7 min read
Summary: Cryptocurrency has grown to earn a reasonable measure of recognition as the virtual currency of the 21st century with its operation of a decentralized market; hence, its activities are not regulated but are protected by cryptography which aids encryption and concealment of codes to avoid oversight, transparency, and control. Irrespective of its seamless and smooth operation, regulators around the world are beginning to raise concerns over volatility, threat, vulnerability, risk of loss of investment money laundering, terrorist funding, illegal fund transfers, and other criminal activities associated with cryptocurrency even as more continue to emerge. Courtesy of these risks, the Central Bank of Nigeria has in line with the AML/CFT obligations amplified its restriction of cryptocurrency transactions in Nigeria.
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 prevents oversight, accountability, and regulation. Though the technology is widely regarded as seamless, transparent and peer to peer; however, regulators world over are becoming cautious, nervous and wary about its operation especially, being it a peer-to-peer transactions in other word, it has no government intervention. While the issuance and governance of fiat currency are dictated by central banks of every country, blockchain protocols, code, and community governs cryptocurrency.
There are a number of cryptocurrencies now in circulation, such as Cardano, Stellar, Litecoin, Ethereum and Ripple etc. yet Bitcoin was the first to be introduced in 2009 by an anonymous or a presumed pseudonym called, Satoshi Nakamoto and now accounts for about 68 percent of all cryptocurrencies.
According to the Financial Action Task Force (FATF), an international standard setter and global money laundering and terrorist financing watchdog through its recommendations and day today released guidelines, it is the duty of the supervisory body of every country to put appropriate measures with a view to improving risk-based supervision, mitigating the money laundering and terrorist financing risks of virtual assets of the risks that their regulated entities face. Supervisors play a crucial role in preventing money laundering and terrorist financing. They do this by helping their regulated entities, such as banks, accountants, money value transfer services, Virtual Assets Service Providers (VASPs) and other designated non-financial business and professions, understand the risks they face and how to mitigate them. Effective supervisors also ensure that regulated entities comply with their AML/CFT obligations and take appropriate action if those entities fail to do so.
Recently, the Central Bank of Nigeria, CBN reiterated its stand and position on the use of Cryptocurrency in Nigeria. Though this was not the first time the apex bank issued statement or advisory on the use of the digital currency or blockchain technology as a legal tender, the current advisory was only reiterating the previous banning and restrictions placed on financial institutions who housed the accounts in which the bitcoins and other related digital currencies are exchanged.
The statement was to serve as an advisory to users of this means of payment to be wary of its volatility, threat, vulnerability and risk, and for the financial institution to stop entertaining all transactions with crypto. As the CBN reiterated, “it’s position on cryptocurrencies 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 of the significant risks that transacting in cryptocurrencies portend-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 certain level of restrictions on financial institutions facilitating cryptocurrency transactions on the use of cryptocurrency in Nigeria. It went further to instruct all the financial institution
it is very vulnerable and risky, it is usage will also damage the country’s economy due to its risk, vulnerability and threats due to it secrete and unregulated nature. Worldwide, most of the real actors of this type of currency are criminals operating through the dark web especially the fraudsters and underworld to promote violent crimes such as the proliferations of arms and ammunition, drug dealing, sexual exploitation, Tax evasion, Business Email Compromise, terrorism and insurgency and above all the money laundering, simply because of its 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 a threat to the economy and security of the country; it is a risky business to the operators even the vulnerable citizens are at risk of losing the value of money due to its volatility.
In 2014, I attended one course in Dubai on Electronic payments, Digital and cryptocurrencies and a couples of fora on virtual currencies. As a financial crimes analyst one thing that kept ringing in my head whenever I was in those programs was the issue of peer to peer and regulatory aspect of the bitcoin and other ledger currencies. How would government allow these funds to be circulating without regulation? If allowed ii to flourish without any measure it will soon cripple and disrupt the economy. The overall operators who are mainly criminals and the vulnerability to citizens as for instance is another disturbing aspect. In digital currencies, only the holder can have access to the wallet. If today the holder dies or forget his password, all the bitcoins have gone forever because, it could not be accessed by anybody. Recently, Germany prosecuted a criminal with a bitcoin worth $60million in his possession, but one problem they encountered was how to unlock or access the crypto as he refused to give the password. If he likes, he can choose to go to jail and after serving the jail term he can enjoy his illicit funds and if he dies along the line then the money has vanished in the air. This is what I dislike as a government agent but unfortunately whenever you are opportune to attend a lecture on this crypto that is the area the facilitators will always hammer on, that the technology is transparent and peer to peer in the sense that it could not be controlled by any government or the law enforcement agencies, this make me nervous.
They said it is transparent as you can see the blockchain ledger as an operator but, on the side of regulators it’s very difficult if not impossible to track or trace. And with all the huge and voluminous transactions in crypto it doesn’t add value to the economy because no cent is being paid to the government as task or revenue. Therefore, government cannot fold its arms watching criminals laundering illicit funds through the blockchain technology.
The image of Nigeria among the comity of nation is being marred with all sort of crimes particularly the drug trafficking and Business Email Compromise (BEC) or 419 as we fondly called it. Nigeria is regarded as the epicentre of BEC and other electronic frauds. Billions of dollars of innocent and vulnerable individuals and entities are being drained through well-coordinated manners such as fake romance, fake princes, work-from-home gigs that sound too good to be true, impersonating of CEOs, Oil contract schemes etc.” According to the FBI, Cyber Division, in 2019 alone, over $1,776,549,688 have been lost through the BEC scam and another $475,014,032 lost through Romance scams; and chunk of these scams emanated from Nigeria. The case of the internet celebrity, Hushpuppy who conspired to launder money obtained from BEC frauds and other scams, including schemes that defrauded a U.S. law firm of about $1M, illegally transferred $14.7M from a foreign financial institution and targeted to steal $124M from an English Premier League football club is still fresh in our minds.
In 2020, Crypto marketplace Paxful reported that, Nigeria had the world’s second-largest Bitcoin by trading volume. In the last five years, Nigerians have traded 60,215 Bitcoins, or more than $566 million USD, it was reported.” But the question here is that how has this volume of transactions helped Nigeria’s economy? With this surge it is high time for Nigeria to launder or redeem its image therefore, allowing cryptocurrency to flourish unregulated or unlicenced is tantamount to aggravating the already dented image and economy of Nigeria; and the earlier the government wades action the better it is.
One thing we should understand is that, there is no common ground on how to approach Cryptocurrency and virtual assets worldwide and work is still on progress to update and adopt a best approach to the operation of virtual currencies including cryptocurrency in which the bitcoin is only one of them. In 2019, the FATF released its new risk-based supervision guidance to addresses common implementation challenges. It provides country examples and examples of strategies for supervising non-financial businesses and professions and VASPs.
The FATF is currently updating the guidance to address specific areas, including on how to apply the FATF Standards to so-called stable-coins, how public and private sectors can implement the travel rule, and how to address the risks of disintermediated peer-to-peer transactions. The FATF will publish the public consultation draft in March. Feedback from the consultation will inform the final guidance which the FATF expects to approve in June 2021. The FATF has also launched its second 12-month review which will look at the state of implementation globally of the FATF Standards on virtual assets, and identify any further challenges. In the National Cybersecurity Policy Strategy, 2021 which was recently launched by Mr. President, government have reiterated the impact of virtual assets and FINTECH to Nigeria’s financial industry. However, considering that virtual assets create platforms for anonymity or concealment of financial transactions which could facilitate money laundering and terrorism financing among other illicit activities, the government deem of expedient to apply risk-based approach to mitigating the threats associated with VASPs.
Though I am an advocate of the deployment of innovative technology in all government realms, as many countries are now using fintech in solving menaces of societal ills including corruption, money laundering and violent crimes like terrorism and kidnapping for ransoms etc.; yet I have to support the measures taken by the apex bank because, the crypt technology is largely being operated by dark web and criminals to promote under-world crimes hence, need to be checkmated by taking a firm decision. If advanced countries like UK and US as well as technologically advanced countries like china and India can apply different sanctions on this technology as measures to protect their economy, I think Nigeria cannot refuse to take more measures, also. I am sure the measures taken by the CBN is on temporary base, pending when the FATF updated guidance is out in near future.
God bless Nigeria.
Key Recommendations: The CBN’s current risk-based measure on curbing cryptocurrency crimes is provisional. Nigeria, like few advanced countries (UK, USA, India and China), with strong cryptocurrency sanctions, should impose additional cryptocurrency regulations that are not temporarily based.
About the Author: Sanusi Moyi is an anti-money laundering expert. He writes from Abuja.
Keywords Crimes, Cyptocurrency, Money laundering, Financing, Economy, Nigeria, Bitcoin, Risks