The Central Bank of Nigeria Notices on Cryptocurrencies; a Ban or a Banger? Daily Law Tips (Tip 732) by Onyekachi Umah, Esq., LL.M, ACIArb(UK)
Introduction:
No doubt, the Central Bank of Nigeria (CBN) is the bankers bank in Nigeria and more importantly, the regulator of banking sector and federal treasury. With the recent prohibition of dealings on crypto currencies in Nigeria, the Central Bank of Nigeria has become more popular (or notorious depending on view stand) among Nigerian youths, businesses and persons with interest in alternative payment options. Many have sought to know, if the CBN has acted above and beyond its powers under the laws of Nigeria and the chances of obtaining court orders to stop the CBN. Also, is the Central Bank of Nigeria Notices on Cryptocurrencies; a Ban or a Banger?
Hence, this work focuses on the powers of the Central Bank of Nigeria (CBN) over digital payment options, wallets and crypto-currency in Nigeria. It concludes that the CBN notices on cryptocurrencies are not prohibitions (ban) rather loud emphasis (banger/reiteration) on the illegalities of cryptocurrencies in Nigeria under the laws of Nigeria.
Earlier on 12 January 2017, the Central Bank of Nigeria sent a notice (Ref: FPR/DIR/GEN/CIR/06/010) to all banks and financial institutions in Nigeria, warning them on the illegality of virtual currency operations in Nigeria. Even with this, more cryptocurrencies rose in Nigeria and by another notice dated 5 February 2021, the Central Bank of Nigeria sent another warning to all financial institutions in Nigeria. Unlike the first notice, by the second notice, the CBN ordered the immediate closure of all accounts that transact/operate on cryptocurrencies and for their owners to be identified or risk facing severe regulatory sanctions.
Government Formations Must Be Lawful:
Nigeria is presently the creation of the constitution of the federal republic of Nigeria. The constitution of Nigeria empowers the federal legislatures (the National Assembly) to make laws for Nigeria. To set up agencies for government, the legislature makes laws to create such agencies, listing out their powers, functions and compositions, among other things. On this note, the federal legislature created the Central Bank of Nigeria Act which is the basis for the creation, operation, powers, functions, compositions, regulations, guidelines and orders of the Central Bank of Nigeria.
The initial federal law creating Central Bank of Nigeria was made in 1958, while the bank commenced operations on 1st July 1959. Decades later, in 1991, the law was amended but that has since being replaced by the a new law made on 25 May 2007 and it is officially referred to as the CENTRAL BANK OF NIGERIA ACT, 2007.
The CBN and the Control of Cryptocurrencies:
Ahead of the powers of the Central Bank of Nigeria, the principal objectives of the CBN, includes; “(a) ensure monetary and price stability; (b) issue legal tender currency in Nigeria; (c) maintain external reserves to safeguard the international value of the legal tender currency; (d) promote a sound financial system in Nigeria; and (e) Act as banker and provide economic and financial advice to the Federal Government.” Clearly, crypto currencies are legal tenders (at least in many countries, excluding Nigeria) and as such issues relating to crypto currencies are issues with the main objective of the Central Bank of Nigeria.
The CBN Act states that the unit of currency in Nigeria is the Naira and Kobo and a Naira is made up of 100 Kobo. This means that statutorily there is no space for alternative currencies (foreign or local, physical or digital) in Nigeria. Also, only the Central Bank of Nigeria has powers to determine the exchange rates of the Naira, and this means that any alternative platform (physical or digital) that determines the exchange rates of Naira is unlawful. This naturally criminalizes most online and digital wallets, hubs and platforms.
Also, only the Central Bank of Nigeria as the powers to issues notes and coins in Nigeria. The Central Bank of Nigeria Act (the CBN ACT) Cleary states that the federal government of Nigeria, state governments, local governments and all other persons and authorities in any part of the world, cannot issue any “currency notes, bank notes or coins or any documents or tokens” as a legal tender. Without any stretch, “currency notes, bank notes or coins or any documents or tokens” covers all forms of digital currencies and crypto-currencies. Hence, by law, only the CBN can manage or authorize digital wallets, digital currencies and crypto-currencies in Nigeria.
By section 20 of the Central Bank of Nigeria Act, it is unlawful to use any currency in Nigeria apart from the Naira and Kobo. This means that using crypto-currencies is unlawful even without a regulation from the Central Bank of Nigeria. Furthermore, the same section gives power to the CBN to state “… the circumstances and conditions under which other currencies may be used as medium of exchange in Nigeria.” This clearly empowers the CBN to regulate and to determine when and how a crypto-currency may become useable in Nigeria.
The Central Bank of Nigeria has the powers to demand and obtain any information “relating to or touching or concerning matters affecting the economy of Nigeria” and obviously crypto-currencies are one of them. Also, the CBN has powers to issue “… guidelines to any person and any institutions under its supervision.” And this is one of the grounds for the CBN orders to all banks and other financial institutions on crypto-currencies. Failure to provide information to CBN and the provision of false information are all criminal offences.
Some digital wallets and crypto-currency platforms are operationally like bureau de change business outfits. However, only the Central Bank of Nigeria has the powers to license and to regulate such businesses in Nigeria. This means that digital wallets and crypto-currency platforms will need CBN license for their bureau de change operations. In practice, many digital wallets and crypto-currency platforms operate under existing CBN licenses to banks and other license holders, to avoid the rigorous licensing procedures and due diligence. Consequently, such exchange platforms lack the needed Anti-Money Laundering/Combating the Financial Terrorism (AML/CFT) protocols, and avoid keeping records of customers as well as internal control to detect terrorists and their financiers. They also make no reports to law enforcement agencies and allow Non-Financial Institutions to operate without the Special Control Unit against Money Laundering (SCUML) Certificates.
Cleary the unlawful actions of cryptocurrencies in Nigeria are in violation of some federal laws like; the Centra Ban of Nigeria Act 2007, the Money Laundering (Prohibition) Act 2011, the Terrorism (Prevention) Act 2011, the Terrorism Prevention (Freezing of International Terrorists Funds and Other Related Measures) Regulations 2013 and the Central Bank of Nigeria (Anti Money Laundering and Combating of Financing of Terrorism for Banks and Other Financial Institutions in Nigeria) Regulation 2013. These are part of the reasons that prompted the recent release of the CBN’s emphasis on the illegality of digital wallets and crypto-currency platforms and the immediate closure of accounts operating on cryptocurrencies in Nigeria.
Recommendation and Conclusion:
The Central Bank of Nigeria has powers to make regulations and guidelines, especially over institutions under its supervisions. This a quasi-legislative tool that allows the CBN to achieve its objectives without contradicting the Central Bank of Nigeria Act and without having need to rush to the legislatures for amendments. This guarantees administrative convenience and pragmatism. This allows the CBN to license, de-license, ban, shutdown and close down certain stakeholders/participants and practices/conducts in the economic space of Nigeria.
A cursory look at the Central Bank of Nigeria Act shows that the CBN has total powers over legal tenders in Nigeria. Also, by that same law, the only approved legal tender in Nigeria is the Naira and kobo. Although, the CBN has powers to regulate and to permit other currencies to operate in Nigeria, the CBN has not given any such license to cryptocurrencies. Hence, it is safe to conclude that operations of cryptocurrencies in Nigeria has been illegal and unlawful going by the provisions of the Central Bank of Nigeria Act. Even without the recent prohibition (ban) of crypto currencies in Nigeria, the activities on cryptocurrencies as legal tenders are unlawful. As such, the recent notice by CBN on cryptocurrencies is a mere reiteration (banger) of the provisions of the Central Bank of Nigeria Act and not a prohibition or ban of formerly lawful cryptocurrencies. The Central Bank of Nigeria only emphasized on the provisions of the law on the illegalities of cryptocurrencies via its notices on 12 January 2017 and 5 February 2021.
By the way, considering the impact of alternative payment options (cryptocurrencies) in cross-boarder transactions in Nigeria, it would have been better the Central Bank of Nigeria to issue strict regulations for cryptocurrencies instead of a ban. There should have been a window for temporal (provisional) legalization of cryptocurrencies, giving a specific period for formalization and licensing of willing operators. This would have remedied large volumes of transactions and saved Nigerians huge hardship. Blockchain systems and cryptocurrencies have come to change the world. Nigeria cannot wish it away; rather adequate legal and operational framework must be built to harness the opportunities therein.
My authorities, are:
- Sections 1, 2, 3, 4, 5, 6, 14, 16, 17, 19, 318 and 319 of the Constitution of the Federal Republic of Nigeria, 1999.
- Sections 1, 2, 15, 16, 17, 18, 19, 20, 33, 57, of the Central Bank of Nigeria Act, 2007
- Sections 1, 2, 3, 5, 6, 8, 9, 10, 11, 12, 13, 14, 25 and 26 of the Money Laundering (Prohibition) Act 2011
- Section 1, 3, 4, 7, 8, 10, 13, 14, 15, 33, 40 and 41 of the Terrorism (Prevention) Act, 2011
- The Terrorism Prevention (Freezing of International Terrorists Funds and Other Related Measures) Regulations, 2013.
- The Central Bank of Nigeria (Anti Money Laundering and Combating of Financing of Terrorism for Banks and Other Financial Institutions in Nigeria) Regulation 2013.
- The Nigeria Securities and Exchange Commission (SEC) and National Insurance Commission (NAICOM) AML/CFT Regulations for their respective operators.
- Onyekachi Umah, “Legality of SCUML (EFCC) Certificate.” (LearnNigerianLaws.com, 26 August 2020) <https://learnnigerianlaws.com/legality-of-scuml-efcc-certificate/> accessed 7 February 2021.
- Onyekachi Umah, “Lawyers No Longer Need SCUML (EFCC) Certificate” (LearnNigerianLaws.com,16 September 2020) <https://learnnigerianlaws.com/lawyers-no-longer-need-scuml-efcc-certificate/> accessed 7 February 2021.
- Onyekachi Umah, “Lawyer’s Bank Account is Exempted from EFCC, SCUML, NFIU and Police Registration/Clearance” (LearnNigerianLaws.com, 19 June 2018) <https://learnnigerianlaws.com/daily-law-tips-by-onyekachi-umah-esq-tip-123-a-lawyer-s-bank-account-is-exempted-from-efcc-scmul-nfiu-and-police-registration-clearance/> accessed 7 February 2021.
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