Nigeria’s Central Bank Investigates Cryptocurrency Companies’ Bank Accounts for Fraud

The Central Bank of Nigeria (CBN) has opened investigations into bank accounts of companies involved in the trading of cryptocurrencies with the intention of blocking those with suspicious transactions and fraud.

A top central bank official while giving THISDAY more insight into last week’s decision mandating banks to close all accounts belonging to cryptocurrency traders, also pushed back criticism of the policy, saying the bank won’t abandon its regulatory roles to critics.

The bank also insisted in a statement on Sunday by its Director of Communications, Mr. Osita Nwanisobi, that the restriction regime is to protect Nigerians and the financial system.

The CBN, however, got allies on Sunday on its ban on cryptocurrency trading through banks as the Association of Bureaux De Change Operators of Nigeria (ABCON), the Arewa Consultative Youth Movement, Ohanaeze Ndi Igbo Youth Movement, Oduduwa Youths, and Middle Belt Youths expressed support for it.

The CBN, last week, had directed banks and other financial institutions to immediately close any accounts dealing in cryptocurrency or facilitating payment for cryptocurrency exchange, with immediate effect.

It also directed banks to expose any individual and entity running such accounts, warning that failure to adhere to the directives would attract strict sanctions.

The apex bank, in a circular, cautioned deposit money banks (DMBs), non-bank financial institutions (NBFIs) and other financial institutions (OFIs) and members of the public on the risk associated with transactions in cryptocurrency.

The circular was signed by the Director of Banking Supervision, Mr. Bello Hassan, and the Director of Payments System Management Department, Mr. Musa Jimoh.

THISDAY reported exclusively on Sunday that the federal government and CBN were hinted by the Federal Bureau of Investigation (FBI) on the activities of fraudsters using cryptocurrencies to bring into the country hundreds of millions of US Dollars illegally obtained from the USA and other western economies, giving rise to the apex bank’s preemptive strike on Friday.

However, the top central bank official who sought anonymity stated that the apex bank has the responsibility of ensuring the safety of the financial system and would not abandon its duty in spite of the mounting criticism of the policy.

He said: “There are companies acting as crypto exchanges in this country, telling people that they have naira and are willing to exchange crypto for them and they ask such persons to go to their banks to collect the naira. We are investigating the companies and their accounts would be blocked if we detect any suspicious transactions.

“The question remains: What transactions do the crypto companies do that they are offering a huge amount of returns to investors, at times 200 per cent profit?”

He added that cryptocurrency is known today by all central banks as alternative money.

“So, the question central bankers have been asking themselves is: What is wrong with what is called money, the legal tender of any country today? Has anybody come up with a criticism of the use of money, whether it is naira, dollars, pound sterling?

“Central bankers all over the world believe that the reason people are adopting the use of cryptocurrency is because there are certain financial transactions that the current money arrangement called currency or legal tender, would not allow. But we must understand that digital money is not the same thing as cryptocurrency.

“China indeed has banned cryptocurrency. But what they (China) did was to create digital money, subject to the country’s regulation. That is electronic money that can stand in place of the country’s banknotes, but not recognised as cryptocurrency.

“Cryptocurrency is now the easiest way for people to launder money, without central bankers discovering what they are doing. It has also been seen as a way of financing terrorism.

“The CBN has not said don’t use your crypto. What the CBN has said is that you are not allowed to use the Nigerian banking system or Nigeria’s payment infrastructure to conduct crypto.

“You are not allowed to convert your crypto to naira through any Nigerian bank because we don’t know the business you did to get the crypto.”

Reacting to a question that the CBN had earlier given the impression that it was understudying the investment instrument, he said: “We only said we were still trying to understudy it, to see whether we can regulate it. In fact, at this stage, we don’t recognise it; we are saying we are not going to allow it in our payment infrastructure.”

According to him, the ban on the digital investment instrument in the country will not stifle innovation as the central bank will continue to take steps to safeguard the banking system.

In a statement on Sunday, the CBN attributed the ban on cryptocurrency transactions to the need to protect the interest of Nigerians and the financial system from the risks inherent in crypto assets transactions.

It said dealing in cryptocurrency has dire consequences for the integrity of the financial system and financial stability.

The bank raised concerns that due to the fact that cryptocurrency is largely speculative, anonymous, and untraceable, they are increasingly being used for money laundering, terrorism financing, and other criminal activities.

The apex bank added that small retail and unsophisticated investors also face a high probability of loss due to the high volatility of the investments in recent times.

The CBN added that in the light of these realities and analyses, the bank had no comfort in cryptocurrency at this time and will continue to do all within its regulatory powers to educate Nigerians to desist from its use and protect the financial system from the activities of fraudsters and speculators.

The CBN said following the various comments and reactions that had trailed its recent reminder to banks to desist from transacting in/and with entities dealing in cryptocurrency, it had become necessary to provide further justifications about the bank’s position, especially to the public.

The bank added that considering the fact that cryptocurrency is issued by unregulated and unlicensed entities, the use in Nigeria goes against the key mandates of the CBN, as enshrined in the CBN Act (2007), as the issuer of legal tender in Nigeria, stressing that the “use of cryptocurrencies in Nigeria is a direct contravention of existing law.”

The CBN said: “The very name and nature of ‘cryptocurrencies’ suggest that its patrons and users have value anonymity, obscurity, and concealment. The question that one may need to ask, therefore, is, why any entity would disguise its transactions if they were legal.

“It is on the basis of this opacity that cryptocurrencies have become well-suited for conducting many illegal activities, including money laundering, terrorism financing, purchase of small arms and light weapons, and tax evasion.

“Indeed, many banks and investors who place a high value on reputation have been turned off from cryptocurrencies because of the damaging effects of the widespread use of cryptocurrencies for illegal activities.”

The apex bank added that the role of cryptocurrency in the purchase of hard and illegal drugs on the darknet website called “Silk Road” is well known, adding that there had also been recent reports that cryptocurrency has been used to finance terror plots, further damaging its image as a legitimate means of exchange.

The CBN explained further: “More also, repeated and recent evidence now suggests that some cryptocurrencies have become more widely used as speculative assets rather than as means of payment, thus explaining the significant volatility and variability in their prices.

“For those who are not conversant with the universe of cryptocurrencies, it is important to state that cryptocurrencies are digital or virtual currencies issued by largely anonymous entities and secured by cryptography.

“Cryptography is a method of encrypting and hiding codes that prevent oversight, accountability, and regulation. While there are a number of cryptocurrencies now in circulation, bitcoin was the first to be introduced in 2009, and now accounts for about 68 per cent of all cryptocurrencies.

“As regards our recent policy pronouncement, it is important to clarify that the CBN circular of February 5, 2021, did not place any new restrictions on cryptocurrencies, given that all banks in the country had earlier been forbidden, through CBN’s circular dated January 12, 2017, not to use, hold, trade, and/or transact in cryptocurrencies.

“Indeed, this position was reiterated in another CBN Press Release dated February 27, 2018.”

According to the CBN, its policy “is not an outlier as many countries, central banks, international financial institutions, and distinguished investors and economists have also warned against its use.

“They have all made similar pronouncements based on the significant risks that transacting in cryptocurrencies portend, the risk of loss of investments, money laundering, terrorism financing, illicit fund flows, and criminal activities.

“China, Canada, Taiwan, Indonesia, Algeria, Egypt, Morocco, Bolivia, Kyrgyzstan, Ecuador, Saudi Arabia, Jordan, Iran, Bangladesh, Nepal, and Cambodia have all placed a certain level of restrictions on financial institutions facilitating cryptocurrency transactions.

“In China, for example, cryptocurrencies are completely banned and all exchanges closed as well. Banks and other financial institutions are not allowed by law to transact or deal with cryptocurrencies. China’s central bank called the Peoples Bank of China (PBoC) has provided several directives ruling out the use of these currencies.”

CBN also cited investor, Warren Buffett, who has called cryptocurrency “rat poison squared,” a “mirage,” and a “gambling device” as one of those who have condemned trading in cryptocurrency.

“Mr. Buffett believes it is a “gambling device” given that they are mostly valuable because the person buying it does so, not as a means of payment; but in the hope they can sell it for even more than what they paid at some point.

“During an online forum hosted by the Davos-based World Economic Forum a few weeks ago, Andrew Bailey, the Governor of the Bank of England, highlighted the extreme price volatility of cryptocurrencies as one of the biggest flaws and explained that this flaw makes it impossible for them to be used as a lasting means of payment.

“Have we landed on what I would call the design, governance, and arrangements for what I might call a lasting digital currency?

“‘No, I don’t think we’re there yet, honestly. I don’t think cryptocurrencies as originally formulated are it’.

“It is not surprising he would take that position because Bitcoin, the best-known cryptocurrency hit a record high of $42,000 per unit on January 8, 2021, and sank as low as $28,800 about two weeks later,” the CBN said.

However, amid the criticism of the policy, the ABCON lauded the CBN for being proactive in banning cryptocurrency trading.

ABCON President, Alhaji Aminu Gwadabe, said the banking sector regulator acted fast to curtail an emerging dangerous trend capable of eroding Nigeria’s Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) gains.

In a statement on Sunday, Gwadabe added that before banning financial dealings that do not conform with the norm, the CBN must have got financial intelligence on such operations, as seen in kidnappers now collecting Bitcoin for ransom.

Gwadabe said the new changing global behaviour towards cryptocurrency trading in Nigeria was not in tandem with Nigeria’s AML/CFT compliance structure as the country battled to move out of the Financial Action Task Force (FATF) sanctions list.

He said cryptocurrency trading has become pervasive and widespread that every segment and all operators in the financial industry are becoming vulnerable to their operations that are not guided by regulation.

“That is why many financial sector regulators, prominent financial institutions, including global banks and investment firms are moving swiftly against the cryptocurrency operators.

“All over the world, no regulatory institution has given a fiat approval of the new digital money due to its vulnerability to money laundering and counter-terrorism financing. It is therefore the belief of our association that the measures of the CBN will ensure the confidence of our foreign partners to boost economic growth,” Gwadabe said.

According to him, rather than criticising the CBN, the critics should have advised the federal government to introduce digital agri-business to Nigeria’s teeming youth for capacity and self-employment.

“We, therefore, support the CBN measures and urge the apex bank to support a paradigm shift in Bureaux de Change (BDCs) business where we are moving from traditional bricks and mortar operations to a digitised model that boosts transparency, foreign capital inflows, and ease of monitoring and supervision of our operations,” he said.

He added the BDCs have so far introduced four factors authentication digital applications in their operations to improve efficiency and transparency in operations.

The applications include SAAS MASTERS for a rendition of utilisation of returns to CBN online real-time; many BDCs are in the Nigeria Financial Intelligence Unit (NFIUs) GOAML platform for suspicious and cash transactions reports.

“Equally, BDCs are on Nigeria Interbank Settlement System (NIBSS) Bank Verification Number (BVN) Validation portal of their members and finally, ABCON is also working with Data Pro Consultant to integrate their new Application Programming Interface (API) for Politically Exposed Persons (PEPs) and sanction list search,” he added.

Gwadabe said there is nothing wrong with regulating players in the financial sector, and where such regulations are not available, caution should be applied.

“There is a need for every segment of the financial system to be regulated and guided by the CBN Act, BOFIA, Anti-Money Laundering, and Counter Financing Terrorism guidelines, Know Your Customer (KYC) Requirements for a safe and secured Nigeria and stable financial system,” he said.

He said ABCON will continue to support CBN’s moves to tighten and strictly enforce regulations in the foreign exchange market for sustained exchange rate stability and improved economic growth.

Besides ABCON, the Arewa Consultative Youth Movement, Ohanaeze Ndi Igbo Youth Movement, Oduduwa Youths, and Middle Belt Youths also supported CBN’s ban on cryptocurrency trading through Nigeria’s financial system.

They also hailed the CBN Governor, Mr. Godwin Emefiele, for providing the leadership that made the apex bank to take such a proactive move.

The groups, in a joint statement yesterday by Ohanaeze Secretary-General, Mr. Nwada Chiamaka, described the ban as patriotic and courageous.

They urged Emefiele not to relent in his efforts to sanitise not only the banking sector but the entire economic landscape.

“We know of a fact that this policy is a hard hit against financial criminals of the underworld who in turn will stop at nothing in their desperate bid to ensure that the policy is changed so that they can continue to have their way. We urge the CBN team not to succumb to any pressure. The policy should be strictly implemented and those who flout the rule should be sanctioned appropriately,” the statement added.

Obinna Chima, Udora Orizu

Follow us on: