Two Nigerian cryptocurrency companies, Paparaxy Global Ventures Limited and Lemskin Technologies Limited, have agreed to refund a combined sum of ₦160 million to the Nigerian Federal Government. This decision follows a legal indictment for unauthorized financial transactions, specifically related to USDT (Tether) against the Naira, conducted without a valid operational license. According to a report from Nairametrics on Monday, the companies made the decision as part of a plea bargain with the Economic and Financial Crimes Commission (EFCC).
Background: Regulatory Crackdown on Unauthorized Crypto Transactions
The crackdown comes amidst heightened regulatory scrutiny of cryptocurrency transactions in Nigeria, especially concerning their use in manipulating the foreign exchange (FX) market. In recent months, Nigerian authorities have stepped up efforts to address what they describe as illicit financial activities conducted through cryptocurrency platforms.
In August 2024, the EFCC secured an order from the Federal High Court to freeze ₦548.6 million in bank accounts connected to suspected crypto users on platforms such as ByBit and KuCoin. These actions are part of a broader initiative by the government to clamp down on unregulated financial transactions, particularly in the crypto space.
Why Did Paparaxy and Lemskin Refund ₦160 Million?
The refund by Paparaxy and Lemskin was part of a negotiated plea deal following charges of operating as unlicensed financial institutions between 2021 and January 2024. Both companies were accused of conducting unauthorized USDT/NGN trading activities, a violation of Nigeria’s foreign exchange regulations.
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The plea bargain agreement, disclosed in documents seen by Nairametrics, allows the companies to admit guilt in exchange for a reduced penalty. This is a legal arrangement that permits the accused to avoid harsher consequences while cooperating with law enforcement. Under this agreement, Paparaxy refunded ₦140 million, and Lemskin returned ₦20 million.
The Legal Framework Behind the Indictments
The two firms were charged with violating Nigeria’s Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, which criminalizes unlicensed foreign exchange dealings. In this case, the companies conducted cryptocurrency transactions that involved converting USDT to Naira without approval from regulatory bodies.
Additionally, they were found guilty of breaching Section 10(3) of the Money Laundering (Prohibition) Act, 2011. This section mandates financial institutions to report significant transactions to the Special Control Unit on Money Laundering (SCUML), a requirement the companies failed to fulfill.
Plea Bargain and Good Behaviour Agreement
The plea bargain arrangement was presented before Justice James Omotosho of the Federal High Court in Abuja by EFCC lawyer Ogechi Ujam. As part of the settlement, the directors of both companies must file an affidavit of good behavior with the court, pledging to adhere to legal regulations moving forward. The court has adjourned further proceedings until October 22, 2024, to finalize the agreement.
Crypto Clampdown in Nigeria: A Year of Regulatory Actions
The Nigerian government’s intensified efforts to regulate the cryptocurrency space in 2024 have resulted in several high-profile actions. Authorities allege that cryptocurrencies have been used to facilitate money laundering, FX manipulation, and even terrorism financing. These concerns have led to a series of crackdowns, including freezing assets and prosecuting unlicensed operators.
In one of the most prominent cases, an executive from Binance, the world’s largest cryptocurrency exchange, has been detained for over eight months on charges related to FX market manipulation. Despite the Nigerian Securities and Exchange Commission (SEC) recently granting licenses to a few local crypto exchanges, the broader regulatory environment remains hostile to crypto actors.
Conclusion: A Growing Rift Between Crypto Firms and Nigerian Authorities
The plea bargain deal between Paparaxy, Lemskin, and the EFCC underscores the Nigerian government’s ongoing efforts to tighten control over the cryptocurrency industry. As more companies come under scrutiny, the clash between crypto operators and regulators is likely to intensify, especially as the government seeks to prevent cryptocurrency from undermining the traditional financial system.
With proceedings set to resume on October 22, the outcome of this case may set a precedent for how Nigerian authorities continue to regulate the burgeoning cryptocurrency market in the coming years.