Banks Ordered to Expose Business Use of Personal Accounts as Central Bank Gets Tough

A Central Bank directive, delivered to all the commercial banks today, ordered them to collect and submit information on account holders suspected of conducting commercial activities through personal or third-party accounts, a signal that regulatory tolerance for informal financial maneuvering is evaporating fast.

A statement issued by the National Bank of Ethiopia (NBE) has an uncompromising tone.

“The National Bank of Ethiopia will undertake a coordinated action to curb these illicit practices,” the statement declared.

Fikadu Digafe,  vice governor, characterised the impending crackdown as a step toward international banking norms. He told Fortune that the practice had enabled widespread tax evasion, with some salaried individuals holding “millions” in their accounts, far outstripping their declared incomes.

“There are people with constant salaries but millions in their account,” Fekadu said, pointing to the common tendency among service providers, including restaurants, to transact through private accounts rather than company accounts. “This entails tax evasion."

The Vice Governor blames such opaque transactions complicate efforts to monitor illegal money flows.

The order, fired a shot at the heart of the country’s cash-driven informal economy, ordering the banks to report the alleged misuse of personal and third-party accounts for business transactions, marks one of the most aggressive attempts by the authorities who claim that they want to stem tax evasion and illicit financial flows.

The alleged practice, the Central Bank warned, not only evades tax oversight but may also serve as a conduit for proceeds of crime and illegal activities.

"A significant number of bank customers, primarily business organisations and individual traders, were using personal or third-party bank accounts instead of the business accounts that had been opened and registered for their official operations,” the statement said.

The banking industry, long accustomed to an enforcement environment, is now under orders to overhaul compliance systems and ramp up due diligence on customer accounts. According to people following the financial sector, the latest warning could drive more businesses into the formal economy, but it also risks pushing some informal traders further into the shadows if they perceive the new regime as overly punitive or bureaucratic.

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