Government then withheld local government funds because Lagos state government created additional local governments.

“Supreme Court held that the Federal Government has the right to allocate while state government has the right to distribute the funds to various local governments.

“Federal Government then passed a law through the National Assembly to pay directly to the local government. Supreme Court set aside the law. Allocation of fund to local government is a constitutional matter. That was the law.

“I am not aware that the Constitution has been altered or amended to give the Federal Government right to pay directly to the local government.

“I think that the State Governors are right and NFIU is wrong. The Constitution is the Supreme law of the land.”

(From the Saturday Sun)

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