CBN to Pursue Legal Action Over Irregular Forex Forward Contracts Following Forensic Audit

The Central Bank of Nigeria (CBN) has announced its intention to initiate legal proceedings against entities that breached regulations governing foreign exchange forward contracts, following the completion of a forensic audit of those transactions.

This was disclosed in a publication titled “Frequently Asked Questions on the Settlement of Undelivered Forward Contracts”, posted on the CBN’s website on Thursday.

According to the document, the apex bank is reviewing findings from the audit and will coordinate with law enforcement and regulatory agencies to impose civil, administrative, or criminal penalties where necessary. “The Central Bank of Nigeria is reviewing appropriate legal action against parties found to have violated applicable rules and regulations, based on the findings of the forensic audit,” the bank stated.

CBN Governor Olayemi Cardoso had previously confirmed that Deloitte was commissioned to carry out a thorough forensic audit of transactions in the Retail Secondary Market Intervention Sales (SMIS), including unresolved forward contracts.

The audit process entailed the review of contracts, trade confirmations, and supporting documents such as Form M, import/export records, shipping and Customs documentation, and compliance with CBN FX circulars. It also assessed the eligibility of contract beneficiaries.

The CBN noted that the audit revealed serious irregularities in the handling of certain FX forward contracts. All determinations were based on objective, verifiable data, and parties involved were given opportunities to respond before any contracts were invalidated.

Identified infractions included:

• Mismatched company names on sales results and Form M portal

• Cumulative FX sales exceeding the declared forex form value

• Sales surpassing actual demand

• Importation of non-permissible items

• Unauthorized firms importing milk

• Vague descriptions of import goods

• Sales processed without valid demand

Additional anomalies comprised:

• Incorrect or missing Form M or Form A references

• Approved sales linked to rejected applications

• Approved values exceeding import costs on portals

The CBN emphasized that contracts rooted in illegality, misrepresentation, or regulatory breaches are not eligible for FX settlement under Nigerian law. Consequently, no foreign exchange payments were made on invalid contracts, which were officially cancelled. Funds initially received in naira for these contracts have since been returned to counterparties.

The apex bank further stated that it is collaborating with relevant agencies to determine further actions in cases of potential fraud or manipulation, stressing that settling invalid contracts would have undermined the FX system, depleted reserves, and conflicted with its statutory obligations.

The CBN added that the audit outcome is final and not subject to appeal, noting that Deloitte, as an independent auditor, conducted a transparent, rigorous review in consultation with authorised dealer banks. The process, the bank said, satisfied standards of procedural fairness.

In conclusion, the CBN affirmed its commitment to financial system integrity and declared the issue of undelivered forward contracts as formally closed.