Ban on use of bank accounts for cryptocurrency trading in Nigeria: Fintech companies; the warning, and issues arising

Ban on use of bank accounts for cryptocurrency trading in Nigeria: Fintech companies; the warning, and issues arising.

BAN ON USE OF BANK ACCOUNTS FOR CRYPTOCURRENCY TRADING IN NIGERIA: FINTECH COMPANIES; THE WARNING, AND ISSUES ARISING

by

Branham Chima (LL.B.)

May 11^th 2024

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Salus populi suprema lex esto.

Here is the message Opay sent to his customers:

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.[1]

Paga, in similar light, sent: ‘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.’[2]

The impetus for this article stems from the recent announcement[3] made by FinTech companies such as Opay, PalmPay, Moniepoint, Paga, and others, regarding the blocking of accounts and the transmission of user data to authorities for individuals engaging in cryptocurrency trading through their banking platforms. This article delves into the implications of this notice, exploring the associated issues, and examines the suitability of prohibiting cryptocurrency, a form of digital asset.

In a recent legal case that piqued my interest - the matter of Governor of Central Bank of Nigeria v. Rise Vest Technologies Limited & Ors. (FHC/ABJ/CS/822/2021), which was adjudicated by the Federal High Court Abuja Division under the esteemed Hon. Justice Taiwo O. Taiwo on October 18 2021. The events unfolded in 2021 when the Central Bank of Nigeria sought and obtained an interim order from the Federal High Court to freeze the bank accounts of Rise Vest Technologies Limited and other entities involved in cryptocurrency transactions. Subsequently, upon being served with the order, the affected company filed a Motion on Notice, petitioning the Court to set aside and/or discharge the interim freezing order on various grounds. Following a hearing of the parties involved, the court made the decision to discharge the interim order. Notably, Odiba Anthony (Esq.) represented the Central Bank of Nigeria in this case, while Seni Adio (SAN) and Matthew Onoja appeared for the Defendant/Applicant. In concluding, the Court while setting aside the order held:

With due respect to the learned counsel to the Respondent, there is no reference by the learned counsel to any law on which the allegation is based or that it is illegal in Nigeria to deal in cryptocurrency as at now … It must be noted however that the court cannot base its decision mainly on public policy.

It is believed at this stage that the direction and the points in this article are noted.

The issues discussed in this article include:

1. Whether FinTech banks can release user's data (for indulging in cryptocurrency trading) without a Court order?

2. Whether FinTech banks can suo moto freeze a customer’s bank account for indulging in cryptocurrency trading?

3. Whether the Federal Government of Nigeria can confiscate digital assets of a user which is not obtained by fraud or any illegal act known to law?

4. Whether the Federal Government can ban trading/investment in digital assets like cryptocurrency?

1. Considerations on whether FinTech banks can release user's data (for indulging in cryptocurrency trading) without a Court order?

This issue arises from the warning of the FinTech companies to release the data to the respective government agency of anyone found trading cryptocurrency on their platform. The keynote in this issue is whether or not these FinTech companies can do so suo moto without an order of a Court of law. It must be noted that this issue of release of a customer’s data goes to the root of privacy. Thus, the release of the data of users of the platform for participation in cryptocurrency related activities touches on privacy.

In Nigeria, the legal safeguard of individuals’ right to privacy finds its anchor in Section 37 of the Constitution of the Federal Republic of Nigeria 1999 (as amended) (‘CFRN’). The section reads: ‘The privacy of citizens, their homes, correspondence, telephone conversations and telegraphic communications is hereby guaranteed and protected.’ This constitutional provision explicitly guarantees and protects the privacy of citizens, extending to their homes, correspondence, telephone conversations, and telegraphic communications. Here, the Latin maxim privatum et pacem (privacy and peace) visualise the essence of this fundamental right, emphasising the importance of individual privacy in maintaining harmony and tranquility within society.

However, this right to privacy is not absolute, as it is subject to limitations outlined in section 45 of the same Constitution. Section 45 delineates the circumstances under which the right to privacy can be circumscribed by law. The section 45 provides thus:

(1) Nothing in sections 37, 38, 39, 40 and 41 of this Constitution shall invalidate any law that is reasonably justifiable in a democratic society (a) in the interest of defence, public safety, public order, public morality or public health; or (b) for the purpose of protecting the rights and freedom or other persons.

This provision maintains the principle that individual rights must be balanced against the broader interests of society, as reflected also in the Latin maxim Salus populi suprema lex esto (the welfare of the people shall be the supreme law).

For a law to validly infringe upon the right to privacy enshrined in section 37, it must meet certain criteria; See: Enyinnaya v. State (2014) JELR 36636 (CA) where held ‘The only permitted derogation from this right is one provided for in a law … It is the most valuable of all rights’.

Firstly, the law must be justifiable in a democratic society, meaning it must align with the principles of majority rule and respect for fundamental rights. Additionally, the law must serve legitimate objectives such as defence, public safety, public order, public morality, or public health, as outlined in section 45(1)(a) CFRN. These criteria ensure that any encroachment on the right to privacy is proportionate and necessary in the context of a democratic society governed by the rule of law.

In Huvig v. France 11105/84 and Kruslin v. France 11801/85; the European Court of Human Rights identified three questions which provide a test for deciding if any given interference with a specific right(s) was ‘legal’: (1) Does the domestic legal system sanction the infraction? (2) Is the relevant legal provision accessible to the citizen? (3) Is the legal provision sufficiently precise to enable the citizen to reasonably foresee the consequences which a given action may entail?. The cases of Huvig and Kruslin were relied on in Dery & Ors. v Republic of Ghana (2019) - ECW/CCJ/JUD/17/19.

It is vital to note that mere policies of governmental institutions are insufficient to invalidate the right to privacy guaranteed under section 37. Only laws duly enacted by the legislative authority have the authority to curtail this fundamental right, and even then, such laws must meet the stringent requirements set forth in section 45. In similarity, in Governor of Central Bank of Nigeria v. Rise Vest Technologies Limited & Ors. (FHC/ABJ/CS/822/2021), the judge pointed out that the CBN had failed to produce any law demonstrating that dealing in cryptocurrency is prohibited in Nigeria and that the CBN circular, BSD/DIR/PUB/LAB/014/001 dated February 5 2021, is not a law.

See also: Peter Obi & Anor. v. Independent National Electoral Commission (INEC) & Ors. (2023, CA/PEPC/03/2023), Ganiyu v. Oshoakpemhe & Ors. (Ize-Iyamu & APC) (2021, CA/B/12A/2021), Wike Ezenwo Nyesom v. Hon. (Dr.) Dakuku Adol Peterside & Ors. (12 Feb 2016, SC.1002/2015).

Now, turning to the specific issue at hand regarding FinTech banks releasing user data for cryptocurrency trading without a court order, it is imperative to subject this issue to rigorous legal analysis premised on the aforementioned laws discussed.

Firstly, the release of user data by FinTech banks without a court order would constitute a blatant infringement of individuals’ right to privacy as guaranteed under section 37 of the Constitution. Such actions would contravene the foundational principle of privacy protection enshrined in the Constitution, undermining the very fabric of democratic society and eroding public trust in financial institutions.

Furthermore, and to be fair, the purported justification for such data release must be carefully scrutinised against the criteria set forth in section 45 of the Constitution; See too: Dery & Ors. v Republic of Ghana (supra). While concerns regarding financial regulation and combating illicit activities may be legitimate, they do not automatically override the constitutional right to privacy. Any measures infringing upon individual privacy must be proportionate, necessary, and strictly prescribed by law to ensure compliance with constitutional standards; See: Enyinnaya v. State (supra), Dery & Ors. v. Republic of Ghana (supra). As emphasised by the Latin maxim salus populi suprema lex esto (the welfare of the people shall be the supreme law), the protection of individual rights remains paramount, even in the pursuit of broader societal objectives.

Additionally, it is submitted that without judicial oversight and authorisation, there exists a significant risk of arbitrary and unjustified intrusions into individuals’ privacy rights, setting a dangerous precedent for unchecked governmental and corporate overreach.

On another angle, looking at the realm of data protection, the National Data Protection Act 2023 assumes a vital role, aiming to safeguard the fundamental rights and freedoms of individuals as guaranteed under the Constitution. Section 1 of the Act outlines its objectives, emphasising the fair, lawful, and accountable processing of personal data. However, a closer examination of section 3 reveals exemptions, notably excluding certain data processing activities carried out by competent authorities for specific purposes, such as criminal investigations or legal claims defense, from the Act’s purview. Notably, this exemption does not extend to sections 24, 25, 32, and 40 of the Act, ensuring that core principles of personal data protection remain intact.

The application of the Act to data shared with banks for account opening purposes raises pertinent questions. While it may be argued that such data sharing was not intended for subsequent transmission to regulatory bodies like the Central Bank of Nigeria (CBN), doubts persist regarding the argument’s strength. Nonetheless, section 24(1)(b) stresses the importance of collecting data for specified, explicit, and legitimate purposes, hinting at potential conflicts with unintended data sharing.

Furthermore, section 30(1) imposes restrictions on the processing of sensitive personal data, barring such activities unless necessitated by legal claims defense, legal advice acquisition, or substantial public interest. ‘Sensitive personal data’, as defined in section 65, encompasses a broad range of information, including genetic/biometric data, religious beliefs, and health status, among others.

In the context of cryptocurrency trading, Fintechs may invoke section 34(1)(a)(iii) to justify data disclosure to governmental bodies, arguing that such recipients fall within the ambit of disclosed categories under the Act. The section provides a data subject may obtain without restraint

confirmation as to whether the data controller or a data processor operating on its behalf, is storing or otherwise processing personal data relating to the data subject, and where that is the case - (iii) the recipients or categories of recipient to whom the personal data have been or will be disclosed, particularly recipients in third countries or international organisations.

In essence, that the data subject was informed of whom the data will be released to; in this case, the Nigerian government will pass as a recipient.

However, section 35(1) affords data subjects the right to withdraw consent to data processing. Deleting bank accounts and ceasing transactions with Fintech banks serves as a manifestation of consent withdrawal.

Despite the legal conundrum surrounding data processing and protection, data controllers must remain vigilant in upholding the fundamental rights of data subjects. Section 51 provides recourse for individuals who suffer harm due to data protection violations, allowing them to seek damages through civil proceedings. Alternatively, section 46 empowers aggrieved data subjects to lodge complaints with the Data Commission, highlighting the importance of accountability and redress mechanisms within the regulatory framework. 

2. Considerations on whether FinTech banks can suo moto freeze a customer’s bank account for indulging in cryptocurrency trading?

This issue is settled in the Nigeria jurisprudence and does not invite controversy. The position of the law is that a bank cannot suo moto freeze a customer’s bank account without first getting an order from a Court of law. The law on this point, it is submitted, stems from the fundamental property rights in the constitution, see section 44 dealing on the right to own movable properties.

The authorities on this point are in surplus.

Here are some authorities on this point:

Firstly is the case of Fidelity Bank Plc v. Bayuja Ventures Ltd. & Anor. (2011) JELR 33410 (CA), in this case the Court of Appeal per Sidi Dauda Bage (JCA) held thus that.

It amounts to nothing more than a resort to self help which is unacceptable, and which amounts to lawlessness and brigandage for the Appellant to unilaterally freeze the account of the Respondents. No one is allowed to resort to self help if not we shall all descend into a state of anarchy. See: Governor of Lagos State v. Ojukwu (1986) (Pt. 18) page 80; (1985) ALL NLR 235; Nwakure v. C.O.P. (1992) NWLR (Pt 240).

In this case, the Appellant bank froze the bank account of the Respondent on suspicion of having committed fraud. The trial court ruled for the Respondent upon his suit. This ruling of the trial court was affirmed by the Court of Appeal.

Also, in another case involving GTB V. Registered Trustees Of NEPWHAN (2021) JELR 109551 (CA), the Appellant placed the Respondent’s bank account on freeze having as a rationale that a mareva injunction was served on it and it did so, so that the Respondent will not use the money in the bank account thus leading to a fait accompli. It should be noted that the bank account was frozen unilaterally by the Respondent without a Court order. The Court of Appeal ruling in favour of the Respondent held thus that:

It is still the law, that for a bank to freeze, place a "caution" or any form of restrain on its customer's account, it has to be satisfied that there is a Court Order to that effect, otherwise it will be liable for a breach of contract, unless there is a statute that gives it such mandate. See G.T.B PLC V. ADEDAMOLA (2019) 5 NWLR (PT. 1664) 30 AT 43; U.B.A. v. MARCUS (2015) LPELR - 40397 (CA); DIKE v. ACB LTD. (2000) 5 NWLR (PT. 657) 441; AND OLALEKAN OYERINDE v. ACCESS BANK PLC. (2014) LPELR - 23461 (CA).

The Court further said

The Appellant in this appeal, did not have a Court Order mandating it to deny the Respondent access to its account, both to withdraw and to deposit. Its action is not backed by law. It breached the contractual duty it owed its customer, the Respondent and is liable in damages — MEKWUNYE v. EMIRATES AIRLINES (SUPRA) AT 225. I therefore resolve this issue against the Appellant and in favour of the Respondent.

In Polaris Bank Ltd v. Yayamu Global Services Ltd & Anor. (2022) LPELR-57376 (CA), the Court of Appeal held per Adah JCA that: ‘The law is settled and sacrosanct that for a bank to freeze, place a caution or any form of restraint on its customer’s account, there must be a Court order… See GTB v. Adedamola & Ors. (2019) LPELR-47310 (CA).’ This decision was relied upon by the National Industrial Court in the case of Mr. Agafie Paul v. Fidelity Bank Plc (November 16th 2022, NICN/AWK/32/2018). In this case, the Appellant placed the Respondent’s bank account on freeze until his loan was satisfied. The court held this to be wrongful.

It follows that FinTech banks cannot freeze a customer’s bank account, even if the customer participates in cryptocurrency, without first getting a valid order of a Court of Law that has jurisdiction in respect, and at the same time acting under a law.

3. Considerations on whether the Federal Government of Nigeria can confiscate digital assets of a user which is not obtained by fraud or any illegal act known to law?

Primus inter pares, every citizen or person living in Nigeria has a right to own property - movable property or interest in an immovable property.

The fundamental right to property, enshrined in the Constitution of the Federal Republic of Nigeria 1999 (as amended), is a cornerstone of legal protection for citizens. Section 44 of the constitution explicitly safeguards against the compulsory seizure of movable or immovable property except in accordance with prescribed laws and for specified purposes. This provision stresses the principle that any seizure of property must be conducted in accordance with the law, ensuring procedural fairness and legal legitimacy. The section provides that

no moveable property or any interest in an immovable property shall be taken possession of compulsorily and no right over or interest in any such property shall be acquired compulsorily in any part of Nigeria except in the manner and for the purposes prescribed by a law.

It is imperative that such authorisation emanates from a law duly enacted by the National Assembly or a State House of Assembly, as mere regulations or directives from governmental departments lack the force of law. In Governor of Central Bank of Nigeria v. Rise Vest Technologies Limited & Ors. (FHC/ABJ/CS/822/2021), the judge pointed out that the CBN had failed to produce any law demonstrating that dealing in cryptocurrency is prohibited in Nigeria and that the CBN circular, BSD/DIR/PUB/LAB/014/001 dated February 5 2021, is not a law.

See also: Peter Obi & Anor. v. Independent National Electoral Commission (INEC) & Ors. (2023, CA/PEPC/03/2023), Ganiyu v. Oshoakpemhe & Ors. (Ize-Iyamu & APC) (2021, CA/B/12A/2021), Wike Ezenwo Nyesom v. Hon. (Dr.) Dakuku Adol Peterside & Ors. (12 Feb 2016, SC.1002/2015).

Furthermore, section 44(2)(b) clarifies that penalties or forfeitures can only be imposed for breaches of law, whether through civil process or criminal conviction. This provision reaffirms the principle that any deprivation of property rights must be predicated on a legal basis, with directives from parastatals deemed insufficient to justify such actions. Parastatals are not law-making bodies.

Regarding the distinction between movable and immovable properties, section 43 guarantees every citizen the right to acquire and own immovable property anywhere in Nigeria. This provision encompasses the broad spectrum of property rights, ensuring that citizens enjoy the full protection of their ownership interests.

Applying these principles to cryptocurrencies or virtual currencies, it is submitted that they constitute immovable properties under the constitution. Further, the absence of specific legislation authorising the seizure of digital assets renders any such action illegal. Even if such legislation were to exist, it would need to comply with the constitutional safeguards outlined in section 44, ensuring that individuals are not arbitrarily deprived of their property rights.

The African Charter on Human and Peoples’ Rights, as referenced in Article 4, reinforces the notion that individuals cannot be arbitrarily deprived of their rights.

Article 14 of the Charter provides that ‘the right to property shall be guaranteed. It may only be encroached upon in the interest of public need or in the general interest of the community and in accordance with the provisions of appropriate laws’. Once again, ‘law’ is herein emphasised.

In essence, the constitutional provisions regarding property rights serve as vital safeguards against arbitrary state action and ensure that individuals’ rights to property are protected in accordance with the rule of law. Any attempt to confiscate virtual currency must adhere to these constitutional principles and legal requirements to uphold the fundamental rights of citizens.

The right to own property and where same may be lost was recognised in Denca Services Ltd. v. Leo Oleka & Sons Ltd & Ors. (2015) JELR 45740 (CA), where my Lord stated thus per Obaseki-Adejumo (JCA): ‘Clearly, the Constitution of the Federal Republic of Nigeria 1999 (as amended) pursuant to Section 43 and 44 thereof safeguards the right of every Nigerian citizen to acquire and own property anywhere in Nigeria.’ Although in this case, the Appellant’s goods were seised for being a contraband. Nonetheless, the Court recognised that this was being done subject to a law, and not just arbitrarily. Hear my Lord further

As Appellant rightly submitted, it is apparent that in the instant case the 3rd Respondent's seizure of the vehicle, subject matter of this suit was done pursuant to the exercise of the power conferred upon them by the Customs and Excise Management Act which comes under the exception provided by Section 44(2)(k) reproduced above.

In Amale v. Sokoto Local Government & Ors. (2012) JELR 34814 (SC), the Supreme Court held thus per Ngwuta (JSC) that ‘a person whose property is compulsorily acquired by the relevant authority in breach of the law and/or procedure for same has a right of action in the High Court in its general or distinct from its special jurisdiction conferred in s.46 of the Constitution.’

Amidst all, the burden lies on the federal government to prove that someone traded in cryptocurrency, and secondly, it was illegal to do so.

4. Consideration on whether the Federal Government can ban trading/investment in digital assets like cryptocurrency? 

Trading is a right; it is an extension of the right to life because without trading one cannot get sustenance to live; to live one needs money. Trading is simply the buying and selling of goods, or the rendering of services, just as a medical professional or a lawyer does in his respective profession. Every person has a right to engage in one trade or the other for his sustenance as long as such trade is not recognised as illegal by a democratic law.

The African Charter on Human and Peoples’ Rights, a cornerstone of human rights law on the continent and which Nigeria has accepted, enshrines fundamental freedoms, including the freedom of conscience and the right to practice a profession. Article 8 of the Charter unequivocally states that everyone shall have the freedom to practice a profession of their choosing, subject only to lawful restrictions necessary for maintaining law and order. This provision emphasises the importance of individual autonomy and the protection of economic liberties.

Furthermore, Article 22 of the Charter underscores the right of all peoples to economic, social, and cultural development, while also emphasising the importance of preserving freedom and identity; In Kemi Penheiro SAN V. Republic of Ghana ECW/CCJ/JUD/11/12 (2012), where the Applicant alleged the violation of Articles 20 and 22 of the African Charter, the Court stressed that it is opinio juris communis that the rights referred to in Articles 19 - 24 of the African Charter are rights of (all) peoples. This case was relied upon by the Court in Nosa Ehanire Osaghae v. Nigeria (2017, ECW/CCJ/JUD/03/17).

States are tasked with ensuring the exercise of this right to development, emphasising the collective responsibility to promote and protect economic freedoms.

In respect to digital assets which includes cryptocurrency, it is submitted that the trading of cryptocurrency constitutes a profession for many individuals; examples include people like Ahmed XM, and other prominent and not-prominent figures in the Nigerian cryptocurrency space. As such, any attempt by the Federal Government to ban cryptocurrency or restrict investment in it would potentially infringe upon the freedom to economic development guaranteed by the African Charter.

Salus populi suprema lex esto (the welfare of the people shall be the supreme law) highlights the overarching principle that laws and measures should ultimately serve the well-being and development of the people.

Conclusion

In conclusion, it is recommended that the Central Bank of Nigeria (CBN), on behalf of the Federal Government, refrains from targeting cryptocurrency traders. Instead, the focus should be on regulating p2p traders who can comply with the necessary regulations for p2p trading. It is advisable to regularise p2p trading rather than implementing blanket measures that affect both cryptocurrency traders and p2p dealers. It is important to remember that not every cryptocurrency trader is involved in or utilises p2p trading. As the saying goes, do not throw out the baby with the bathwater.

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[1] (n 3)

[2] (n 3)

[3] Justice Okamgba, ‘Don’t trade in crypto, Opay, PalmPay, others warn customers’, Punch (4th May 2024) <https://punchng.com/dont-trade-in-crypto-opay-palmpay-others-warn-customers/?amp> accessed May 11th 2024