Concise Summary
- Central Bank of Nigeria (“CBN”) has penalized Access Bank, UBA and Stanbic IBTC Bank, 800million Naira for allowing cryptocurrency trading
- CBN in January, 2021, directed banks to close all accounts trading on cryptocurrency
- Stanbic IBTC Bank says its lacks capability to crypto trading – a weakling’s shield
- Banks will not successfully rely on customer’s indemnity obligations to recover penalties
- Yet, every money in any such customers’ account is deemed illegal proceeds that customers cannot recover from the banks. Banks should close the accounts and utilize any such proceeds
- A lawyer who represents a client that seeks to challenge the bank’s decision to close the account would be liable to cost – Nigerian courts are in cost-awarding moods
Penalty and the Sick Approach
According to The Guardian and BLOOMBERG, CBN penalized Access Bank, United Bank of Africa (UBA) and Stanbic IBTC Bank (Stanbic), a total sum of 800million Naira for shielding their customers that traded on cryptocurrency.
It is true that CBN began to proscribe cryptocurrency trades or Bitcoin and all related activities from year 2017. In January, 2021, CBN directed all Nigerian deposit money banks, other financial institutions and non-bank financial institutions to close any bank account involved in cryptocurrency.
Given the penalties, Access bank, UBA and Stanbic (the “banks”) failed to detect and close any such cryptocurrency trading bank accounts. Stanbic who CBN slammed a 200million Naira (US$478,595) penalty says it lacks the capacity to detect nature of customers’ transaction.
We fault Stanbic’s assertion above because it bears a duty under CBN’s Establishment of Industry Fraud Desk to monitor customers account against suspicious transactions and to decline certain transactions that include cryptocurrency. – Perhaps, it aimed at passing a wool over the eyes of unsuspecting investors and the public.
Indeed, CBN’s penalty on the leading national banks will make all the other financial institutions to fall into line – the days of cryptocurrency trade is over in Nigeria, except for willful non-compliant financial institutions.
Penalties: Can the Banks challenged it
In C.B.N. V. STALLIONAIRE (NIG) LTD (2020) LPELR-50788, the Court of Appeal affirmed that a party that seeks to challenge CBN’s decision, an action or omission, in any exercise of its powers must show that CBN acted in bad faith that directly affected the party detrimentally. – It is a jurisdictional question.
In the circumstance, the banks may appeal to the CBN for a downward review and no more.
Any liabilities of the Crypto trading customers
Generally, every bank account opening form contains customary indemnity clauses binding customers to make good a bank’s losses arising from customers’ breach of contract or legislation.
CBN’s regulations are subsidiary legislation in Nigeria and it governs banker-customer relationships. In a sense, banker-customer relationship is no longer simple contracts.
Court of Appeal held in UBA PLC V. AMSATA SUPERSANDALS MANUFACTURING COMPANY LTD & ORS (2019) LPELR-49335 that a bank’s duty to exercise reasonable care and skill extends over the whole range of banking business within the contract with the customer.
Our laws forbid any person from profiting from its own wrongs. The banks cannot successfully enforce any indemnity obligations against its cryptocurrency trading customers given that it breached its duty to close any such accounts and profited from it.
We assume that the banks would have closed any such cryptocurrency accounts. Relying on the principle that illegality vitiates a contract, the banks should retain all funds in the customers’ bank account.
In any case, the funds were in its custody and not the customers. Nigerian courts are consistent that money-in-a-bank account is in the bank’s custody.
This is irrespective of whether the banks informed the customers of CBN’s directives, beginning from year 2017 up to year 2021. The Banks owed a duty to the cryptocurrency trading customers to inform them of CBN’s regulations that proscribed crypto trading.
In First Bank vs. Oronsaye (2019) LPELR 47205, the court of appeal held that a Bank owes a customer a duty to exercise high standard of care not only in managing customer’s monies but also duty to inform and give clear details to customers.
Cryptocurrency customer as well had a duty to know that crypto trading is an illegal transaction in Nigeria. Ignorance of the law does not excuse.
If customers had not depleted their accounts before the banks closed the bank accounts, happy are such banks and their shareholders for they have access to funds that will assuage shareholders’ losses.
Bottomline
Employees will pay with job losses for the penalties. Banks will be in hurry to recoup their losses. Affected employees who are otherwise entitled to terminal benefits will lose it in the house cleaning party that will follow these heavy penalties slammed on the banks. – On the grounds that that they are bad leavers.
Meanwhile, customers may have liquidated funds in the bank accounts given a volatile market where information travel very fast – oftentimes with connivance and unlawful disclosures.
These penalties, arguably, benefit Nigerians. Whether short term or long haul. Cryptocurrency trading may now continue on e-Naira only – another doubtful benefits to Nigerians.
Osita Enwe heads SRJ’s Fin Tech, Education law and Agribusiness law practice groups
