With the latest clampdown on the operations of cryptocurrency operators by the different financial regulators and law enforcement agencies, patrons of the now infamous trade, especially within the country are living in fear, reports Ibrahim Apekhade Yusuf
One business that has taken a lot of heat lately is the operators of cryptocurrency platforms. Of course, the reason for the animosity against the practitioners is not unexpected given the perception about their nefarious activities according to the Central Bank of Nigeria (CBN), the apex regulatory body of banks and other financial institutions in the country.
In the past couple of weeks alone, the CBN had literally put a lid on the operations of cryptocurrency trade.
Crux of the matter
About a fortnight ago, four Financial Technology Companies (Fintechs) came under the hammer of the CBN over allegations that their accounts were being used for illicit foreign exchange transactions.
Consequently, the affected Fintechs—OPay, Palmpay, Kuda Bank, and Moniepoint—were barred from onboarding new customers.
“Hello! We’ve temporarily paused new sign-ups on our platform. This means that you’ll be unable to open a new account at the moment. We apologise for any inconvenience this may cause,” one of the Fintechs wrote on its website.
Two of the companies’ representatives reportedly admitted that the CBN’s direction is connected with these allegations.
They did, however, highlighted the fact that most of the affected accounts are held by commercial banks rather than fintech platforms, raising fears that the mandate might be misdirected.
“I can confirm that 90% of the accounts implicated in the illicit forex transactions are with commercial banks, and only 10% are with fintechs. Why then has the CBN not extended this directive to the commercial banks? We face a widespread issue here, and targeting fintechs seems like an unfair focus on the more vulnerable targets,” another source explained.
It would be recalled earlier that the Economic and Financial Crimes Commission (EFCC) recently secured a court order to freeze at least 1,146 bank accounts owned by various individuals and companies allegedly involved in illegal foreign exchange transactions.
Justice Emeka Nwite, in a decision on the ex-parte motion presented by the anti-graft agency’s lawyer, Ekele Iheanacho, also approved the commission’s request to complete the investigation within 90 days.
Though the verdict was issued on April 24, its certified true copy was granted early this month. The other offenses under investigation by the EFCC involved money laundering and terrorism financing.
A look at the list of the affected accounts shows that indeed most of the bank accounts involved are mostly deposit money bank accounts.
Fallout of CBN policy against erring fintects
In a move aligning with the CBN’s recent stance, several fintech companies have issued warnings to their customers regarding cryptocurrency trading.
The warnings come after the CBN reportedly directed these fintech firms to halt onboarding new customers last week. This latest development suggests a tightening of regulations around cryptocurrency activity in Nigeria.
According to OPay’s statement, any accounts found engaging in crypto trading will be blocked, and user information could be forwarded to the regulators.
Similar messages were issued by the other fintech companies, emphasising compliance with the CBN’s directive.
In a notice issued on Friday, OPay said it would take strict measures against customers who violate its policy, which aligns with the Central Bank of Nigeria’s stance on cryptocurrency trading.
“In compliance with the CBN directive, please note that OPay prohibits any cryptocurrency and all virtual currency trading. Any account engaging in such activities will be closed, and customer information will be shared with regulatory authorities.
“Please ensure that your account does not involve any cryptocurrency or any other virtual currency transaction,” the fintech firm warned.
In a similar move, Paga, a fintech firm that has processed transactions worth $32bn in 15 years of operation, said in an email to its customers, “As a Paga account holder, please ensure that your account is not used for crypto and virtual currency transactions. Paga accounts in violation of this regulation will be blocked,” it said.
Last Thursday, the founder and CEO of Moniepoint, Tosin Eniolorunda, called on cryptocurrency peer-to-peer participants to halt their activities, citing the financial sector regulator’s prohibition on such transactions.
“This is a self-reflection of our industry. As you know, fintech apps are used for fraud. One of the things that led to the most recent announcement is that crypto players were manipulating the naira, especially with the P2P market,” he said.
The CBN’s move was linked to an ongoing audit of the Know-Your-Customer process of the fintechs, which have been under scrutiny in recent months over concerns around money laundering and terrorism financing.
According to analysts, this move is likely to impact Nigerians who have been using these fintech apps to access the cryptocurrency market just as they argued that the extent of these restrictions and the long-term implications for cryptocurrency trading in Nigeria remain to be seen.
Genesis of crypto currency clampdown
With the benefit of insight, it is instructive to note that the strident moves to clip the wings of cryptocurrency operators was sequel to the arrest of some of the top tier operators of the platforms in Nigeria- Binance Nigeria Limited.
Like other countries where it operates, the activities of Binance is been subjected to public scrutiny and this time around in Nigeria, Africa’s largest economy by size and stature.
The digital assets platform run by the Canadian national, serves as a window for peer-to-peer transactions allowing users to advertise interest to sell or buy currencies of their choice.
The first hint that the company was going to have a brush with the authorities going forward, became apparent last June, when the Security and Exchange Commission (SEC), wrote a disclaimer against it after declaring matter-of-factly that its activities were illegal and therefore cannot be recognised as a legal entity under the law of the Federal Republic of Nigeria.
Investigation by The Nation revealed that in a circular issued by the SEC on the Activities of Binance Nigeria Limited in June last year, the Commission sent a note of warning to unsuspecting Nigerians, admonishing them to be wary of investing in cryptocurrencies.
In the statement which reads in part, a copy of which was sighted by our correspondent, the body said, “The attention of the Securities and Exchange Commission (the Commission) has been drawn to the website operated by Binance Nigeria Limited, soliciting the Nigerian public to trade crypto assets on its various web and mobile-enabled platforms.
“Binance Nigeria Limited is neither registered nor regulated by the Commission and its operations in Nigeria are therefore illegal. Any member of the investing public dealing with the entity is doing so at his/her own risk.
“As the regulator with the statutory mandate of investor protection, the Commission urges Nigerians to be wary of investing in crypto-assets, and crypto-asset related financial products and services if the service provider/its platform is not registered or regulated by the Commission. Nigerian investors are hereby warned that investing in crypto-assets is extremely risky and may result in total loss of their investment.
“By this circular, Binance Nigeria Limited is hereby directed to immediately stop soliciting Nigerian investors in any form whatsoever. The Commission shall provide updates on further regulatory actions with respect to the activities of Binance Nigeria Limited, and other similar platforms and shall work with other regulators in Nigeria to provide further guidance on this matter.”
Of course, if the people behind Binance ever had the notion that operating in Nigeria was going to be a teaparty affair, because of the possibly weak regulatory frameworks in the country, that illusion was literally shattered before their eyes, barely few days ago.
Things literally began to fall apart for Binance Nigeria, when words went round that the cryptocurrency exchange platform working with some local and international syndicates were largely responsible for the FX crisis and the depreciation of the naira in recent times.
To make matters worse, some preliminary investigation carried out by the EFCC working with some local and foreign counterparts, uncovered what may have been the highest heist in the country, including money laundering.
Amongst other things, Binance Nigeria Limited, it was discovered that despite transacting business I’m Nigeria in the last seven years, it failed to properly document the business in the country as far as the authorities are concerned.
As if that was not enough the CBN governor Olayemi Cardoso, only recently, disclosed the company had ran transactions valued at over $26billion with the identities of the businesses unknown, besides been engaged with terror financing and the likes.
Things however came to a head when two executives of the company who flew into the country from the US as part of moves to negotiate with the Nigerian authorities amid a crackdown on the crypto platform were arrested and detained shortly after they arrived in Abuja even as the government obtained a court order to keep them for 12 days.
Office of the National Security Adviser (ONSA) later confirmed that the crypto exchange platform, Binance, is being investigated by Nigerian authorities.
In its first official confirmation of the clampdown efforts on the activities of Binance and other crypto platforms, the ONSA confirmed that the security adviser’s office is coordinating an interagency investigation into the operations of Binance.
“I am confirming that the office of the national security adviser, as part of ongoing operations in the foreign exchange market with the CBN and other law enforcement and security agencies, is coordinating an interagency investigation into the operations of Binance,” Zakari Mijinyawa, Head of Strategic Communication at the Office of the National Security Adviser, revealed.
Apart from Binance, other platforms such as Forextime, OctaFX, Crypto, FXTM, Coinbase, and Kraken, among others, were equally blocked.
Presidency and regulatory sources said the government decided to move against Binance and other crypto firms following reports that currency speculators and money launderers were using them to execute criminal activities. Authorities believe the ‘criminal activities’ going on platforms are contributing significantly to the weakening of the naira.
Though, Nigeria is the first African country Binance had its footprint, the company operates in other climes Iike the US, where it also faced similar fraud charges..
According to court documents, Binance admitted to prioritising growth and profits over compliance with U.S. law. Binance launched in 2017 and focused on attracting high-volume customers, including U.S.-based customers.
Between August 2017 and October 2022, U.S. users, including VIPs, conducted trillions of dollars in transactions on the platform, generating over $1.6 billion in profit for Binance.
As part of the plea agreement, Binance has agreed to forfeit $2,510,650,588 and to pay a criminal fine of $1,805,475,575 for a total financial penalty of $4,316,126,163. Binance has also agreed to retain an independent compliance monitor for three years and remediate and enhance their anti-money laundering and sanctions compliance programs. Binance separately has also reached agreements with the CFTC, FinCEN, and OFAC, and the Department will credit approximately $1.8 billion toward those resolutions.
Adverse effects of cryptocurrency operations
The national currency had slumped badly in the forex market in the weeks preceding the clamp down on Binance, exchanging for as much as N1,950 in mid-February.
But soon afterwards, the Naira started to recover and was at a time N1,200 until the middle of last week when it lost some ground to the dollar again.
Observers blamed its earlier misfortune on alleged manipulation of the market by Binance and are citing the new crypto exchange platforms Bybit and Bitget as the cause of the latest slip.
Buyers beware!
In a document addressed to deposit money banks (DMBs), non-bank financial institutions (NBFls), other financial institutions (OFIs) and members of the public, the CBN cautioned and reminded the institutions that dealing in cryptocurrencies or facilitating payments for cryptocurrency exchanges is prohibited.
The document also stated that the central bank wants financial institutions to “ensure that such accounts are put on PND (Post No Debit) instruction for 6 months” and that breaches of the directive would attract severe regulatory sanctions. It said that any perpetrator or “suspected agent” secretly working with all cryptocurrency platforms, “buying and selling USDT illegally,” will be arrested.
Meanwhile, Tigran Gambaryan, a Binance executive detained in Nigeria since February, will reportedly remain in custody until a bail hearing on May 17.
Gambaryan will remain in Nigeria’s Kuje prison until at least May 17, when a judge will decide whether to grant the Binance executive bail. He initially traveled to Nigeria in February with fellow Binance executive Nadeem Anjarwalla to address claims the exchange manipulated the country’s fiat currency, the naira. Nigerian authorities detained both Binance executives as the crypto exchange announced that it intended to cease all naira transactions.
Gambaryan was expected to return to court on April 19 following an initial postponement, and the question of bail was to be addressed on April 22.
He has pleaded not guilty to tax evasion and money laundering charges brought by the EFCC, with a trial scheduled for May 2 but later postponed till May 17th.
Anjarwalla reportedly escaped Nigeria custody in March, using his Kenyan passport — he is both a British and Kenyan national — to fly out of Abuja. Reports from April 22 suggested that Kenya’s police arrested Anjarwalla and may extradite him to Nigeria to face criminal charges.
Many have criticised the government’s charges as lacking merit, as Binance said Gambaryan had “no decision-making power” at the crypto firm.
On March 30, Yuki Gambaryan, Tigran’s wife, launched a petition for the U.S. State Department, Nigeria’s Economic and Financial Crimes Commission, the Nigerian government and U.S. President Joe Biden to return him to the United States. As of April 23, the petition had 3,960 signatures. (The Nation)
