The Central Bank of Nigeria (‘CBN’) recently
indicted MTN Nigeria alleging that it collaborated with Standard Chartered Bank
Nigeria, Citibank, Stanbic IBTC Bank and Diamond Bank Plc to illegally
repatriate $8.134 billion between 2007 and 2015 from Nigeria to its parent
company in Johannesburg, South Africa.
As a consequence of the said indictment, the
CBN slammed a fine of N5.87 billion on the four banks over flagrant violation
of extant laws and regulations of the Federal Republic of Nigeria, including
the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, 1995 of the
Federal Republic of Nigeria and the Foreign Exchange Manual, 2006. In line with
the fine on the banks, the CBN also directed MTN Nigeria to immediately refund
$8,134,312,397.63 it alleged was illegally repatriated by the telecoms company
to the coffers of the CBN.
MTN Nigeria denied the allegation insisting
that the apex bank vetted and approved the transactions in question. In a
statement (widely circulated by the news media) by MTN Nigeria, it was stated
that “No dividends have been declared or paid by MTN Nigeria other than
pursuant to CCIs issued by our bankers and within the approval of the CBN as
required by law”.
In its official response to the CBN, Stanbic
IBTC Bank described the conclusions reached by the regulator as based on
“factually incorrect premises”. It reminded the CBN of the outcome of its
findings on the same issue following a special examination that was conducted
in March this year. The finding reportedly cleared the bank of any wrongdoing
claiming that its actions were in line with extant rules and regulations. The
other banks have also issued statements in similar vein to that of Stanbic IBTC
Bank.
Almost concurrently with the said CBN’s
action, the office of the Attorney General of the Federation (‘AGF’) also wrote
to MTN Nigeria demanding the company should pay $2bn as tax arrears on imported
equipment and unpaid VAT on payments made to suppliers. This was conveyed in a
letter signed by Mr Abubakar Malami (the AGF) which was circulated by the
news media. In the said letter, the AGF notified MTN that his office made a
high-level calculation that revealed that MTN Nigeria should have paid
approximately $2bn in taxes for importation of foreign equipment and unpaid VAT
on payments made to foreign suppliers over the last 10 years.
However, MTN Nigeria, in reaction, said that
an initial assessment of the period indicated that total payments made to the
tax authorities with regard to the foreign imports and payments amounted to
$700m, adding that it had fully settled all taxes on the imports under
scrutiny.
As a direct consequence of the actions by
the CBN and the AGF, the shares of the MTN Group plunged by 25 per cent to a
nine-year low of R86.50 (South African Rand). Also, the much anticipated MTN Nigeria
initial public offerings (‘IPO’), which was an initiative to absorb the hit of
the Nigeria Communications Commission (‘NCC’) fine earlier paid by the telecoms
giant, has been put on hold.
There is no doubt that the said actions
against MTN Nigeria have had a negative consequence on its brand and also
threatens its corporate existence in Nigeria as the company may go under if the
Nigerian Government insists that all the imposed fines and demands on the
company are complied with, without an opportunity for a review or negotiations.
It is noteworthy that the value of the current claims by
the Nigerian government at R150 billion outstrip the total value of all the
shares in MTN listed on the Johannesburg Stock Exchange in South Africa. As it
is, MTN Nigeria may be wondering that even if it succeeds in convincing the
Nigerian authorities that they had the permission it claims it was given to
move $8.1 billion in dividends out of the country and even if it manages to
prove that its tax affairs are in order despite a $2 billion demand from the Nigerian
Government its investors will constantly be wondering where the next brickbats
will be coming from. This is bad for investors’ confidence. The actions of the
Nigerian Government may look like a shake down to the South African investors
of MTN Nigeria.
This article is not to apportion blame or say who is right and
wrong as between the Nigeria Government and MTN Nigeria rather, it is to
highlight the impact of the actions taken by the Nigerian Government on
investor(s) confidence, bilateral relations with South Africa and the obligations
of the Nigerian Government to foreign investors operating in the Nigeria
economy. In other words, this article aims to critically examine the
implications of the actions of the Nigerian Government under customary
international law as it pertains to protection and security for foreign investments
under which category MTN Nigeria falls.
International investment law is designed to promote and
protect the activities of private foreign investors like MTN Nigeria and three
of the four sanctioned banks. Globally, foreign investment is regulated by a
Bilateral Investment Treaty (‘BIT’) between two countries desirous of trade, or
a regional treaty, such as the Economic Communities of West African States
(‘ECOWAS’) or the North American Free Trade Agreement (‘NAFTA’).
The basic international law governing treaties and their
interpretation and application is the Vienna
Convention on the Law of Treaties. Like contracts, treaties bind the state
parties who have consented to them. Under international law, state actors
assume certain responsibilities to respect treaties and protect foreign
investments. Under the International Law
Commission on State Responsibility, it is provided as follows:
“Article
4: Conduct of organs of a State
1. The conduct of any State organ shall be
considered an act of that State under international law, whether the organ
exercises legislative, executive, judicial or any other functions, whatever
position it holds in the organization of the State, and whatever its character
as an organ of the central government or a territorial unit of the State.
2.
An organ includes any person
or entity which has that status in accordance with the internal law of the
State.”
Most investment treaties contain provisions granting full
protection and security for foreign investments. The wording of these clauses
suggests that the host State is under an obligation to take active measures to
protect foreign investment from adverse effects. The host State’s duty is not
restricted to preventing damaging acts by private actors. The State’s
responsibility extends to actions perpetrated by its organs. The applicability
of a treaty provision on protection and security to direct attacks on the
investor’s person and property by organs of the host State is beyond doubt. In Biwater Gauff v Tanzania (Award, 24 July
2008), the Tribunal said:
“The Arbitral Tribunal also does not consider
that the ‘full security’ standard is limited to a State’s failure to prevent
actions by third parties, but also extends to actions by organs and
representatives of the State itself.”
In Azurix Corp. v The
Argentine Republic (Award, 14 July 2006) the Tribunal confirmed that ‘full
protection and security may be breached even if no physical violence or damage
occurs’. The Tribunal said:
“The cases referred to above show that full
protection and security was understood to go beyond protection and security
ensured by the police. It is not only a matter of physical security; the
stability afforded by a secure investment environment is as important from an
investor’s point of view. The Tribunal is aware that in recent free trade
agreements signed by the United States, for instance, with Uruguay, full
protection and security is understood to be limited to the level of police
protection required under customary international law. However, when the terms
‘protection and security’ are qualified by ‘full’ and no other adjective or
explanation, they extend, in their ordinary meaning, the content of this
standard beyond physical security.”
The two cases summarized above indicate that unjustified
coercive measures taken by organs of the host State against the investor and
his property constitute violations of the “protection and security” standard if
they prejudice the investor to a material degree. Juxtaposing the above
restatement of the law on foreign investment to the situation at hand, MTN
Nigeria can legally make a claim against the Nigerian Government for state
actions which threatens its investment or for damages resulting therefrom if it
transpires that the actions of the Nigerian Government were unjustified.
The said actions may also impact on Nigeria South Africa
bilateral relations. Since the inception of democratic rule in Nigeria, South
Africa and Nigeria have had encouraging bilateral economic relations. Since
then, South Africa has emerged among the top investors in many sectors of the
Nigerian economy. South African companies' presence is visible in the Nigerian
economy, especially in areas such as telecommunication, engineering, banking,
retail, hospitality, property development, construction and tourism, to mention
a few.
In 1999, the South African and Nigerian governments signed
bilateral agreements on trade and investment and established the South Africa - Nigeria Bi-national
Commission. These agreements amongst other things, aimed to increase the amount
of trade and investment between South Africa and Nigeria. The signing of these
agreements witnessed inter-alia (a) improved trade relations between South
Africa and Nigeria and (b) South African corporations as big players in the
Nigerian economy. Sequel to the signing of the bilateral agreements, the volume
of trade between South Africa and Nigeria increased from 1999. Prior to 1999,
trade between the two countries was minimal. In 1994, South Africa exported
US$8.1 million worth of products to Nigeria; while it imported US$3.1 million
worth of commodities from Nigeria.
With the signing of the South Africa - Nigeria Bilateral
Trade Agreement, the situation changed. By 2005 South Africa was exporting
goods to the value of R3.4 billion to Nigeria and importing R4.2 billion worth
of commodities from Nigeria. There are an estimated over 120 South African companies
doing business in Nigeria of which the single largest investor is MTN. Its
entrance into the Nigerian market came by way of the first telecommunications
auctions process in Africa, in January 2001. At that time MTN’s entrance into
the Nigerian market was the company’s single biggest investment outside South
Africa.
South African companies are also heavily involved in
Nigeria's media and entertainment sector. DSTV, as a major force in the
television industry, accounts for 90% of the viewers that watch satellite TV in
Nigeria between 2005 and 2009. This has seen DSTV growing into the sixth
largest company listed on the Lagos Stock Exchange.
It is hoped that the South African Government and its Nigerian
counterpart can find a middle ground to have this MTN Nigeria (which also
affects another South African owned company, Stanbic IBTC Bank) issue amicably
resolved so that bilateral relations between Nigeria and South Africa are not
negatively impacted. This also goes for the affected banks. It is recommended that
the Nigerian Government soft pedals and be more amenable to amicable settlement
so that wrong signals are not sent to potential investors at a time that FDI is
at a low and the rate of unemployment very high.
It is hoped the Nigerian Government will not
learn to its cost that if you are not nice to FDI, it ups sticks and finds a
new place to live.
