Not long after cryptocurrency was restricted in Nigeria, affected young people soon adopted the use of “peer-to-peer” trading(P2P) and cryptocurrency transactions continued like it never left. The aftermath, however, has not been all rosy because banks now restrict accounts they suspect to have engaged in crypto related transactions.
Justifying this restriction, banks say that they act under the directives of the Central Bank of Nigeria (CBN). Recall that the CBN in a circular addressed to banks and other financial institutionsdated 5th of February, 2021 prohibited banks and other financial institutionsfrom facilitating payment for cryptocurrency exchanges.CBN further instructed that individuals or entities that transact in cryptocurrency should be identified and ensure that such accounts are closed immediately. The circular further stated that breach of these directives will attract severe regulatory sanctions.
Evidently, banks are acting on the directives of the CBN to close bank accounts found with cryptocurrency related transaction description. Even so, can the directive stand the test of legality?
Generally, rules, guidelines, and regulations made by the Central Bank of Nigeria (CBN) are part of laws which the courts must take judicial notice of, within the provision of section 122(2) of the Evidence Act. Specifically, sections33 and 57 of the Banks and Other Financial Institutions Act (BOFIA)2020and section 51 of the CBN Act, 2007, empowers the CBN to make rules, regulations and guidelines for the operation and control of all institutions under the control of the Central Bank. However, same must be made in accordance with the Central Bank Act and BOFIA.
Under BOFIA, before freezing a customer’s account or placing any form of restraint on any bank account, the bank must be satisfied that there is a court order directing same. Section 97 of BOFIA empowers the CBN to apply ex-parte to the Federal High Court, for an order freezing any account “…where it has reasons to believe that the transactions undertaken in any account with any bank or other financial institutions are such as may involve the commission of any criminal offence under any law…”
Consequently, two requirements must be satisfied before an account can be frozen; a court order and the transaction shall involve the commission of any criminal offence. Hence, the CBN has no power to unilaterally order banks to freeze the account of a customer without an order of court. The CBN cannot also procure a court order to restrict an account with cryptocurrency transactions if it does not involve the commission of any crime. An act will not constitute a crime unless it is clearly defined and the punishment for the act is prescribed by a written law as provided by section 36 (12) of the 1999 Constitution of the Federal Republic of Nigeria, as amended.
In CBN v. Rise Vest Technologies Ltd & Five Ors; FHC/ABJ/822/2021 (Unreported), it was held that the CBN could not rely on a circular to freeze the bank accounts of a company using its accounts to trade in cryptocurrency. This, according to the court, is because trading cryptocurrency is not a crime in Nigeria. The court emphasized that “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 court held that the CBN had failed to provide any law showing that it is illegal to deal in cryptocurrency in Nigeria, adding that the CBN circular, of February 5, 2021, is not a law enough to criminalize cryptocurrency.
Interestingly, in the case of Gtbank Plc v Adedamola [2019] 5 NWLR (pt. 1664) 30 at 43the Economic and Financial Crimes Commission (EFCC)had directed the Appellant (Guaranty Trust Bank) to freeze the account of the Respondent for the purpose of investigation, on the suspicion that the Respondent’saccount is housing some proceeds of money laundering. When challenged, the court held that EFCC has no power to give instructions to banks to freeze account of customer without an order of court.
From the above, it is clear like crystal thatbefore freezing a customer’s account or placing any form of restraint on any bank account, the bank must be satisfied that there is a valid court order. The banks themselves owe a fiduciary duty to their customers to ensure that there is, indeed, a court order before freezing an account.
Once a court order is validly obtained, a bank can freeze the bank account to which the order refers. However, this right is not exclusive as account bearers are still at liberty to challenge the freezing order if there are no reasonable suspicion of crime.
From the foregoing, it is safely concluded that the directives of the CBN on closing or freezing accountsperceived to have engaged in crypto related transactions is illegal and unlawful
Written By: Festus Ogun and Omotolani Noah
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