One may disagree with the approach of the Central Bank of Nigeria (CBN) to regulating cryptocurrencies but Nigerian courts are not likely disagree. Here are 3 reasons why.
(1) In a long list of cases, Nigerian courts have shown a reluctance to interfere with the rule making powers of the executive arm of government except where those powers were exercised illegally or without legal basis, in a corrupt or biased manner or where such exercise is not in the interest of the public. In keeping with the doctrine of separation of powers, it is indeed not the job of the courts to determine whether the decision of a regulator is the best that could have been made on a particular matter.
A case that comes to mind is that of Elephant Group vs. National Security Adviser (NSA), which was decided by the Court of Appeal in 2018. In that case, Elephant Group, a company which legitimately uses urea in the ordinary course of its business had gone to court to essentially challenge the decision of the NSA to ban the importation of urea into Nigeria. At the time, the Federal Government had banned the importation/dealings in urea because of its increasing use as a material for making explosives. The decision was essentially a change of policy because prior to the ban, Elephant Group had been able to import urea upon obtaining the relevant certifications.
Elephant Group lost at the Trial Court and at the Court of Appeal. The reasoning of the courts, which held in favour of the Federal Government, is captured in the following language of the Court of Appeal Judge:
“It is of common and general knowledge in Nigeria, of which this Court can take judicial notice thereof, that there has been an alarming increase in the use of IEDs – Improvised Explosive Devises – in Nigeria by insurgents and militants, particularly in the North East, leading not only to threat to national security but also to needless loss of lives and property of the citizens on account of terrorism and militancy and thus the powers of the National Security Adviser, particularly in the light of the increased use of IED by the insurgents, appear to be and is indeed enormous in issues of national security though the use of such enormous powers by the NSA, I must state must be within the confines of the rule of law. However, in such times of increased insurgencies or militancy and the resultant threats to public peace, lives and property, it appears, but regrettably so in my view, that the rights of the individual takes the back seat in preference for the public good!”
The excerpt above summarises the general attitude of Nigerian courts to legal challenges to the rule and policy making powers of the executive arm of the Government MDAs. To the extent that the CBN has informed the public about the dangers that an unregulated regime of cryptocurrency dealings can cause, it would be a very novel outcome, if a court were to unravel that policy decision.
(2) The CBN Circular did not actually ban the use of cryptocurrencies in Nigeria. This is very clear from the letter of the Circular. The language of the CBN Circular is not wide enough to suggest an outright ban of cryptocurencies in Nigeria. In our view, what the CBN Circular has done is to prohibit “banks and other financial institutions” (afortiori, licensees of the CBN) from providing electronic banking services to their customers who deal in cryptocurrencies from using the formal banking system. It is useful to note that the prohibition is not against individuals or ordinary Nigerians from holding cryptocurrencies. Accordingly, individuals in Nigeria can still carry on peer-to-peer trading or use correspondent accounts to trade in cryptocurrencies without any specific legal risk. Also, if two Nigerians: Mr. A in Nigeria decides to sell a house to Mr B who is also in Nigeria, using a cryptocurrency as consideration, we imagine that, that transaction can be consummated using the digital wallets of both parties and without using the formal banking system in Nigeria. Generally speaking, that would not be an illegal transaction and the CBN Circular cannot be a firm legal basis to vitiate that transaction. That example, in our view, underscores the position that there is no outright ban of crytpocurrencies in Nigeria. In the same vein, if a Nigerian company were to undertake an initial coin offering, where it sells tokens in exchange for cryptocurrency payments into a digital wallet, the CBN Circular, considered alone, would still not, in our view, be a defensible legal basis on the back of which the CBN can vitiate that transaction. One may argue that given how the financial system is crucial to trading in cryptocurrencies by Nigerians, the Circular must then be interpreted to be an outright ban or prohibition on ordinary Nigerians from trading or dealing in cryptocurrencies or using cryptocurrencies as a means of exchange. However, to the extent that the said Circular is directed at the licensees of CBN and not at individual Nigerians, the utility of that argument is very doubtful in a dispute resolution scenario.
(3) The CBN has statutory powers to print and issue legal tender/currency in Nigeria. If we agree that crypto or virtual currencies are essentially, another type of currency, on what basis therefore would one move the court, in a challenge, to the statutory right of the CBN or a policy of the CBN to regulate the use of another type of currency in Nigeria? How will the government deal with a situation where some local businesses decide insist that they would collect cryptocurrency instead of Naira? Can we say that a situation where any business can decide accept any virtual currency of it choice, ( instead of the Naira) will be in the public interest? Will it be in the public interest to expect ordinary Nigerians to who earn in Naira to first purchase a cryptocurrency in order to pay for services or goods that they require, in Nigeria? These are some of the questions that would form the basis of the decision of a Nigerian court in a dispute scenario.
This is not legal advice. For further discussions, please reach out to your Balogun Harold contact or via support@balogunharold.com
