Legality or Otherwise of the Central Bank of Nigeria (CBN) Circular Prohibiting Cryptocurrency Trading

Cryptocurrency

Sometime in February, 2021, the Central Bank of Nigeria (CBN) pursuant to a CIRCULAR directed all banks to desist from transacting in and dealing with entities dealing in cryptocurrency. The CBN also directed banks to close accounts of persons or entities involved in cryptocurrency transactions within their systems.

This directive as contained in a circular dated February 5, 2021 signed by the Directors, Banking Supervision and Payments System Management, Bello Hassan and Musa Jimoh respectively, and communicated to Deposit Money Banks (DMBs), Non-Bank Financial Institutions (NBFIs), and Other Financial Institutions (OFIs) reads: 

“Further to earlier regulatory directives on the subject, the Bank hereby wishes to remind regulated institutions that dealing in cryptocurrencies or facilitating payments for cryptocurrency exchanges is prohibited.” 

“Accordingly, all DMBs, NBFIs and OFIs are directed to identify persons and/or entities transacting in or operating cryptocurrency exchanges within their systems and ensure that such accounts are closed immediately.”

CBN’s Power to Regulate Monetary and Banking Policies

The first question we have to determine from the above excerpt is: Whether the CBN has the power to regulate monetary and banking policies within and outside the country? 

The answer to the above question is YES. By virtue of section 2 of the CBN Act;

the principal objects of the CBN shall among other things be to;

(a)issue legal tender currency in Nigeria;

(b)maintain external reserves to safeguard the international value of the legal tender currency;

(c)promote monetary stability and a sound financial system in Nigeria; and

(d)act as banker and financial adviser to the Federal Government.

The above presupposes that the CBN are authorized by law to make policies geared towards protecting Naira and the banking sector. 

The CBN is also empowered by the Banks and Other Financial Institution Act (BOFIA) to regulate the financial sector. What this means is that both the CBN Act and the BOFIA confer CBN powers to make regulate the financial sector. In other words, where issues pertaining the financial sector are not provided for in these laws and any other enabling law, CBN may find it difficult to make decisions affecting such.

We must continue to remember that none of these enabling laws anticipated the current disruptive technology when they were made. None! In essence, the regulations and the laws had only the banking sector of already known currencies in mind and the movement of currencies within and outside Nigeria. When you mention digital currencies, its still alien to the regulating authorities, including the Securities and Exchange Commission (SEC).

Is Trading Cryptocurrency a Crime?

Having successfully answered in the affirmative the powers of the CBN to regulate monetary and banking sector, it is apposite to then ask: Is it a crime to deal with and/or trade in crypto currency? Does CBN has the power to ban crypto currency trading in Nigeria?

I have carefully perused through all the laws in Nigeria, especially as it concerns the financial sector, but yet to find any enabling law authorizing CBN or any other government agencies to ban crypto trading in Nigeria. In essence, the only authority relied on by the CBN and the banks was the CIRCULAR dated 5th February, 2021 issued by the CBN to different banks. In other words, to answer the above question about the legality or otherwise of what the CBN did in the guise of banning crypto, one would ask: What is the legal effect of a Circular?

A Circular can simply be defined as a written statement of government policies. It is also a document, notice, circular, advertisement, letter, or communication in written form. Thus, Circulars are mere policy statements, possibly for administrative convenience. It is not a law and cannot be the basis of prohibiting anything in Nigeria. 

To further enlighten our mind on the legal status of a Circular, the Central Bank of Nigeria (CBN) had on August 17, 2021 secured, through an ex parte motion, an order freezing the accounts of some fintech companies for 180 days over alleged forex infractions. The affected companies, Rise Vest Technologies Limited, Bamboo Systems Technology Limited, Bamboo Systems Technology Limited OPNS, Chaka Technologies Limited, CTL/Business Expenses, and Trove Technologies Limited.

Rise Vest Technologies LTD. V. Central Bank Nigeria

Rise Vest Technologies Ltd, in a motion filed through its counsel, Seni Adio, SAN had submitted that there was no evidence that it engaged in unlawful conduct, adding that the CBN did not meet its burden of proof in support of its allegations. Responding, Mathew Onoja, CBN’s counsel, argued that the ex-parte order of the court was proper, lawful, and valid. He contended that the order was in accordance with the provisions of Section 97 (1) of the Banks and Other Financial Institutions Act (BOFIA) 2021, which empowered the plaintiff/respondent (CBN) to invoke the jurisdiction of the court via an ex parte application.

Ruling on the application on Monday, Hon. Justice Taiwo O. Taiwo held that the CBN could not rely on a circular to freeze the bank account of a company.

My lord noted that the CBN failed to provide any law showing that it is illegal to deal in cryptocurrency in Nigeria, adding that the CBN circular, referenced as BSD/DIR/PUB/LAB/014/001 of February 5, 2021, is not a law.

My lord, among others, held that although the CBN has the power to investigate any infraction, the infraction must relate to BOFIA or any other enactment administered by the regulator. In my lordship’s words…

“I have perused the counter affidavit of the respondent and I see that the reason for freezing the account of the applicant is based on the alleged infraction of the circular of the CBN. The law is trite that any conduct that must be sanctioned must be expressly stated in a written law,” 

“Being unknown to law, circulars cannot create an offence because it was not shown to have been issued under an order, Act, Law or Statute.

“The learned counsel for the respondent has also raised the issue of public policy in his submissions against the application.

“Can this court decide this application based on public policy as being urged on it by the learned counsel for the respondent? I think not.

“I hereby discharge the interim freezing order of this court made on August 17, 2021, made against the defendant/ applicant.”

My lord consequently ordered the banks – Zenith Bank Plc and Guaranty Trust Bank – to immediately grant the firm unfettered access to its accounts.

The Constitution of the Federal Republic of Nigeria, 1999 (as amended) has equally stated in section 36 (12) that for any conduct to be a crime, such conducted must have been prohibited in a written law and the penalty spelt therein. Where such is not done, you cannot on grounds of public policy prohibits conducts you feel does not align with your view and/or things (as in cryptocurrencies) you do not understand.

Implication of Rise Vest Technologies Ltd. V. CBN Case

Therefore, from the cumulative analysis of the above, whereas CBN by their enabling laws have power to regulate the financial sector, banks inclusive, such powers do not extend to outlawing cryptocurrency trading. However, since many transactions could be concluded using the banks, it is within the powers of the CBN to forbid the banks from dealing in such transaction. This only to the extent that their powers begin and ends with the sector it is regulating, never to Nigerians engaging in the transaction.

It follows that you could conclude your crypto trading using any means available to you, but not with the banks in Nigeria. CBN can only sanction the banks and not those dealing in the crypto business. By law, every Nigerian is protected to own tangible and intangible assets. Any attack on a crypto trader can be viewed as an infringement on the person’s constitutional right to own property, except there is a law from the law makers prohibiting such transaction. Circulars alone, no matter how well intended can never take the place of law. Any reliance on it amounts to gross abuse of power and such should not stand. 

Conclusion

Since the world is fast advancing, one important thing the CBN can do is the understudy crypto business and possibly engage other stakeholders to regulate it. Alleging that it is an avenue to finance terrorism without more does not exonerate them. The reason is simply that, not all crypto traders (assuming without conceding to that fact) engage in crimes. A blanket profiling of digital asset dealers cannot be substantiated by any law. There is always room for improvement.

Gabriel Chikwado Eze, Esq.

07038638740

ezegabc@gmail.com

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