Why Crypto Traders’ Funds Got Suspended In Nigeria

The Central Bank of Nigeria (CBN) called for the bank accounts of two allegedly crypto traders to be frozen and funds suspended by all Nigerian commercial banks. The crackdown seems to be the beginning of more tightening measures.

the Director of Banking Supervision, J. Y. Mammanand addressed the banks in a circular quoted by Peoples Gazette that reads:

You are hereby directed to close accounts of the underlisted bank customers and place the funds in the accounts in suspense accounts for engaging in cryptocurrency trading in contravention of CBN Circular BSD/DIR/PUB/014/001 dated February 5, 2021.

Bank regulators ordered commercial banks and other financial institutions to use their systems to find individuals and entities “transacting in or operating cryptocurrency exchanged”, close their accounts, and move their funds to “suspense accounts”.

In February, the CBN claimed concerns of crypto trading activity being linked to money laundering, financing terrorism, and other risks, thus proceeded to ban banks from servicing crypto exchanges. This measure was not well-accepted by Nigerians.

Later in May, the CBN’s Governor Godwin Emefiele stated they were investigating the crypto industry.

Under cryptocurrency and Bitcoin, Nigeria comes 2nd, while on the global side of the economy, Nigeria comes 27th. We are still conducting our investigation, and we will make our data available.

Nigeria showed the world’s biggest interest in bitcoin in 2020’s Google Trends and had the largest volume of Bitcoin trading in Africa during the same year. Its rapid adoption of BTC started to worry the country’s officials and regulators. Some of them claimed that the digital coin was the reason the value of the country’s currency had degenerated and become “valueless”.

The ban through licensed banks has done little to Nigerians acceptance of cryptocurrencies as trading levels continue to rise in different exchanges, and the regime fears their inability to stop it.

Misconceptions Behind Crypto Illicit Activities Claims

The CBN claims that the ban on crypto activity aims to protect citizens, stating that it is linked to criminal activities. They had said earlier:

The recent regulatory directive became necessary to protect the financial system and the generality of Nigerians from the risks inherent in crypto assets transactions.

They are not the only Central Bank -nor country- to make such claims.  Many others have said that cryptocurrencies are used “mainly for illicit financing” -in the words of Janet Yellen-. However, illicit activities linked to cryptocurrencies are not as large as those linked to fiat money, and certainly do not represent the majority of transactions.

Reports show that in 2019 criminal activity was only 2.1% of the total crypto transactions (around $21.4 billion) and the volume decreased 0.34% in 2020. These numbers are much smaller than the ones of “cash laundered through traditional methods.”,  a report commissioned by SWIFT stated in 2020.

“The estimated amount of money laundered globally in one year is 2 – 5% of global GDP, or $800 billion – $2 trillion in current US dollars.” Says the UN.

Former CIA Acting Director Michael Morell stated in an analysis of illicit activity found in crypto that “The broad generalizations about the use of Bitcoin in illicit finance are significantly overstated. (…) blockchain analysis is a highly effective crime-fighting and intelligence gathering tool.”

A former CIA analyst added credence to the above estimates, telling us that, due in part to the difference in overall volume, most illicit activity still takes place in the traditional banking system and not via cryptocurrency.

Nigerian authorities have been rather unclear about their approach toward cryptocurrencies and trading activity. While some have been more amicable and talked about a more regulated environment, others have opposed it entirely without sharing a clear course of action.

Vice-President Yemi Osinbajo was quoted by The Guardian earlier:

Rather than adopt a policy that prohibits cryptocurrency operations in the Nigerian banking sector, we must act with knowledge and not fear,” he said, calling for a “robust regulatory regime that is thoughtful and knowledge-based.

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