Nigeria’s blockchain and crypto industry has expressed shock over the directive in the Central Bank of Nigeria (CBN’s) circular of 5 February 2021, directly commercial banks to discontinue operating accounts associated with cryptocurrency business.
Blockchain Industry Coordinating Committee of Nigeria (BICCoN), expressed dismay by the apex bank’s decision without recourse to the plights players in the industry will face before issuing the directive.
BICCoN is constituted by the three major blockchain bodies/communities in Nigeria, namely: They are Blockchain Nigeria User Group (BNUG); Cryptography Development Initiative of Nigeria (CDIN) and Stakeholders in Blockchain Technology Association of Nigeria (SiBAN).
There also independent stakeholders who may not yet be affiliated with any of the three bodies/communities above.
In a letter of protest signed by the General Secretary of BICCoN, Senator Ihenyen, the Committee regretted that Nigeria as Africa’s largest cryptocurrency market and one of the world’s fastest-growing cryptocurrency markets in terms of bitcoin volume at the time of writing this statement, may miss out of the opportunities to leverage on emerging technologies to better the lives of the citizens who have faced second recession within five years.
In 2020, estimates from BuyCoins showed that total volumes of bitcoin traded in Nigeria stood at $200 million monthly.
According to Useful Tulips, Nigeria’s daily trading volume of over $2.8 million on Paxful, a peer-to-peer bitcoin marketplace, tops the rest of African countries, with South Africa ranking over $400,000 and Kenya ranking over $700,000.
But the CBN’s directive have now slowed things. “Before the authenticity of the letter was eventually confirmed, a number of industry stakeholders were hoping that the letter was not by the CBN. Sadly, it turned out to be.
“Secondly, contrary to the CBN’s claim in its follow-up 7 February 2021 letter that “the CBN circular of February 5, 2021 did not place any new [emphasis ours] restrictions on cryptocurrencies”, it in fact does. By the latest circular, the CBN has effectively banned DMBs, NBFIs, and OFIs from providing banking and other financial services to persons and/or entities transacting in cryptocurrency or operating cryptocurrency exchanges within their systems.
“This is not a mere reiteration of the CBN circular of 12 January 2017. In the 12 January 2017 letter which though prohibited DMBs, NBFIs, and OFIs from using, holding, trading and/or transacting in cryptocurrencies, the CBN permitted these DMBs, NBFIs, and OFIs to provide banking services and other financial services to virtual currency exchangers/customers subject to ensuring that these exchangers/customers have effective Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) controls that enable them comply with customer identification, verification, and transaction monitoring requirements.
“As required in that circular, it is only when banks and other financial institutions are dissatisfied with the controls put in place by the virtual currency exchangers/customers should the customer relationship be discontinued immediately. The CBN also required that any suspicious transactions should be immediately reported to the Nigerian Financial Intelligence Unit (NFIU).
“Thirdly, without any adequate notice or court order of any court of competent jurisdiction, the CBN directed all DMBs, NBFIs, and OFIs to identify persons and/or entities transacting in cryptocurrency or operating cryptocurrency exchanges within their systems and close such persons’ or entities’ accounts immediately. Since 5 February 2021, a number of persons and entities accounts have been closed. In one strange and exceptional case, the funds in the two corporate accounts of a cryptocurrency exchange were wiped out and then eventually closed.
“Though as the regulator, the CBN has the statutory authority to delimit banking operations, but ordering banks and other financial institutions to freeze accounts suspected to be in use for cryptocurrency may not be supported by law.
“This is because there is currently no legislation by the National Assembly criminalizing or illegalizing trade in cryptocurrency in Nigeria.
“Therefore, it is questionable whether the CBN has the statutory power to order the (permanent) freezing of these accounts. Besides, Nigeria’s money laundering and anti-terrorism laws contemplate the freezing of individual or specific accounts, not a blanket closure of the accounts of a set of persons, entities, or entire industry by virtue of their involvement in cryptocurrency trading or services, a lawful business. If the CBN’s circular is not reviewed, it will set a dangerous precedent in the country.
Ordinarily, the CBN circular—while shocking and disappointing—should have at least stipulated a reasonable period within which affected customers’ accounts should be closed. By the way, we are not unaware of the illegality and sharp practices of some service providers, including quite unfortunately so-called fintech platforms—that indefinitely freeze or deny customers access to their funds with flimsy reasons without authority, any notice, or explanation at all. We use this opportunity to appeal to the CBN, other regulatory authorities, law-enforcement agencies, and our courts to always address such cases, whenever reported to it, with dispatch.
“Lastly, the CBN’s sudden and drastic directive was neither without any prior engagement with industry players nor notice.
BICCoN therefore, suggests that the CBN’s approach falls short of expectations and “will not inspire confidence in our financial system”.