Cryptocurrency Trading In Nigeria: Legal Or Illegal? – Fin Tech

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The impact of technology on daily living cannot be
over-emphasised as it can be felt across all sectors including the
financial services sector. This has led to the advent of
technology-backed monetary exchange forms or digital currencies.
One such area of innovation is cryptocurrencies which have been
around for a while now. However, as innovative as the
cryptocurrency advent is, it has faced major resistance from
countries around the world due to its propensity to be used to aid
terrorism-financing, commit fraud, money laundering, tax evasion,
illicit funds flow, loss of investment, etc.

Nigeria is not left alone in this trend as it has been very
reluctant in granting a general usage to cryptocurrency by issuing
circulars warning about its usage, mandating financial institutions
such as banks to desist from transacting in it as well as declaring
it illegal or worthy of recognition as a legal tender or a form of
exchange.

This piece aims at examining the concept of cryptocurrency,
it’s status in Nigeria as well as the laws or regulations
guiding same so as to determine the disposition of the government
towards its use and adoption by banks and citizens as a whole.

WHAT IS CRYPTOCURRENCY?

Cryptocurrencies are digital currencies in which transactions
are verified and recorded by a decentralized system using
Cryptography, rather than by a centralized authority. Unlike
Central Bank Digital Currencies (CBDCs) that are centralized and
controlled by the government, cryptocurrencies are decentralised
and therefore incapable of government control which has further
fuelled most countries’ resentment towards its use.

THE QUESTION OF LEGALITY: THE CBN AS A REGULATOR

The Central Bank of Nigeria has always expressed its
non-acceptance of cryptocurrencies as a means of exchange in
Nigeria as far back as 20171on grounds that it is
not a legal tender and thereby urging banks and individuals to stay
away from its use and adoption.

On January 12, 2017, the CBN issued a statement stating that
digital currencies such as bitcoin, Litecoin and others are used in
terrorism financing, and money laundering given the anonymity of
virtual transactions thereby urging banks and other financial
institutions to be wary of the risks associated with its use and to
desist from transacting in cryptocurrencies pending substantive
regulation or decision by the CBN.

Similarly, on February 27, 2018, the CBN warned against
investing in cryptocurrencies and posited that dealing in it or
facilitating payment through it is prohibited. Thereby, anyone who
invests in it does so at their own risk.

By a circular dated February 5, 2021, the CBN directed all
Deposit Money Banks (DMBs), Non-Bank Financial institutions (NBFIs)
and Other Financial Institutions (OFIs) to identify persons and/or
entities transacting in or operating cryptocurrency exchanges
within their systems and ensure that such accounts are closed
immediately while reiterating that cryptocurrency use or
facilitation as a means of exchange is highly prohibited.

Given the above-stated instances, it is evident that the
CBN’s distrust in the use and adoption of cryptocurrencies as
a monetary exchange tool cannot be over-emphasised. It would
appear, however, that despite the CBN’s distrust in
cryptocurrencies, its desire to operate a digital currency of its
own controlled by the government unlike regular cryptocurrencies
that are unregulated and controlled birthed the Nigerian government
CBN controlled Central Bank Digital Currency (CBDC), the eNaira,
which was launched on October 25, 2021.2

THE QUESTION OF LEGALITY: THE SEC AS A REGULATOR

By a statement dated September 11, 20203the
Securities and Exchange Commission (SEC) made known its intention
to regulate digital assets such as cryptocurrencies through the
adoption of a three-pronged objective to regulate innovation,
hinged onsafety, market deepening and providing a solution to
problems. SEC’s proposed regulation was targeted at
crypto-tokens or crypto-coin investments where thecharacter
of such investments qualifies as securities transactions.

However, following CBN’s circular dated February 5, 2021,
the SEC in an apparent shift from its earlier position on digital
assets made known its intention to collaborate with the CBN towards
analysing and better understanding the identified risks of
cryptocurrency use and adoption in order to ensure that appropriate
regulations are in place if cryptocurrency transactions are
permitted in the future.

However, again in another apparent move from CBN’s
position, the SEC released the Rules on Issuance, Offering
Platforms and Custody of Digital Assets (the
Rules) on May 11, 2022, as parts of its efforts
towards regulating digital assets in Nigeria. The Rules is divided
into five parts namely:

(a) Part A: Rules on Issuance of Digital Assets as
Securities;

(b) Part B: Rules on Registration Requirements for Digital Asset
Offering Platforms;

(c) Part C: Rules on Registration Requirements for Digital Asset
Custodians;

(d) Part D: Rules on Virtual Assets Service Providers; and

(e) Part E: Rules on Digital Assets Exchange.

Although this innovative step by SEC has been applauded by
industry experts and stakeholders, it is not without its own
criticisms, especially in the line with the CBN’s prohibition
which has not been withdrawn.

IS CRYPTOCURRENCY ACTUALLY ILLEGAL?

Cryptocurrencies may not be recognised by the CBN as legal
tender or a form of exchange, nevertheless, it is not illegal as no
law or legislation contains provisions criminalizing their using
it. This would mean that trading in cryptocurrencies although
prohibited by the CBN is not illegal going on the provisions of
Section 36(12) of the 1999 Constitution of the Federal Republic of
Nigeria which states that:

Subject as otherwise provided by this Constitution a
person shall not be convicted of a criminal offence unless that
offence is defined and the penalty, therefore, is prescribed by a
written law; and in this subsection, a written law refers to an Act
of the National Assembly or a Law of a State, and subsidiary
legislation or instrument under the provisions of the
law.

This must have informed the decision of the court in the case
ofCentral Bank of Nigeria v. Rise Vest Technologies
Ltd & Ors
4where the Federal High Court
sitting in Abuja, in a Ruling delivered by Justice Taiwo O. Taiwo
held that the CBN’s circular, referenced as
BSD/DIR/PUB/LAB/014/001 of February 5, 2021, is not a law and that
the CBN lacks the requisite authority to declare the trading of
Cryptocurrency illegal by a mere circular.

This would mean that unless a law is enacted tomorrow expressly
banning, prohibiting or criminalizing the use of cryptocurrencies,
it would only suffer the absence of regulation as its use would
never amount to any offence known under the Nigerian laws.

CONCLUSION

The SEC’s Rules on Issuance, Offering Platforms and
Custody of Digital Assets, 2022 appears to be the first regulatory
attempt by the Nigerian government to regulate digital assets.
However, there would be a need for both the CBN and SEC to be on
the same page as far as cryptocurrencies and digital currencies are
concerned so as to allow for progress in the sector as well as
remove unnecessary ambiguity or complications for investors and
stakeholders.

As earlier said, there is no law expressly banning the use and
adoption of cryptocurrencies in Nigeria. Based on the decision in
CBN v. Rise Vest Technologies Ltd & Ors,5the
CBN’s Circular is a mere circular which is incapable of
declaring cryptocurrency use as illegal. The SEC’s Rules,
2022 is a step in the right direction and indicates of progress in
the cryptocurrency evolvement and regulation in Nigeria.

Footnotes

1 See
www.https;//www.thecable.ng/cbn-warns-nigerians-stay-away-from-bitcoin-it-isnt-legal-tender/amp
(accessed
on August 26, 2022 at 4:20pm)

2 For a proper understanding of the eNaira, see
https://trustedadvisorslaw.com/underlining-some-critical-legal-issues-bordering-the-enaira/
accessed
on August 29, 2022 at 10:50am)

3
https://sec.gov.ng/statement-on-digital-assets-and-their-classification-and-treatment/
(accessed
on August 29, 2022 at 4:00 pm).

4 Suit No: FHC/ABJ/CS/822/2021 delivered on October 18,
2021

5 Supra

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