All You Need To Know About the eTranzact N11bn Fraud Allegation
It’s a bad day for one of Nigeria’s biggest fintech companies, eTranzact. The top payments processing company is in hot water following an N11bn fraud investigation.
As a result, banking regulator, the CBN, has asked some of eTranzact’s top executives to resign. The affected executives include Valentine Obi, the CEO and two board directors.
— BusinessDay Media (@BusinessDayNg) May 22, 2018
This news is not completely surprising when you get all the facts.
How Did the eTranzact Fraud Happen?
BusinessDay reports that the N11 billion fraud allegation came to light in March 2018, when Michael Osasogie Obasuyi, MD of Smartmicro Systems Limited, wrote a petition to Nigeria’s anti-graft body, the EFCC. The petition accused the mobile and electronic payment provider of fraud.
Obasuyi alleged that Smartmicro partnered with eTranzact to introduce a bulk purchase solution called “CorporatePay” in Delta State. The solution was aimed at supporting salary payments to Delta State employees via Micro-finance Banks.
eTranzact also, allegedly, developed another payment solution called “Fundgate” as part of the deal. Fundgate was an outbound fund transfer system for international payments. The system mandated that Smartmicro maintained an account with an undisclosed bank to facilitate foreign payments.
Once this system was set up, Smartmicro was able to defraud the undisclosed bank easily. The system facilitated imaginary funds transfer to the tune of N11bn. However, by March 2018, the bank informed the payment company that the settlement account had accumulated a debt of N11bn.
By April, the EFCC revealed that eTranzact, the implicated company, had responded with a counter-petition against both Obasuyi and Smartmicro. Both petitions prompted the EFCC to investigate the matter.
The EFCC’s investigation has revealed that Obasuyi confessed to his crimes, and some looted funds are already being recovered.
The fraud allegation has also caused a huge ripple in the eTranzact hierarchy. Aside the resignations of the CEO and some board members, two important company executives have already been sacked. Kehinde Segun, the company’s Chief Operating Officer and Richard Omoniyi, the Chief Technology Officer, are the most recent causalities.
The CBN has already launched an audit into the company’s finances. It outsourced the audit to two consultancy companies: Ernst & Young and PricewaterhouseCoopers (PwC).
Nairametrics further reports that the shakeup caused by this news could force the Nigerian Stock Exchange to suspend trading on eTranzact’s shares. Interestingly, the news didn’t seem to have had much impact on the company’s share value.
Future Implications for Regulatory Measures
Although the ease with which this fraud was perpetrated reveals a vast flaw in our financial sector, very little action can be taken against eTranzact.
Unless the CBN pushes for criminal proceedings against eTranzact and/or its executives, not much regulatory measures can be taken against the perpetrators.
— BusinessPost Nigeria (@BusinessPostNG) May 22, 2018
Considering how easy it was for eTranzact to develop an alternative custom payment gateway, and the fact that it could easily integrate it into the banking system of a regulated bank, speaks volumes. It raises plenty of questions on what policy measures exist in the payments industry, how to restrain these companies from abusing their licences, and how to forestall future occurrences.
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