In this piece Olumide Babalola argues that the Central Bank of Nigeria (CBN) overstepped its regulatory boundaries by usurping the statutory powers of the Security and Exchange Commission (SEC) to regulate securities in the mould of cryptocurrencies.
I chose this caption advisedly, in spite of my understanding of the Central Bank of Nigeria’s letter dated February 5, 2021 prohibiting “dealing in cryptocurrencies or facilitation of payment for cryptocurrency exchanges.” Nevertheless, I will attempt to justify the caption of my intervention by briefly answering the following questions:
Are cryptocurrencies legal tenders within the regulatory purview of the Central Bank of Nigeria (CBN)?
The CBN would seem to have answered this question in their letter dated January 12, 2017 that: “The CBN reiterates that VC such as Bitcoin, Ripples, Monero, Litecoin, Dogecoin, Onecoin, etc and similar products are not legal tenders in Nigeria….”
Since cryptocurrencies are not legal tenders, one wonders where the CBN derives its arrogated powers to regulate cryptocurrency exchanges especially since the provision of section 2 of the CBN Act and section 1 of the Banks and Other Financial Institutions Act clearly define the perimeters of CBN’s powers and functions, yet none contemplates regulation of “exchanges” in the mould of virtual currencies. I stand to be corrected on this interpretation though.
Apparently, since the CBN was in doubt as to the nature of and appropriate regulatory agency for cryptocurrencies, on the 14th day of September, 2020, the Securities and Exchange Commission (SEC) waded in and cleared CBN’s doubts by issuing a statement to the effect that: “The position of the Commission is that virtual crypto assets are securities, unless proven otherwise” https://sec.gov.ng/statement-on-digital-assets-and-their-classification-and-treatment/ Accessed on February 8, 2021
On regulating cryptocurrencies, SEC went ahead to state in their circular that: “Similarly, all Digital Assets Token Offering (DATOs), Initial Coin Offerings (ICOs), Security Token ICOs and other Blockchain- based offers of digital assets within Nigeria or by Nigerian issuers or sponsors or foreign issuers targeting Nigerian investors, shall be subject to the regulation of the Commission.”
From SEC’s intervention as seen in their circular, it is indubitable that CBN, with respect, jumped the gun by prohibiting “dealing” in an asset over which they do not have regulatory control and such a knee-jerk approach gives an impression of an ill-timed and “unthought out” entry into an unfamiliar terrain since they admitted in their letter of January 12, 2017 that the area is “unregulated.”
Thankfully, SEC’s position that cryptocurrencies are securities finds support in a US decision in United States of America v Maskim Zaslavskiy (17 CR 647) where District Judge Raymond Dearie ruled that cryptocurrency is a security and that it would fall under the United State’s Security Exchange Commission’s purview.
Enough said on this!
Should CBN’s Letter supersede SEC’s statement on cryptocurrencies?
Section 13 of the Investments and Securities Act (ISA) establishes SEC as the apex regulator of securities. Chambers Dictionary defines the word ‘apex’ as “the highest point.” Hence, it is our modest view that CBN should ordinarily steer clear of virtual currencies since it is outside their areas of competence which ought to be in the exclusive preserve of the SEC.
The CBN’s letter was neither referred to as a circular nor a regulation, hence the legal weight to be attached comes into question. Even if it bears such nomenclature, since SEC is designated the apex regulator of securities by the ISA, then their position should always override that of CBN on issues bordering on cryptocurrencies.
Does the CBN’s letter criminalise dealing in cryptocurrencies or facilitation of payment for cryptocurrency exchanges?
Although CBN’s letter expressly prohibits dealing in cryptocurrency, the source (if any) of such powers is suspect. Assuming they even have such imaginary powers, the courts have ruled that, an offence cannot be created by an administrative circular or letter.
For proper context, in Omatseye v Federal Republic of Nigeria (2017) LPELR- 42719 (CA), the Court of Appeal held that:
“Administrative circulars or notices have its place in government but cannot create an offence. The apex Court in the case of Maideribe v. FRN (2013) LPELR-21861(SC) on circulars held thus: “ Such circulars are- “a common form of administrative document by which instructions are disseminated; many such circulars are identified by serial numbers and published and many of them contain general statements of policy… they are therefore of great importance to the public giving much guidance about Governmental organization and the exercise of discretionary powers. In themselves they have no legal effect whatsoever, having no statutory authority. Exhibit “PD16z” is not known to law and therefore cannot create an offence because it was not shown to have been issued under an order, Act, Law or statute. In the absence of statutory authority in the said Exhibit “PD16z” or legal notice it cannot be said to have any legal effect.”
Until the contrary is established, it is our humble position that, the CBN’s letter dated February 5, 2020 remains in the realm of a mere (administrative) letter as admitted by its last paragraph that: “This Letter is with immediate effect” (Emphasis mine). Hence, it cannot create an offence upon which the Nigerian Police can arrest or harass any dealer in cryptocurrency, as one can already imagine.
Can the Police arrest dealers in cryptocurrencies?
As at press time, there is no law that criminalizes dealing in cryptocurrencies in Nigeria to my knowledge as the provisions of section 36(8) and (12) of the Constitution of the Federal Republic of Nigeria, 1999 (As amended) prohibit prosecution for an act which does not constitute an offence at the time of such act. In interpreting section 36(12) of the Nigerian Constitution, the Court of Appeal held in Ibrahim v Nigerian Army (2015) LPELR- 24596(CA) that:
“The ingredients of section 36(12) of the 1999 Federal Constitution as amended (supra) are as follows: “The offence has to be defined in a written law which term refers to:- (i) An Act of the National Assembly;(ii) A Law of a State House of Assembly;(iii) Any subsidiary legislation; or (iv) Instrument under the provisions of a law. The penalty shall also be prescribed in a written law which term refers to:-(i) An Act of the National Assembly;(ii) A Law of a State; or(iii) Any subsidiary legislation; or(iv) Any instrument under the provisions of a law.”
Applying the foregoing parameters to the CBN’s letter, the bank will have to further explain to Nigerians whether it is intended to be a subsidiary legislation or it provides penalty as required by the Constitution, bearing in mind the meaning of subsidiary legislation and the decision of the Supreme Court’s decision in Comptroller General of Customs v Gusau (2017) LPELR – 42081 (SC) to the effect that, guidelines are not subsidiary legislation, hence there exists no law creating an offence (of dealing in cryptocurrencies) upon which the police can lawfully arrest anyone in Nigeria.
Conclusively, without prejudice to the (right or wrong) economic and socio-political sentiments, whipped up by the CBN in their Press Release of February 7, 2021 justifying the prohibition, it remains this writer’s respectful opinion that the apex bank overstepped its regulatory boundaries by usurping the statutory powers of the Security and Exchange Commission to regulate securities in the mould of cryptocurrencies.
- Babalola is a Lagos-based digital rights lawyer.