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Fear of funding terrorism compels CBN to bar MDBs from virtual currencies deals

The Central Bank of Nigeria (CBN) has in a terse circular given to all money deposit banks (MDBs) barred them from transacting any form of business involving use of bitcoins and other virtual currencies.

Giving reasons for the policy directive, the apex bank sited possibility of perpetuating money laundering and terrorism financing risks in such operations.

It would be recalled that the Securities and Exchange Commission (SEC) had issued a similar warning against virtual currencies in the wake of observations that bitcoins and other virtual currencies are being traded by some banks.

According to SEC, “the public is hereby advised to exercise extreme caution with regard to digital (crypto currencies) as a vehicle of investments. Given that these instruments and the persons, companies or entities that promote them have neither been authorized, nor any guidelines/regulations developed for them by any of the regulatory authorities in Nigeria, there is no protection available to users or investors in these virtual currencies from financial losses if the virtual currencies fail or the companies promoting them go out of business”.

In the circular signed by the director, Financial Policy and Regulation department at the CBN, Mr. Kelvin Amugo, the apex bank observed in parts: “The emergence of Virtual Currencies (VCs) has attracted investments in payments infrastructure that provides new methods of transmitting value over the internet.

“Transactions in VCs are largely untraceable and anonymous making them susceptible to abuse by criminals, especially in money laundering and financing of terrorism. VCs are traded in exchange platforms that are unregulated, all over the world. Consumers may, therefore, lose their money without any legal redress in the event these exchanges collapse or close business.

“The development of VCs Payment Products and Services (VCPPS) and their interactions with other New Payment Products and Services (NPPS), give rise to the need for guidance to protect the integrity of the Nigerian financial system. There is, therefore, the need to address the Money Laundering/Terrorism Financing risks associated with VC exchanges and any other type of institutions that act as nodes, where convertible VC activities intersect with the regulated fiat currency financial system.

“The attention of banks and other reporting financial institutions is hereby drawn to the above risks and you are required to take the following actions pending substantive regulation or decision by the CBN; Ensure that you do not use, hold, and /or transact in any way in virtual currencies; Ensure that existing customers, that are virtual currency exchangers, have effective AML/CFT controls that enable them to comply with customer identification, verification and transaction monitoring requirements;

Continuing, CBN noted that “Where banks or other financial institutions are not satisfied with the controls put in place by the virtual currency exchangers/customers, the relationship should be discontinued immediately; and any suspicious transactions by these customers should immediately be reported to the Nigerian Financial Intelligence Unit (NFIU).”

In the wisdom of the CBN, VCs such as Bitcoin, Ripples, Monero, Litecoin, Dogecion, Onecoin, etc. and similar products are not legal tenders in Nigeria, thus any bank or institution that transacts in such business does so at its own risk.”