The categorical suspension of all bank accounts held in the Tigray region was illegal, discriminatory, and disproportionate. NBE must apologize and pay reparation to all Tigrayans.
By Asress Adimi Gikay – Awash Post
June 11, 2021
In November 2020, a few days after the Ethiopian National Defense Force launched armed hostility in Tigray, the National Bank of Ethiopia (NBE) ordered the complete freeze of all bank accounts opened in the region.
Although the NBE gave no clear explanation, the measure was ostensibly aimed at preventing and stopping financial transactions conducted by the Tigray People’s Liberation Front (TPLF) members and the businesses and individuals associated with the party. The measure followed a sudden decision in September to change banknotes as part of the preparation for the war. Subsequently, the government targeted 34 companies in finance, mining, construction, and various other sectors with alleged links to the TPLF. Regrettably, the decision to categorically freeze bank accounts opened at 616 bank branches in the Tigray region prohibited cash withdrawals from branches or ATMs across the country.
The sweeping decision mainly affected Tigrayans in Tigray, but it also prevented Tigrayans living in other parts of Ethiopia from accessing their bank accounts. In effect, nearly all Tigrayans were abruptly cut off from financial services, food, telecommunication, transportation, and healthcare services.
The freezing of bank accounts exacerbated the situation of Tigrayans, who were already under dire circumstances in the crossfire. When the measure was announced, the war had already rendered thousands of civilians refugees and internally displaced persons. Towns, neighborhoods, and homes were being bombarded from the air; civilian infrastructure was targeted with artillery shelling. Tens of thousands were forced to escape, hundreds killed, wounded, and separated from loved ones, not knowing if they are alive. To add to the ordeal, the Bank ordered that those who could use their money to ameliorate their condition would have no access to their money. The decision lasted over one month.
NBE’s decision to halt banking services exacerbated food insecurity in Tigray and exposed millions of people to hunger. The denial of banking services occurred concurrently with extrajudicial killing of civilians, targeting civilian assets, including historical, cultural, and religious heritages, and the use of rape as weapons of war.
The NBE, as the Central Bank, regulates all financial institutions, including the Commercial Bank of Ethiopia, investments, and other private banks and microfinance institutions. It has the authority to issue directives on any matter that falls under its regulatory purview. Yet its blanket decision to cut off the Tigray state from financial services was devoid of any legal and moral basis. On the contrary, the bank became an enabler and active participant in the coordinated efforts of Ethiopian and Eritrean leaders to starve the people of Tigray into submission, including through the blockade of humanitarian supplies destined for affected civilians. The use of hunger as a weapon of war is prohibited under international humanitarian law. As an active party to the conflict, the Central Bank contributed to aggravating the already dire situation of civilians.
Unclear objective and disproportionate means
The categorical suspension of all bank accounts held in the Tigray region was illegal, discriminatory, and disproportionate. The Ethiopian government could have been achieved its aim of tackling illicit transactions and preventing individuals and entities associated with the TPLF from accessing money through a more proportionate, legal, and morally justifiable means. In fact, the NBE had two existing channels to regulate access to cash. The first method is through general limits on daily and monthly electronic transfers and cash withdrawals, while the second is through anti-money laundering legislation.
The May 2020 directive issued by the NBE regarding the cash withdrawal limit allows individuals to withdraw cash up to 200,000 birrs per day and 1,000,000 birrs per month. Similarly, current anti-money laundering legislation gives banks the authority to suspend suspicious transactions and report them to law enforcement. However, neither legal regime allows the NBE to suspend bank accounts categorically. This illegal and immoral measure constituted active involvement in an armed conflict given how vital access to money was for civilians to improve their situations, including accessing transportation services to reach safer spaces. The disproportionate denial of access to financial services gives the measure the intent to engage in the targeting of civilians and equates the people of Tigray with the TPLF.
The government could have easily achieved its objective of choking funding sources for the TPLF using advanced technological tools. Today, algorithms are used to perform a broad range of tasks, including creating personalized advertisement services, providing investment advice, operating autonomous vehicles, conducting remote identity verification, and even determining whether we qualify for a loan. “There were 368.92 billion purchase transactions for goods and services worldwide in 2018,” according to recent research by Nilson Report. That is roughly 1.01 billion credit card transactions every day. Crucially, these transactions are not verified and approved by humans; they are verified mainly by a software algorithm unless a transaction is flagged as suspicious, which may trigger manual scrutiny.
Banks use software algorithms to limit daily, weekly, or monthly withdrawals and online spending for various reasons, such as reducing the amount and frequency of fraudulent transactions and preventing and detecting illicit transactions. Algorithms are increasingly used for real-time fraud and money laundering detection by flagging suspicious transactions based on a change in spending patterns, geolocation, and any other discernible pattern. Flagged transactions are temporarily denied and investigated by fraud and money laundering investigators within the bank. While earlier software algorithms had limited success rates with many false positives, banks continue to invest in the technology to improve its accuracy with a decent amount of improvements.
Ethiopian banks already have a system of putting limits on daily ATM cash withdrawals. Therefore, it is highly improbable that the same technology could not be used to allow access to funds for innocent Tigrayan civilians to meet their basic needs. In the absence of such technology, the banks should have adopted a more proportionate measure, including limiting withdrawal caps through semi-automated means rather than treating an entire group of people as criminals.
Central banks across the globe have the power to define the monetary and macro-economic policy of the country. In doing so, they are immune from legal liability for their judgment that may have consequences on the national economy. This principle allows central banks to exercise their expertise, experience, and best judgment without being concerned with potential liability and preserving their independence. But central banks are not immune from accountability for enabling the government to engage in illegal conducts in violation of domestic and international laws.
For example, in the United States, the Federal Reserve has been sued for allegedly encouraging anti-competitive conduct. The European Central Bank was similarly challenged for its alleged contribution to environmental pollution through quantitative easing. These suits involved far less grave conducts falling within the banks’ mandates. But when central banks act beyond their mandate and legal confines, they are not exempt from judicial actions. By ordering the categorical freezing of bank accounts affecting more than 6 million Tigrayans, the NBE had exceeded its regulatory authority and acted in ultra vires. It should be held accountable for this egregious, illegal, and immoral decision.
The NBE should apologize to the people of Tigray and set up a compensation fund for victims of its discriminatory decision. Every Tigrayan that held a bank account in the region should be paid compensation as an acknowledgment of their pain and suffering and the bank’s effective involvement in the war. Lacking a good-faith gesture and self-initiated reparation scheme by the NBE, the bank, and its top executives should be subjected to a civil suit.
The U.S. government, the European Union, and various UN agencies have expressed grave concerns regarding the impact of the ongoing war on civilians. They should recognize the effective participation of the NBE in the war and apply existing sanctions against Ethiopian officials to the bank’s executives. International monetary institutions, such as the World Bank and the International Monetary Fund, should demand full accountability from the bank and consider redefining their future relationship by requiring stronger commitment from the bank to respect human rights and the rule of law in its operation. The absence of immediate accountability will encourage the bank to act with impunity. It will turn the bank into a tool of the executive branch, contrary to the core principles of autonomy and independence that govern the operation of central banks.