Nigeria Urged to Regulate Cryptocurrency to Take Financial Crimes

Key Takeaways:

Regulatory urgency: Nigeria faces increasing pressure to regulate cryptocurrency to combat financial crimes. This suggests recognising the potential risks associated with unregulated crypto transactions, such as money laundering, fraud, and terrorism financing.

Addressing financial crimes: The call for regulation indicates a proactive approach to managing financial crimes within the cryptocurrency space. By establishing regulatory frameworks, authorities aim to mitigate illicit activities and protect investors and the financial system.

Balancing innovation and security: Nigeria must balance fostering innovation in the burgeoning cryptocurrency sector and ensuring robust security measures. Effective regulation should support innovation while safeguarding against criminal exploitation of digital assets.

Cryptocurrency has emerged as a transformative force in global finance; in Nigeria, the surge in crypto transactions has sparked both excitement and concern as it offers opportunities for financial inclusion and innovation.

Overview

During a training for crypto compliance, the co-founder of Nigerian blockchain intelligence service provider A&D Forensics, Adedeji Owonibi, mentioned that Nigeria needs to regulate crypto activities to curb financial crimes, especially money laundering. Owonibi highlighted that the need for crypto regulations in Nigeria’s crypto space allows various practices to go unmonitored. Owonibi said, “Nigeria should completely regulate cryptocurrency activities within the country and set out laws to that effect because if there is no law, there is no offence.

The Nigerian co-founder suggested that despite the reversal of the crypto transaction ban by the Central Bank of Nigeria (CNB), which permitted banks to operate accounts for digital assets service providers (VASPs), it aims to ensure banks adhere to the relevant laws in their interactions with VASPs. 

Owonibi highlighted that Nigeria’s financial institutions need compliance specialists’ services to ensure all funds that pass via their exchange are not used for criminal activities. The decentralised nature has also raised concerns about its potential misuse for illicit activities. The challenge of regulating crypto to mitigate financial crime such as money laundering, fraud and terrorism financing is grappling Nigeria, like many other nations. However, the debate and call for robust regulation to curb illicit activities are intensifying. 

The Need for Crypto Regulation

Over the years, Nigeria’s vibrant crypto market led by Bitcoin ($BTC) has witnessed exponential growth, particularly among the young population, driven by factors such as a burgeoning young population, smartphone penetration and a growing interest in alternative investment opportunities amid economic uncertainties. This rapid expansion has raised red flags among regulators and law enforcement agencies by attracting the attention of criminals seeking to exploit the anonymity and borderless nature of digital assets for illicit purposes.

 The decentralised infrastructure and anonymity offer challenges in reducing financial crimes such as money laundering, fraud, and terrorist financing, making it difficult to trace transactions and identify perpetrators. According to reports, cryptocurrencies provide a convenient avenue for money launderers to disguise the origin of illicit funds through complex transactions and obfuscated digital wallets. In Nigeria, fraudulent schemes such as Ponzi schemes and investment scams have increased the country’s cryptosystem, defrauding unsuspecting investors of millions of dollars.  

Nigeria’s Current Regulatory Landscape

A mix of caution and adaptation has characterised the country’s crypto-regulating approach. The CNB has issued several directives to mitigate the risks associated with digital assets while acknowledging the potential benefits of blockchain technology. In 2017, the CBN issued a circular warning financial institutions and the public about the risks of trading in virtual currencies, citing concerns about money laundering, terrorist financing, and consumer protection. Despite this cautionary stance, the Nigerian Securities and Exchange Commission (SEC) has taken a more proactive approach by recognising cryptocurrencies as securities and asserting its regulatory authority over crypto asset offerings and exchanges. 

On December 22 2023, all banks and financial institutions in Nigeria were issued guidelines outlining the conditions for VASPs to open accounts to stop bad actors and act as checks to ensure that financial institutions are not used as gateways to launder money. The central bank banned banks and other financial institutions from operating accounts for crypto service providers. The absence of comprehensive legislation tailored explicitly to crypto assets has created regulatory ambiguity, leaving investors and industry stakeholders uncertain about their rights and obligations. The development of Nigeria’s crypto space, stifling innovation and investment, has been hindered by this regulatory vacuum. 

Implication of Regulatory Measures

While the need for crypto regulation is widely acknowledged, stakeholders urge the Nigerian government to implement comprehensive rules to mitigate these risks. Stakeholders revealed that the nature and scope of regulatory measures can strike a balance between fostering innovation and safeguarding against illicit activities. Clear regulatory measures and oversight mechanisms can create a more secure space for crypto transactions, thus bolstering investor confidence and market integrity. Nigeria has put forward the licensing and supervision of crypto exchange proposals. The platform is currently operating with little to no regulatory oversight, which makes it vulnerable to exploitation by criminals. 

According to the report, subjecting exchanges to licensing requirements and ongoing supervision entails that regulators can enforce robust AML and know-your-customer (KYC) measures, which enhances transparency and accountability in their sector. Collaboration between regulators, crypto stakeholders and financial institutions was highlighted as necessary by experts. Additionally, emerging threats and developing effective strategies to combat financial crimes in crypto can be identified through information sharing and cooperation. Cooperation with international counterparts can boost Nigeria’s ability to address illicit crypto activities while adhering to AML standards. Despite the challenges, local crypto analysts have advised the Nigerian SEC to revisit VASP guidelines to enable local crypto exchanges to acquire operating licences.

Nigeria stands at a crucial juncture in its efforts to regulate cryptocurrency and tackle financial crimes. While regulatory challenges abound, proactive and collaborative action involving regulators, industry stakeholders, and policymakers is essential to harness cryptocurrency’s transformative potential while mitigating its associated risks. By striking the right balance between innovation and regulation, Nigeria can position itself as a leader in responsible cryptocurrency governance, fostering financial inclusion and economic development for the benefit of its citizens.

Fhumulani Lukoto Cryptocurrency Journalist

Fhumulani Lukoto holds a Bachelors Degree in Journalism enabling her to become the writer she is today. Her passion for cryptocurrency and bitcoin started in 2021 when she began producing content in the space. A naturally inquisitive person, she dove head first into all things crypto to gain the huge wealth of knowledge she has today. Based out of Gauteng, South Africa, Fhumulani is a core member of the content team at Coin Insider.

View all posts by Fhumulani Lukoto >

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