By ADEBAYO OBAJEMU
A constitutional crisis may be brewing in the country with the establishment of the Nigerian Financial Intelligent Unit, NFIU, which is intended to monitor and control states’ and local government spending in a bid to curb corruption at that level of governance. The governors are challenging the power and existence of the NFIU to interfere with the running of the local govts insisting that it breached the constitution which created the State/ Local govts Joint Account, vowing to reject it.
Campaign for fiscal federalism has generally been limited to the relationship between the federal government and the states. Governors who are the receiving end of the present federal structure, which has emasculated their financial autonomy as they depend almost completely on FAAC allocations have been in the forefront for the review of the present fiscal structure which gives 54 percent of the federal revenue to the centre.
But in the interim they had found a way around the problem by expropriating the funds allocated to the local governments as a tier of the federation. The constitution established the local government as a separate tier of government with 20 percent allocation of the revenue and states 23 percent, which derivation takes three percent.
However, to augment their revenue the governors take over the local governments’ allocation through the Joint State/Local govt Account.
On their parts, the governors had used the local govts funds as slush fund for their own use while the local governments are virtually abandoned and only pay salaries. Many believe that the lack of development in states is a reflection of the misuse of lots funds by the governors. As a consequence, most local govts are run by appointed officers rather than the elected executives recommended by the constitution.
However, the 1999 Constitution of the Federal Republic of Nigeria gives legal backing to the state-local government joint account. It also stipulates very clearly on the purpose for which it should be put in section 162, Sub-section 18. Specifically, section 5 8 of the constitution states: The amount standing to the credit of local government councils in the federation account shall also be allocated to the states for the benefits of their local government councils on such terms and in such manner as may be prescribed by the national assembly.
“Each state shall maintain a specific account to be called “state joint local government account” to which shall be paid all allocations to the local government councils of the state from the federation account and from the government of the state. 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.
“The amount standing to the credit of local government councils of a state shall be distributed among the local government councils of the state on such terms and in such manner as may be prescribed by the House of Assembly of the state. The Act establishing the State/Local government Joint Account also provided for the
modality of its operations to ensure financial discipline and the fact that no local government is politically marginalized in favour of other local governments by the state government as the supervisory body. This included both the sharing formula amongst the local governments in the state as well as the statutory deductions that should be made from the Joint Account.
The Joint Account shall be distributed among the local government councils by the Joint Account Allocation Committee (JAAC) in the following manner;
- a) 40% on the basis of equality
- b) 25% on the basis of population
- c) 20% on the basis of primary school enrollment
- d) 10% on the basis of internally generated revenue
- e) 5% on the basis of landmass.
Some Deductions Provided for by the Law:
The deductions provided for under the Joint Account Law tagged “First-Line-Charges” include the following;
Local Government Education Authority gross salary
Local Government Education Authority Overhead
Total Education Fund payable
Pension Fund allowance.
The NFIU announced a ban on transactions on state and local governments’ joint accounts, arguing that such accounts are only transitional accounts from where funds should go directly to the accounts of local governments. The NFIU subsequently placed a limit on cash withdrawals from local governments accounts to a maximum of N500,000 per day, warning banks to ensure strict compliance.
In a swift reaction, governors, under the Nigerian Governors Forum (NGF), however, said they were angered by the new directive which they described as unconstitutional.
Abdulrazaque Bello-Barkindo, head of media of the forum said last week that the agency was going beyond its brief. He said the governors had sent a letter to President Muhammadu Buhari, seeking his intervention. They also threatened to seek court interpretation.
The NFIU, which was excised from the Economic and Financial Crimes Commission (EFCC), set June 1, 2019, as the takeoff date of the new order. The order makes it compulsory for local government allocations to go straight to their respective bank accounts. The decision is contained in a guideline released by the NFIU after a lengthy meeting with officials of commercial banks in Abuja recently.
The governors said they extracted “copiously from the constitution” to draw the attention of the president to section (6) (a) and (b) “which confers on the States and National Assembly the powers to make provisions for statutory allocation of Public revenue to the Local Councils in the Federation and within the states respectively.”
Similarly, the governors added, Section 162 (6) expressly “provides for the creation of the States Joint Local Government Account (SJLGA) into which shall be paid all allocations to the LGAs of the State from the Federation Account and from the government of the state.”
The NGF spokesperson said that nothing in the NFIU Act 2018 gives the body the powers that it seeks to exercise in the guidelines that it released. The governors, therefore, argued that the NFIU was acting in excess of its powers and with complete disregard of the constitution of Nigeria.
The governors accused the NFIU of “stoking mischief and also deliberately seeking to cause disaffection, chaos and overheat the polity.” The NGF contended that local government councils are a creation of the constitution and are not financial institutions.
According to the governors, local governments are not reporting entities and are therefore not under the NFIU in the manner contemplated by the NFIU so-called guidelines.
“In principle, the NFIU should concentrate on its core mandate of Anti-money laundering AML activities and Combating financing Terrorism CTF as prescribed in the Act establishing it and should desist from encroaching on or even breaching constitutional provisions,” the statement quoted the governors as saying.
It will also bar banks, financial institutions, public officers and other stakeholders from tampering with local government statutory allocations.
The NFIU 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.”
Reasons for new guidelines
According to the NFIU, the rules followed intelligence reports tracing local governments’ funds to Bureaux de Change. The guidelines were also said to be in response to threats of isolation of the country’s financial system by international financial systems due to deficiencies in our anti-money laundering and counter-terrorism financing implementation and measures.
The NFIU Chief Media Analyst, Mr. Ahmed Dikko noted, in a statement, that although the basic aim of the guidelines is to protect local government allocations, there were deeper benefits.
The implication of protecting LGA allocations, Dikko explained, is that funds from the Federation Account, will henceforth, go directly into every local government statutory account, meaning that LGAs would be free to spend their funds without taking directives from governors who have hijacked their monthly allocations under the guise of State Joint Local Government Accounts.
Dikko said: “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.”
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.
“We observed isolated comments to the contrary in the past few days which in our assessment only amounted to willful misinterpretation of the 1999 Constitution and, therefore, of no consequence to the operations of the entire financial system,” Dikko said. He 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.
Statistics support NFIU’s claims on corruption
According to data from the office of the Accountant-General, N14.7 trillion was allocated to the 774 local governments between 2008 and 2018, and larger percentage of this allocation has been diverted by governors into the state accounts, and misappropriated by the governors.
The data revealed the top five states with the highest amount of allocation to their local governments during the period reviewed included Kano, which received the highest allocation amounting to
Kano = N832.6 billion
Lagos – N829.6 billion,
Katsina – N613.4 billion,
Oyo– 569.6 billion, and
Kaduna– N504.9 billion.
The five states, whose local governments have received the lowest allocation in the past 10 years are:
Bayelsa – N167 billion,
Gombe – N219.4 billion,
FCT – 226.8 billion,
Ebonyi – N230.9 billion, and
Nasarawa – 240.4 billion.
It was reported at a United Nation (UN) conference in New York two weeks ago, that Africa loses about $80 billion yearly through Illegal Financial Flows (IFFs), including illegal movements of money or capital from one country to another through tax evasion, money laundering and smuggling.
Nigeria reportedly accounted for $17 billion or 21 per cent of the figure. The development, it was said, prompted Nigeria to push for the international community to simplify the process of tracing, recovering and repatriating IFFs to their countries of origin.
What the development portends for anti- corruption in Nigeria
The Senate 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 levels. 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, Senator 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, Senator Ike Ekweremadu, also approved the NFIU’s move. He suggested the amendment of various sections of the Constitution to grant full autonomy to local governments to prevent in-coming governors from challenging the new development in court
Mr. Oluyori Aguda formerly of the Local Government Affairs Department, The Presidency told BusinessHallmark that “This development has shown that Buhari meant well for the country, and it is a plus to his anti- corruption crusade.”
Comrade Rasaq Lawal, Deputy Secretary General of Nigeria Union of Local Government Employees, NULGE, in a chat with BusinessHallmark said “This development was long overdue, finally, local governments can truly develop without encumbrances. The people can now hold them to account in terms of what they use the allocations for.”
NULGE National President Comrade Ibrahim Khaleel said in Abuja penultimate week that the regulation was an indication of the renewed fight against corruption by the President Muhammadu Buhari-led government.
“As a union, we will work with the relevant agencies of the Federal Government to ensure the successful implementation of the guidelines,” he said.
The case against NFIU guidelines
But other stakeholders have faulted the guidelines, arguing that they infringe on states’ constitutional power, among other reasons. The Lagos State government said the Federal Government had no business allocating money to the local governments directly. It said such funds should be given to the states to determine how it would be disbursed.
The Secretary to the Lagos State Government (SSG), Tunji Bello, while receiving Senior Executive Course participants of the National Institute for Policy and Strategic Studies, (NIPSS) in his Ikeja office penultimate Tuesday, maintained that the Federal Government should not dabble into the affairs of the local governments.
“The federation is between the federal and the states that is why the constitution must be amended to reflect that the federal and state should determine allocations. The money should be shared between federal and the state,” Mr Bello said, citing practices in countries, such as Germany and the U.S.
Bello said local governments were tied to the states and, therefore, the states should decide how they (LGAs) should spend their money. The Federal Government should not jump the state and start dealing with LGAs directly.
Similarly, Ekiti State Governor, Kayode Fayemi also faulted the new financial guidelines put in place for local government areas by the NFIU, describing the document as “unconstitutional and unenforceable”.
He said the imposition of the guidelines on states amounted to a recourse to a unitary system. Fayemi insisted that local governments are under the control of states by the provisions of the 1999 Constitution.
“The Nigerian constitution only recognises a Federation of two federating units – federal and state government and local government areas – are under the supervision of states and my own personal campaign is that they should be expunged from the constitution because there is no reason to list local government in the constitution.
A Law lecturer at the University of Lagos (UNILAG) Wahab Shittu said the true test of federalism is reflected in fiscal federalism and devolution of powers to the federating units in the federation. According to him, the NFIU directive is “cheering news” and is in furtherance of the federalist philosophy.
“Hitherto Local Governments were emasculated as they grapple with peanuts with resultant negative development indicators. This narrative is now likely to change with prospects of development brighter. It will translate into greater accountability and transparency in the management of local funds. We now know who to hold responsible for mismanagement of local government funds.
“It will also trigger increased tempo of activities at the local government level with the best hands attracted to come on board.
“Grassroots development will be enhanced as more funds become available for critical infrastructures and other services. Indeed a new era is born,” Shittu said.
According to him, “Section 7 of the constitution guarantees the system of local Government Administration. These guidelines will strengthen the efficacy of section 7 of the constitution.
“It will seem that section 162 (6) and (8) will have to be amended for the new guidelines. This is the urgent task of the 9th Assembly”, he added.
Former Second Vice President of the Nigerian Bar Association (NBA), Monday Ubani also backed the NFIU. According to him, the guidelines will ensure that local government funds are spent to develop local government council areas.
Speaking to BusinessHallmark, Ubani said the local governments are not the creation of the states, but that of the constitution. He 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 creation 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”.
A Kaduna-based lawyer, Leke Job, SAN, told BusinessHallmark that what NFIU has done is constitutional, saying any argument to the contrary is political.