EXCLUSIVE: How MTN ‘Paid’ its NCC Fine

Shrouded in secrecy, market watchers are trying to unravel the enigma surrounding the self-styled fine payment imposed on the Nigerian unit of Africa’s leading mobile telecommunications company, MTN Group, since October 2015.

MTN was handed down a record fee of N1.04 trillion fine (or $5.2 billion at the exchange rate at the time) by the Nigerian government through the telecom industry regulator –the Nigerian Communications Commission (NCC) –for failing to comply with directives on improper registration of Subscribers Identification Modules (SIM).

The compliance audit carried out by the NCC on MTN network revealed unregistered 5.2 million subscribers still active on the network. Consequently, MTN was fined N200,000 (or $1,000) for each unregistered SIM, amounting to N1.04 trillion ($5.2 billion).

Hullabaloo Practitioner
Media reports show that the South Africa-based multinational company has been known for controversies not only in Nigeria but also in other countries.

For instance, Turkish Cell in Iran alleged that MTN corruptly secured a mobile license in the Islamic republic, but MTN vehemently denied the allegation.

In 2012, MTN was also accused by the Ugandan government of evading taxes; while a Ugandan court penalised the company in 2015 for malicious business conduct.

Rwanda’s telecom industry regulator, in 2017, fined MTN a total of 7 billion francs (about $8.5 million) for running its IT services outside the country in breach of its licence.

The Lobby Master
In the aftermath of the Nigerian fine, MTN engaged a diplomatic measure between the government of the Republic of South Africa and its Nigerian counterpart that saw the penalty reduced by 25 per cent (N780 billion).

Not satisfied with the reduction and well-informed that about one-third of its revenues come from Nigeria despite operating in over 20 countries, MTN employed the service of Eric Holder, a former US attorney general experienced in corporate settlement.

Mr Holder’s intervention in the negotiated N780 billion slam further saw it reduced to N330 billion by the Nigerian government after much persuasion.

Staggered Payment Arrangement
According to the NCC, the rejigged N330 billion will last up till May, 31 2019 and includes the “good faith” deposit of N50 billion earlier made by MTN to the Nigerian government in the heat of the intervention.

The balance of N280 billion, by the terms of agreement, would be paid in six tranches. MTN was expected to pay N30 billion into NCC’s Treasury Single Account (TSA) with the Central Bank of Nigeria (CBN) 30 days from the date of the agreement dated June 10, 2016; and on March 31, 2017, it will pay another N30 billion. In March 31, 2018 it was also expected to pay N55 billion and on December 31, 2018 it will pay another N55 billion. Subsequently, March 31, 2019 it will pay N55 billion and the balance of N55 billion will be paid May 31, 2019.

Besides the payment, MTN is also expected to have its shares listed in the Nigerian Stock Exchange (NSE) through initial public offering as part of the settlement of the revised fine.

MTN Keeps Mum
Although the NCC has made some public pronouncements as regards MTN fine, much is still left aloof in the details surrounding the adjusted fine spread over three years. The Executive Vice Chairman of the Commission, Umar Danbata, disclosed recently that MTN has so far paid a total of N165 billion to the Nigerian government as at March 31, 2018; representing 50 per cent of the fine.

But MTN has literally kept mum about full disclosure of the agreed staggered payment option; even as some stakeholders with knowledge on the issue believe that the GSM operator is enjoying some discretionary concessions, particularly from the Nigerian Tax authorities as a result of the fine.

While there is no indication yet that any individuals acted improperly in the MTN settlement, several groups of concerned Nigerians, the Nigerian Governors Forum, as well as some lawmakers have criticised the opaque nature of the settlement process, saying it has set a precedent for other firms dealing with Nigerian authorities.

MTN Group Chief Executive Officer, Rob Shutter, has even doubted if the listing of its Nigerian unit on the NSE would be done anytime soon, after suggesting last year that the process would be concluded by mid 2018. “We are progressing very well with the Nigerian listing and if market conditions are appropriate, we will conclude that by the end of the year,” he said in an interview, while declining to provide more details on the process.

FinIntell Enquires
In the interest of the public and also to encourage corporate compliance in the desired New Nigeria, FinIntell,  some weeks ago, wrote to the Managing Director, MTN Nigeria, Ferdinand Moolman and the Executive Chairman, Federal Inland Revenue Service (FIRS), Babatunde Fowler, requesting clarification from them on certain aspect of the MTN transaction.

For instance, we requested to know from Mr Moolman, as believed in some quarters:

  • If MTN is enjoying any discretionary concessions from the Nigerian Tax authorities as a result of the fine
  • Whether MTN is currently deducting its penalty from its profits subject to taxation
  • Whether MTN currently has a significant loss position arising from the penalty
  • Whether MTN is eligible to deduct the accumulated losses from its future profits before it can be liable to any income tax
  • Whether MTN paid Eric Holder, the former US Attorney General $5m or any other amount as consultancy fees on the NCC fine issue
  • Whether MTN paid several other “consultants” over $5m or any other amount  as “fees” to resolve these issues
  • Whether or not MTN deducted the amounts paid to Eric Holder and other “consultants” (no matter the amounts) as valid business cost under the caption “government and regulatory cost” in its Group Financial Statements in 2016
  • Whether MTN charged R1.32 billon as amount paid to legal advisers from South Africa, Nigeria and the US in its 2016 Financial Statements and that the entire amount was allocated to its Nigeria operations and is now part of the accumulated loss of MTN Nigeria
  • Whether MTN made any payment whatsoever to Nigerian Government Officials on this issue especially representatives of the Minister of Communications, members of the Nigerian Senate committee on Communications, members of the Nigerian House of Representative committee on Communications, Senior Officials of the Federal Inland Revenue Service, and the Chief of Staff to the President of the Federal Republic of Nigeria.

We also wrote to Mr Fowler requesting specific information in accordance with the provisions of the Freedom of Information Act (FOIA) 2011. We asked:

  • Exactly how much MTN has paid (based on the Accounts filed with FIRS) out of the N330 billion fine imposed on it by the NCC
  • Whether MTN is currently deducting its penalty from its profits subject to taxation; and if true, we requested to know if such deduction of a regulatory fine was legal
  • Whether any loss to MTN arising from the penalty may be used to reduce future profits
  • Whether or not MTN deducted the amounts paid to Eric Holder and other “consultants” (no matter the amounts) as valid business cost under the caption “government and regulatory cost” in its Group Financial Statements; and if true, we wanted to know if such deduction was legal too
  • We are aware that MTN charged R1.32 billion as amount paid to legal advisers from South Africa, Nigeria and the US in its 2016 Financial Statements; we requested to know if the entire amount is allowable as valid business cost to its Nigeria operations.

FIRS Late Response
However, the Federal Inland Revenue Service (FIRS) in a late response letter to this magazine, signed by Wahab Gbadamosi –Head, Communications and Servicom Department, denied our request; citing Section 14, Sub-section 1 (d) of the Freedom of Information Act (FOIA).

The response letter read in parts, “We apologise for the delay in responding to your request Freedom of Information Act (FOIA).

Section 14, Sub-section 1 (d) of the Freedom of Information Act (FOIA) states that a public institution must deny an application for information that contains:

(d) information required of any taxpayer in connection with the assessment or collections of any tax unless disclosure is otherwise requested by the statute.

In view of the above, your request has been denied.”

Public Interest
Apparently, it seems that the FIRS failed to acknowledge Sub-section 3 of the same Section 14 it quoted.

Section 14, Sub-section 3 of the Freedom of Information Act (FOIA) stated that:

“Where disclosure of any information referred to in this section would be in the public interest, and if the public interest in the disclosure of such information clearly outweighs the protection of the privacy of the individual to whom such information relates, the public institution to whom request for disclosure is made shall disclose such information subject to Section 14 (2) of this Act.”

According to the financial results of MTN Group Limited for the year ended 31 December 2016, the company made over R47.12 billion revenue in Nigeria with about 62 million subscribers during the period in review.

It is obviously a misplacement of priority for the FIRS to deny our request thinking such information may not be in the interest of the public –from whom MTN made its huge revenues.

No Word from MTN
In the meantime, despite acknowledging our letter, MTN has not responded to our enquiries as at press time, suggesting the GSM provider might be paying its fine as taxes.

FinIntell (May-June, 2018 Edition)