Digital Shadows in Illicit Financial Flows: Unraveling Nigeria's Cryptocurrency Paradox and Illuminating Pathways to Financial Integrity

e-ISSN 2690-3458 ISSN 2690-3431 JOURNAL OF ACADEMICS STAND AGAINST POVERTY Volume 6, 2025: pages 103-126 Research Paper Journal of Academics Stand Against Poverty, 2025, 6, 103-126 Digital Shadows in Illicit Financial Flows: Unraveling Nigeria's Cryptocurrency Paradox and Illuminating Pathways to Financial Integrity Wisdom Essien University of Passau, Germany, DAAD Alumni Forum, Nigerian Scholars in Germany (NiSiG), ORCID: 0009-0002-9776-5060. Email: [email protected]i-passau.de Abstract: Nigeria’s lead in global cryptocurrency adoption amidst a slumping economy presents a fascinating paradox. This raises, inter alia, concerns about the factors driving cryptocurrency adoption and its potential for illicit financial flows in the country. Consequently, this study aims to identify the key factors facilitating the use of cryptocurrency for illicit financial flows in Nigeria, assess its impact on the country's economy, and propose workable solutions to address the challenges. Leveraging extant literature, an interview, and Davis' Technology Acceptance Model (TAM) for empirical analysis, the paper identifies the decentralized nature of the blockchain and the anonymity provided by mixers, tumblers, and privacy coins as “perceived usefulness”, and the relatively higher cost and delays of international transactions with commercial banks in comparison to the blockchain as the “perceived ease of use”. The paper further submits that a porous legal framework guides the use of cryptocurrency in Nigeria, which is part of the enabling factors of on-chain illicit financial flows in the country. This is despite recent policy shifts, including the introduction of Nigeria’s Central Bank Digital Currency (CBDC), which have not effectively addressed these issues. The research concludes that, notwithstanding the risks associated with cryptocurrencies, they also present opportunities for financial inclusivity. Keywords: 1. Nigeria 2. Cryptocurrency 3. Illicit Financial Flows 4. Finance 5. Blockchain 6. Paradox 2025 Journal ASAP DOI: 10.5281/zenodo.17967591 Received 10 June 2025 Revised 10 December 2025 Accepted 15 December 2025 Available online 17 December 2025 104 1. Introduction Today’s interconnected world and evolving technological ecosystem have made combating illicit financial flows (IFF) difficult for countries and international authorities. While digital technology has long been utilized in finance, the rise of distributed ledger technology (DLT) like the blockchain has catalyzed the creation and widespread adoption of new digital currencies. These encompass private and public forms, including central bank digital currencies (CBDCs), e-money1 and cryptocurrencies (Kim et al. 2024, p. 2). Alongside this novel shift to digital finance, is developing economies' burgeoning adoption of cryptocurrencies. A report by Chainalysis (2023, pp. 5-85), posits that the continued regulatory clarity of cryptocurrency worldwide has given rise to developing countries taking their place as global leaders in cryptocurrency adoption. According to which, it also ranks Nigeria in 2nd place, just after India, on the 2023 global cryptocurrency adoption index. Historically, Bitcoin remains the first cryptocurrency invented. The maiden cryptocurrency was introduced in 2008 through a paper posted to a cryptography mailing list under the pseudonym “Satoshi Nakamoto” titled “Bitcoin: A Peer-to-Peer Electronic Cash System” (Grover et al., 2019, p. 772). The posted paper described establishing a decentralized peer-topeer system of transactions devoid of interference from the government and financial institutions. The system sought to supplant conventional trust, accountability, and oversight components inherent in commercial and traditional exchange practices. Nakamoto's vision for Bitcoin transactions materialized with the release of the open-source “Bitcoin-Client” and the mining of the initial block2 of Bitcoins, known as the “genesis block”. Over time, Bitcoin gained prominence as a means of transaction, finding utility within global organizations such as WikiLeaks and the Electronic Frontier Foundation. Further underscoring its influence, the foundation pivoted towards the coin’s standardization, protection, and promotion (Jejelola, 2021, pp. 12-13). Akin to cryptocurrency, transnational financial crimes, while longstanding, have taken on new forms and increased magnitude in recent times. In Nigeria, cryptocurrency plays an increasingly significant role in these crimes (Jejelola, 2021, p. 23). The emergence of cryptocurrencies in mainstream markets has transformed conventional ways of money laundering and fraudulent transactions. Technology such as blockchain now plays a crucial role in enabling clandestine acquisition and cross-border transfer of illicit funds. In 2023, the total value of cryptocurrencies sent from illicit addresses on the blockchain amounted to $22.2 billion3, slightly lower than the $31.5 billion recorded in 2022 (Padalkar, 2023, p. 2; Chainalysis, 2024, p. 23). The United Nations Conference on Trade and Development (UNCTAD) (2020, pp. 155-171) estimated an annual loss of $88.6 billion between 2013 and 2015 in Africa through IFF–trade misinvoicing and other balance-of-payment transactions, with the single largest share of about $41 billion accruing to Nigeria. Thus, posing a substantial economic challenge for the country, and by extension, the continent. Considering the above challenges, this essay uses a qualitative research approach to unravel the enabling factors of illicit financial flows on blockchain technology, the consequent impact in Nigeria, and the practical solutions to mitigate its unethical usage. Hence analyzing, inter alia, the intrinsic complexities of decentralization and anonymity of cryptocurrencies cum blockchain, and the porous legal framework that drives its use for illegal financial cross-border transfers in Nigeria. As a scientific effort, the essay adopts Fred Davis’ Technology Acceptance Model (TAM), which lends clarity to the reasons why technology, in this case, cryptocurrency, is becoming a mainstay channel for IFF in Nigeria and is used by criminal entities to obscure 1 E-money as used here refers to a digital form of cash/currency electronically stored and used for payment transactions. 2 Cryptocurrency block is a record of the most recent cryptocurrency transactions. 3 The designated currency symbol ‘$’ as used here and on other pages refers to the United States’ dollar. 105 cross-border financial fraud. The theoretical indicators of TAM, “Perceived usefulness4” and “Perceived ease of use5”, explain reasons for adopting blockchain technology for IFF in Nigeria. To help inform the discussion, data were collated from Chainalysis - a foremost blockchain research firm; the Economic and Financial Crimes Commission (EFCC); the Nigerian Financial Intelligence Unit (GFIU); and the Central Bank of Nigeria (CBN) to ascertain the use of cryptocurrency for IFF in Nigeria. More so, in establishing other enabling conditions for the use of cryptocurrencies for IFF, a key informant interview (see Appendix 1) was conducted with a staff of the United Bank for Africa (UBA) to evaluate the “ease” of international transactions on the blockchain as against centralized financial institutions (CFI). Furthermore, there is a paucity of academic literature regarding cryptocurrency adoption, payment and usage in Nigeria. However, when it comes to the subject of cryptocurrency, two contrasting scholarly perspectives have gained significant acceptance. On the one hand, cryptocurrencies are seen by some scholars as the future of payment systems, facilitating swift and efficient transactions between users. On the other hand, others argue that cryptocurrencies provide criminals with a method to store and transfer illegal funds and evade detection by financial authorities. Chen and Bellavitis (2019, pp. 1-2) argue that decentralized finance can reduce transaction costs, broaden financial inclusion, increase access to basic financial services, encourage permissionless payments, and create new opportunities. Buttressing this point further, Oyeyemi et al. (2024, p. 182) affirm that decentralized finance can reshape the structure of modern finance and create a new landscape for entrepreneurship and business innovation. On the flip side, Schär (2021, pp. 153-154) fears that decentralized finance is a segment of financial markets with certain risks, even though it offers efficiency, transparency, accessibility, and interoperability advantages. Upholding Schär’s polemic, Zetzsche, Arner, and Buckley (2020, p. 172) argue that decentralized finance has the potential to undermine traditional forms of accountability and erode the effectiveness of traditional financial regulation and enforcement. Moreover, the significance of this essay to extant literature is its specific study on the complex instigators of blockchain technology and its concomitant currencies for IFF in Nigeria; the succinct comparative analysis of the blockchain and centralized financial institutions (banks) in Nigeria to ascertain the “ease of use” of these channels for IFF; the practicable recommendations, and the variable of its data recency as compared to other studies. 2. Historical overview of illicit financial flow in Nigeria IFF represents the portion of finance with illicit origin and usage, such as tax evasion, trade mispricing and misinvoicing, currency counterfeiting, terror financing, drug and human trafficking, etc., that either crosses borders or is transferred out of a country (Okojie, 2018, pp. 3-4). Following the decline in oil prices during the 1980s and the subsequent austerity measures linked to Nigeria's Structural Adjustment Programme (SAP), the country witnessed a surge in money laundering activities. This period spurred unprecedented greed and avarice, leading to severe financial crimes among Nigerians (Sanusi, 2023, p. 1). Despite international efforts to combat money laundering, the crime exacerbated and continued to erode Nigeria's economic stability. In 2000, Nigeria was identified by the Financial Action Task Force (FATF) as one of the non-cooperative countries or territories (NCCTs) in the fight against money laundering. Equally, the United Kingdom's (UK) financial supervisory authorities estimated that illicit transactions in UK accounts originating from Nigeria totalled approximately $1.3 billion between 1996 and 2000 (Kama, 2005, p. 31). Recognizing the detrimental impact of these criminal activities on the economy, especially during the country's pursuit of economic revitalization, the Federal Government of Nigeria established the Independent Corrupt Practices and other Offences Commission (ICPC) in 4 An indicator that implies people will use technology mainly because of its usefulness. 5 An indicator that explains that technology will be adopted based on the ease experienced while using it. 106 September 2000 and the Economic and Financial Crimes Commission (EFCC) in March 2003 (Micah et al., 2022, p. 88). These agencies were tasked with the investigation of economic and financial crimes within the country, aiming to hold perpetrators accountable. The EFCC was saddled with the authority to confront economic and financial crimes, having been established through an enabling Act of the National Assembly in December 2002. According to Section 7(2) of the EFCC (Establishment) Act, 2001, the Commission serves as the coordinating body for the enforcement of the Money Laundering (Prohibition) Act, 2004 (Kama, 2005, p. 32). Despite the constituted authorities and enacted Acts to mitigate against financial crime, IFFs in Nigeria persisted. According to Ngwakwe (2015, p. 124), leveraging data from Global Financial Integrity (GFI), Nigeria’s IFF between 2004 and 2012 was well over $150 billion: Table 1: Illicit Financial Flow in Nigeria 2004 – 2012 Year Amount ($) Percentage of GDP Percentage increase/decrease 2004 1.6 billion - - 2005 17.8 billion 6.8% 1012.5% 2006 19.1 billion 6.8% 7.30% 2007 19.3 billion 1.2% 1.05% 2008 24.1 billion 7.4% 24.87% 2009 26.3 billion 7.7% 9.13% 2010 20.7 billion 4.9% 21.29% 2011 20.1 billion 3.8% 2.90% 2012 7.9 billion 1.2% 60.70% Source: Ngwakwe (2015, p. 124) and Joseph (2019, p. 9). The data presented above demonstrates the variability in illicit financial flows within Nigeria before the widespread adoption of cryptocurrency. In 2004, a few years after the SAP, IFF totalled $1.6 billion, rising significantly to $17.8 billion in 2005. Subsequent increments were more moderate, ranging from about 1% to 25%. Subsequently, after peaking at $26.3 billion, the values begin to decline, with a $21.3% decrease to $20.7 billion and a further slight drop to $20.1 billion. The most substantial decrease is observed from $20.1 billion to $7.9 billion, amounting to a 60.7% reduction. These variations suggest periods of high and low illicit flows. Also represented are the percentages of IFFs fluctuations to the Gross Domestic Product (GDP) of Nigeria for each year (Ngwakwe, 2015, p.124; Joseph, 2019, p. 9). 3. Cryptocurrency and illicit financial flow in Nigeria: The adoption, impact, and trends Cryptocurrency, a decentralized and encrypted digital currency, has emerged as a groundbreaking innovation globally, including in Nigeria. Derived from blockchain technology - a revolutionary subset of distributed ledger technology, cryptocurrency operates on a network of interconnected computer servers known as nodes. This decentralized system facilitates the secure recording and sharing of data across multiple ledgers, ensuring transparency, immutability, and security. Users' wallets must possess private and public encryption keys to transact within the cryptocurrency network. The private key, often backed up by seed phrases, is used to authorize transactions, prove ownership of wallets and funds, etc., while the public key functions as an address on the blockchain network and can be used in verifying sender's identity (Jejelola, 2021, pp. 10-11; Oladipupo and Amodu, 2022, p. 116). Cryptocurrencies fulfil distinct roles for users, primarily functioning as speculative investment vehicles or mediums of exchange. While some cryptocurrencies serve both purposes, others are specialized 107 in one function. For instance, Bitcoin—commonly regarded as "digital gold"—is predominantly held as a store of value for capital appreciation. In contrast, stablecoins such as USDT (Tether)6 are designed to facilitate transactions due to their price stability, pegged to fiat currencies like the United States dollar (Griffin, 2025, p. 30). 3.1 Adoption In recent times, Nigeria has witnessed a surge in cryptocurrency adoption and blockchain technology. A large segment of the country's tech-savvy youth has embraced digital assets, contributing to Nigeria’s position as a leading adopter of cryptocurrencies. Factors such as limited financial services, high inflation, currency depreciation, and a young demographic have also fueled this growth (Greenfield, 2020, p. 5). Besides being ranked 2nd on the 2023 global cryptocurrency adoption index, Nigeria ranks 1st on peer-to-peer (P2P) exchange trade volume, 2nd in centralized service value received and 3rd in retail centralized service value received globally (see Figure 1). Recording over $50 billion worth of Bitcoin and stablecoins volume received by indigenous exchanges between August 2021 and July 2023. The nation maintains a significant 9.0 % year-over-year (YoY) volume growth between 2021 and 2023 globally, placing it third globally based on YoY and the studied period (Chainalysis, 2023, pp. 83-86). However, alongside these outstanding adoption indices of cryptocurrency in Nigeria are the challenges of huge illicit financial flows, cybercrimes, and tax evasion, resulting in economic instability and poverty in the nation. Figure 1: The 2023 Global Crypto Adoption Index Top 16 6 USDT is the symbol for Tether, a cryptocurrency that is pegged to the U.S. dollar Country Region Overall index ranking Centralized service value received ranking Retail centralized service value received ranking P2P exchange trade volume ranking DeFi value received ranking Retail DeFi value received ranking India Central and Southern Asia and Oceania 1 1 1 5 1 1 Nigeria Sub - Saharan 2 3 2 1 4 4 Vietnam Central and Southern Asia and Oceania 3 4 4 2 3 3 United States North America 4 2 8 12 2 2 Ukraine Eastern Europe 5 5 3 11 10 10 Philippines Central and Southern Asia and Oceania 6 6 6 19 7 7 Indonesia Central and Southern Asia and Oceania 7 13 13 14 5 5 108 Source: Chainalysis (2023, p. 5) 3.2 Impact In 2023, the Central Bank of Nigeria (CBN) imposed stringent regulatory measures against Binance, a US-based cryptocurrency exchange, to stabilize the Nigerian naira7 and bolster the national economy. The CBN alleged that Binance was being exploited by malevolent actors engaged in illicit activities such as money laundering, terrorism financing and market manipulation, which have significantly distorted Nigeria's economy and contributed to the naira's depreciation. This is evidenced in the plummeted exchange rate of the naira against the US dollar8 from around ₦461 per dollar in May 2023 to over ₦1500 per dollar in August 2024. Additionally, the CBN accused Binance of providing services in Nigeria without remitting taxes, thus depriving the nation of crucial revenue. Dr. Olayemi Cardoso, the CBN Governor, revealed that an estimated $26 billion had been transacted without tax through Binance in Nigeria by unidentified sources within a year, consequently prompting concerns regarding its impact on economic stability (Ogege, 2024, pp. 19-20). Consequently, according to the World Bank Group (2024, p. 1), Nigeria's current economic inflation rate has reached a 24-year apex of 31.7% in February 2024, indicating a dire economic quagmire facing the country. Ruth and Ismail (2024) lend credence to this, stating: “Nigeria is facing its worst economic crisis in decades, with skyrocketing inflation, a national currency in free-fall and millions of people struggling to buy food. The pain is widespread. Unions strike to protest salaries of around $20 a month [see Figure 2]. People die in stampedes, desperate for 7 Naira, designated “₦”, is the official currency of Nigeria 8 Google Finance (2024) https://www.google.com/finance/quote/USD-NGN?window=5Y Pakistan Central and Southern Asia and Oceania 8 7 7 9 20 20 Brazil Latin America 9 9 11 15 11 11 Thailand Central and Southern Asia and Oceania 10 8 15 44 6 6 China Eastern Asia 11 10 5 13 23 23 Turkey Middle East and North Africa 12 11 9 35 12 12 Russia Eastern Europe 13 12 10 36 9 9 United Kingdom Central, Northern and Western Europe 14 15 20 38 8 8 Argentina Latin America 15 14 12 29 19 19 Mexico Latin America 16 17 18 30 16 16\ 109 free sacks of rice. Hospitals are overrun with women wracked by spasms from calcium deficiencies” Figure 2: Nigerians and unionists during the 2024 “End Bad Governance and Hunger” protest Source: Voice of Liberty (2024, p. 1)9 From an appraisal viewpoint, the current economic crisis faced by Nigeria presents a paradoxical juxtaposition: Nigeria simultaneously occupies a prominent position in global cryptocurrency adoption while being among the worst economies globally. Given the country's well-documented issues with systemic corruption 10 and economic mismanagement, this incongruity between Nigeria's lead in cryptocurrency adoption and its severe economic difficulties suggests a potential correlation. Specifically, it raises the hypothesis that cryptocurrency may be serving as a robust conduit for illicit financial transactions and potentially intensifying the nation's economic challenges. This could be so because the impact of IFFs on Nigeria’s socio-economic landscape is huge. For example, Nigeria has more than 83 million citizens (about 40 % of the population) living in extreme poverty of less than $1.9/day11 as per a 2019 estimate, while the number of unemployed Nigerians has reached 23.2 million (33.3 %) in the fourth quarter of 2020 as against 21.77 million in the second quarter12. Mobilizing resources lost through IFFs, which manifest as both outflows and inflows of funds, can provide the needed funds to improve the Nigerian economy. The outflows of illicit funds, which occur when funds are illegally moved abroad through tax evasion by multinational corporations, embezzlement by corrupt officials, oil theft, or money laundering, deprive the government of critical revenue needed for public investment. Meanwhile, inflows—such as illicitly repatriated profits, laundered money recycled through fake investments or smuggled goods—distort markets, fuel corruption, and create a bad reputation for the nation, which further weakens the economy. For instance, when stolen funds re-enter Nigeria disguised as foreign investment, they often bypass proper taxation and regulation, perpetuating a cycle of 9 Voice of Liberty NG (2024) https://voiceoflibertyng.com/endbadgovernance-organisers-plan-million-mangrand-finale-protest-across-nigeria/ 10 Ranks 145 on the Global Corruption Perception Index, 2023 https://www.transparency.org/en/cpi/2023 11 Akwagyram, Alexis (2020). Forty percent of Nigerians live in poverty: Stats office. www.reuters.com 12 Adegboyega, Ayodedeji (2021). Nigeria’s unemployment rate rises to 33.3% - highest in over 13 years. www.premiumtimesng.com 110 graft and lost revenue. Both types of IFFs drain resources that could otherwise fund infrastructure, education, and healthcare, while also discouraging legitimate investment. According to the Mbeki Panel report (2015), it would have taken about 10 years between 2000 and 2011 to meet the MDG goal of reducing child mortality to 77 from 186 per 100,000 if IFFs were eliminated, as against 28 years it would take based on current arrangement (ANEEJ, 2018, p. 20). Illicit financial flows through cryptocurrency divert public resources intended for public welfare, resulting in both immediate and long-term consequences. Nigeria's experience with recovering Abacha's stolen funds highlights the significant costs associated with addressing IFFs. Despite recovering $2.4 billion13 after a twenty-year process, the government incurred substantial expenses, including foreign jurisdiction levies and recovery agent fees. Additionally, the recovered funds often represent only a fraction of their potential value due to lost interest, while the government incurs significant costs for recovery efforts. For example, the second recovered loot of Abacha, worth $322.5 million, only accrued $1.5 million in interest, representing a mere 0.46 percent. Meanwhile, Nigeria paid 4 percent of the recovered loot, amounting to $96 million (4% of $2.4 billion), to the recovery agent. Also, the long-term impact in terms of the absence of infrastructure, unavailable social services and denied opportunities, which the stolen funds could have generated, cannot be quantified (Africa Network, 2018, p. 21). 3.3 Trends: The recent trends of illicit financial flows facilitated by cryptocurrency in Nigeria have manifested in a diverse array of activities, encompassing tax evasion, fraud and Ponzi schemes, money laundering, and the financing of illegal activities. As evidenced in Table 2, these illicit activities have had a profound and detrimental impact on Nigeria's economy and its citizens. The widespread use of cryptocurrency has made it easier for people and businesses to engage in illegal activities, harming financial systems and public trust. To this day, reports on financial crimes by the Economic and Financial Crimes Commission (EFCC) involving cryptocurrencies persist, as seen in reported cases of huge IFFs involving Nigeria and other countries below: 13 BBC (2021). Sani Abacha: the hunt for the billions stolen by Nigeria's ex-leader. www.bbc.co.uk 111 Table 2: Recent Trends of Illicit Financial Flow using Cryptocurrency in Nigeria 14S/N Jurisdictions Amount Report details 1 Kenya/ Nigeria $349,000 In 2021, the EFCC received a report from a foreign law enforcement agency regarding an alleged fraud case of $349,000 involving two suspected Nigerian fraudsters who had relocated to Kenya. Analysis of the suspects' bank statements uncovered regular payments from the same source, leading to the discovery that a final-year university student in Nigeria had a turnover exceeding N1.2 billion (approximately $1.6 million) in one of his accounts. The student, arrested as the money handler, confessed to knowingly exchanging fiat currency for cryptocurrency for various fraudsters, including the two initial suspects under investigation. 2 Vietnam/Nigeria $2,000,000 The EFCC received an Intelligence Report from the Nigerian Financial Intelligence Unit (NFIU) regarding the account activities of “Chinelo”15, a waitress at “Jans Hotels” in Nigeria, prompting an immediate investigation. Bank account intelligence linked to the suspect was gathered, and further information was requested from competent authorities, including the regulated crypto exchange, Binance where the suspect held a wallet account. Investigations uncovered that the suspect was a legitimate crypto exchange service provider engaged by an individual named “Henry” to convert crypto valued at over $2,000,000 to cash for someone identified as "Jerry" purportedly residing in Vietnam. “Henry”, the principal suspect, used the proceeds to purchase properties valued at over N315,000,000 (approximately $416,000). "Jerry" is presently evading apprehension due to suspicions surrounding the source of the sold cryptocurrency. 3 USA/Nigeria $95,000 In 2021, the EFCC conducted a sting operation leading to the arrest of a fraud suspect identified as “Mr. Jackson” after a victim filed a complaint about a suspected romance scam. Forensic analysis of “Mr. Jackson's” device revealed his impersonation as an American Surgeon on a UN Mission to the Middle East, targeting a Korean American victim. He manipulated her into financially supporting him through crypto payments, claiming that cash transactions were challenging. “Mr. Jackson” falsely promised marriage upon his return and cited an expected $5 million payment to start a life together. Upon arrest, over $95,000 worth of Bitcoins were seized. “Mr. Jackson” was convicted and the assets were ordered to be forfeited to the victim. 4 South Africa/ Norway/United Kingdom /Barbados $1,600,000 In 2022, Benjamin Ikaa was convicted and sentenced to five years in prison for his involvement in a $1.6 million cryptocurrency fraud. Ikaa pleaded guilty to a one-count amended charge under Section 14(2) of the Cybercrime (Prohibition Prevention etc.) Act 2015. His arrest by the EFCC stemmed from his operation of a fictitious cryptocurrency investment website (www.mcharveycapital.com), through which he promised significant investment returns. This led to unsuspecting victims from South Africa, Norway, the United Kingdom, and Barbados incurring a loss of about 26 bitcoins, equivalent to $1.6 million as of February 2023. 14 The font size and page format used for Table 2 is 10 and landscape respectively. This is to allow for a fuller capture of more case reports. 15 All names in inverted commas used in these case reports are pseudonyms, as the EFCC withheld the names of some individuals involved in these crimes. 118 while reiterating that banks and financial institutions are still prohibited from holding, trading, and/or transacting in virtual currencies on their account. The circular emphasized that immediate compliance with the new guideline is required (CBN, 2023, p. i). From the following, it is apparent that the regulatory policies of cryptocurrency in Nigeria have not been consistent and comprehensive, thus allowing for the noncompliance of crypto exchanges and users in Nigeria with the ethical use of the digital currency. This regulatory gap elucidates why Zaccheus Adedeji, Chairman of the Federal Inland Revenue Service (FIRS), asserted in a 2024 interview regarding a new executive bill on taxation sent to the parliament: “As we stand today, there is no law anywhere to actually regulate or monitor cryptocurrency.” 7. Mitigating on-chain illicit financial flow and eradicating poverty As previously highlighted, illicit financial flows (IFFs) using cryptocurrency contribute significantly to tax evasion and capital flight, both of which are major contributing factors to underdevelopment, stunted economic growth and poverty in Nigeria. The China-Nigeria case involving a Nigerian who laundered money from suspicious companies through cryptocurrency (Table 2, Case 5) buttresses this point. Also, worth mentioning is the ongoing lawsuit between the Federal Government of Nigeria (FGN) and Binance, where the FGN, through the FIRS, is suing the crypto giant for 81.5 billion in economic losses, back taxes, and complicity in helping customers to evade taxes through its platform24. While one can argue that on-chain IFFs may be generating wealth inflows into Nigeria through fraud-targeted foreign victims, it should be noted that such gains are economically unsustainable, distort formal markets, and ultimately damage Nigeria’s financial reputation, as a result, outweighing any short-term benefits. Addressing the challenge of illicit financial flows involving cryptocurrency in Nigeria requires a multi-faceted approach, combining legal frameworks, technological advancements, international and local collaboration, upholding AML/CFT regulatory laws, and public awareness. 7.1 Cooperation with fintech companies and leveraging technological solutions Most transactions involving illicit funds go through fintech accounts rather than commercial banks, especially as the former possess an online advantage and less scrutiny. Collaboration and not just regulation between fintech companies like Flutterwave, Kuda, Opay, etc. and the Economic and Financial Crimes Commission (EFCC), could enhance regulatory oversight and enforcement of a clampdown regarding unregulated cryptocurrency transactions and fiat currency conversions. Such partnerships may facilitate more effective monitoring and intervention in illicit financial flows within the cryptocurrency ecosystem, thus, mitigating risks associated with the informal conversion of digital assets to the Nigerian naira. This cooperative approach could leverage the technological innovations of the fintech companies and the expertise of regulatory bodies to strengthen the implementation of anti-money laundering frameworks in the rapidly evolving landscape of digital finance. 7.2 Tackling the menace of corruption Corruption undoubtedly serves as a primary catalyst for illicit financial flows (IFFs) in Nigeria. IFFs originate first from the ability to acquire wealth through illicit means, rather than merely facilitating the transfer of illicit funds. Therefore, addressing the root cause of IFFscorruption is essential to reducing the prevalence of illicit financial flows, whether it be through cryptocurrency or other mediums. Addressing corruption in Nigeria would seem like a lifelong journey, it will involve, inter alia, the guarantee of the independence of the judiciary and enforcement agencies, the establishment of transparency and accountability within government institutions and the meting out of severe and unbiased penalties to offenders to deter others. 24 The Guardian (2025) https://www.theguardian.com/technology/2025/feb/19/nigeria-binance-crypto-lawsuit 119 Additionally, promoting a culture of integrity and ethical behaviour devoid of selfinterestedness is also essential. This can be achieved through formal and informal re-education, awareness campaigns, and the fostering of a strong civil society that monitors and exposes corruption 7.3 Poverty and unemployment Poverty and unemployment continue to be significant drivers of crime, inclusive of cybercrime involving cryptocurrencies in Nigeria. As the biblical verse of Proverbs 16:17a25 suggests, “Idle hands are the devil’s workshop”, individuals facing economic hardship with no meaningful economic engagements may resort to desperate measures to survive. This accounts for why a large percentage of Nigerian youths resort to cybercrimes like “yahoo-yahoo” to make ends meet. Poverty alleviation should be prioritized in the battle against cyber fraud in Nigeria. The governments of Nigeria should facilitate the provision of institutional and infrastructural development, such as a reliable power supply, adequate road networks, and a business-friendly regulatory environment such as access to bank accounts, soft loans, grants and skill acquisition, workshops to encourage SMEs, as it is impossible to adequately provide jobs for the ever teeming youthful population of the largest black nation on earth. The citizens can use the benefits of these provisions to generate income. This would, by extension, help to eliminate poverty, which is one of the primary reasons for crime involving blockchain technology. 7.4 Revisiting and implementing a comprehensive legal and monitoring framework To ensure regulatory continuity and mitigate the challenges posed by IFFs through cryptocurrency, a comprehensive and detailed legal and monitoring framework is indispensable. The implicit ban on cryptocurrency and exchanges like Binance is not a viable solution. Instead, a licensing and regulatory approach similar to that applied to commercial banks should be adopted for exchanges. This would involve mandatory registration and verification with the Central Bank of Nigeria (CBN), implementation of know-your-customer (KYC) and antimoney laundering (AML) controls, and regular reviews and audits of on-chain transactions. By establishing such a framework and deploying a robust monitoring and enforcement team, the $26 billion transacted without tax through Binance could have been prevented. Effective regulation necessitates a strong emphasis on monitoring, supervision, and enforcement. While many jurisdictions have begun to introduce regulatory frameworks, the implementation and enforcement of these frameworks through examinations and active supervision are still in their early stages. Strict monitoring of compliance with enacted cryptocurrency regulations by exchanges is crucial. Authorities should require crypto-asset issuers and service providers to establish frameworks for collecting, storing, safeguarding, and accurately reporting detected illicit transactions. This can be achieved through working with on-chain experts (See Table 4) and employing technological solutions, especially as funds of illegal origin are usually transacted using privacy coins and on-chain masking services. Ensuring that users also declare their source(s) of income upon registering for an account will help detect when the amounts received or sent do not match the stated source(s). Furthermore, authorities should have the legal authority to access necessary data during investigations, like full KYC documentation, account activity logs, and P2P chat records. 25 Bible Gateway https://www.biblegateway.com/passage/?search=Proverbs%2016%3A27-29&version=TLB 120 Table 4: Leading Blockchain security and analytical firms Source: Monovm (2025)27 7.5 International cooperation, information sharing, and regulatory framework Effective collaboration among the Central Bank of Nigeria (CBN), the Economic and Financial Crimes Commission (EFCC), anti-money laundering agencies within Nigeria, and international anti-money laundering organizations like the Financial Action Task Force (FATF) is essential for combating illicit financial flows (IFFs) facilitated by cryptocurrency. Sharing information and intelligence about suspicious on-chain transactions (usually exceeding daily limits, and transacted using privacy coins and covert services), money laundering techniques, and emerging threats can significantly contribute to addressing the challenges posed by the anonymity and decentralization of blockchain technology. Furthermore, given the elusive nature of cryptocurrencies, actors may exploit regulatory arbitrage opportunities presented by Nigeria's inconsistent cryptocurrency laws. Therefore, it is essential to ensure adherence to established international standards, particularly those promulgated by the Financial Action Task Force (FATF) on AML/Counter-Terrorist Financing (CTF) and the Financial Stability Board (FSB). Compliances like mandatory VASPs registration, identifying users’ accounts with transactions above daily limits (Travel Rule) are crucial for mitigating illicit financial flows facilitated through the blockchain to maintain economic stability. The implementation of robust regulatory measures aligned with global best practices is essential to address the unique challenges posed by cryptocurrency transactions in the context of Nigeria's financial ecosystem. 7.6 Strong political will Everything thrives or fails on leadership. Political will remains the underlying factor to every other recommendation. The political leaders, ranging from the presidency and members of the 26 Application Programming Interface (API) is a set of rules and protocols that allow different software applications to communicate with each other 27 Monovm (2025) https://monovm.com/blog/blockchain-security-tools/ Firms Strengths Methodologies Chainalysis - Largest coverage - Strong government contracts (FBI, IRS) - Reactor tool for deep tracing - Direct integration with agencies - Address clustering - Heuristic tagging (darknet, scams) - Flow analysis Elliptic - Focus on compliance (banks, exchanges) - Strong FATF Travel Rule solutions - Works with regulators and the private sector - Behavioural activities - Risk scoring (0 -100) - Entity mapping BitRank - Real-time risk scoring - Affordable for SMEs - Covers 200+ coins - Used by crypto businesses - Machine learning models - Address reputation scoring - Taint analysis CipherTrace (Mastercard) - Strong FATF Travel Rule compliance - Used by traditional financial institutions - Monero tracing: Limited but pioneering - 100+ supported chains - Attribution database - VASP discovery - Proprietary Monero tracking Fireblocks - Real-time alerts for hacks/exploits - Multi-party computation - 1,500 tokens and 45+ blockchains supported - Transaction policy engine - API26 based threat detection - Anomaly monitoring (sudden large withdrawals) 121 parliament, both at the state and federal levels in Nigeria, should be ingenious and pragmatic in their approaches to regulating cryptocurrency and ensuring factors ( like the recommendations here) that make for a good virtual financial ecosystem. This will not only reduce crime such as tax evasion, trade mispricing, terrorism financing and money laundering associated with cryptocurrency, but will also allow for a full realization of the benefits of the ecosystem in the nation. 8. Conclusion This study aimed to identify the factors driving the use of cryptocurrency for illicit financial flows, its impact and workable solutions in Nigeria. By employing several extant literature, reports and Davis' Technology Acceptance Model (TAM) for empirical analysis, it revealed the inherent factors facilitating the use of cryptocurrency for illicit financial flows in Nigeria. The decentralized nature of blockchain and the anonymity orchestrated by mixers, tumblers, and private cryptocurrencies (privacy coins) are identified as primary enabling factors. These intricate aspects of the blockchain provide individuals and networks engaged in illicit activities such as tax evasion, trade mispricing and invoicing, cyber fraud, and terrorism financing with covert advantages for their illegal transactions. The recent trends of on-chain IFFs (Table 2) substantiate cryptocurrency's opportunity for such activities. While there are no concrete details on the sources of the illicit funds being linked to terrorism financing, trade mispricing and misinvoicing, the submission here is that illegal funds for/from such activities can be transacted through the blockchain, given the established possibility. These advantages, looking through the prism of the Technological Acceptance Model of this research, are categorized as "perceived usefulness"—connoting the technological benefits of cryptocurrencies—that drive its adoption and use for Illicit financial flow in Nigeria. Furthermore, this study analyses the ease of cross-border transactions between the blockchain and commercial banks in Nigeria, postulating a costless, swifter, and more reliable channel for cross-border transactions using the blockchain as opposed to banks in Nigeria. A key informant interview with a staff member of an indigenous bank in Nigeria empirically demonstrates the comparatively higher costs and delays associated with initiating international transactions using Nigerian banks. The research findings highlight the limitations within commercial banks in Nigeria, where access to customer funds and the initiation of international transfers are constrained. Customers are unable to initiate foreign transfers even while using the mobile applications of these banks, especially as the Foreign Currency (FCY) form Q or A at the bank remains the sole viable means for international transfers. While these challenges align with the profit motives and regulatory compliance measures of commercial banks, the study shows they inadvertently lead criminal entities to seek alternative channels with greater ‘‘ease of use’’ such as the blockchain and its concomitant cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), and Tether (USDT). Additionally, based on the assembled academic literature, it is a given in this research that the legal framework regulating the use of cryptocurrency in Nigeria is ill-conceived thus, demonstrating a lack of comprehensiveness on cryptocurrency and the blockchain. In an attempt to address the challenges of decentralization and anonymity posed by cryptocurrency, the implicit ban on cryptocurrency in 2021 led to the launch of the Central Bank Digital Currency (CBDC). However, the first African CBDC, e-Naira, fell short of achieving this objective, as many Nigerians, particularly the youth, continue to rely on cryptocurrency for their covert and overt transactions (Oladipupo and Amodu, 2022, p. 113). More tenuous is that a reversal of the policy surrounding the ban on cryptocurrency was enacted in December 2023 following the emergence of a new political administration. Which was a showcase of the illconceived policy. The empirical deduction here remains steadfast: the fragile regulatory framework continues to pave the way for the ongoing illicit financial flows involving 122 cryptocurrency in Nigeria. While the study highlights the correlation between on-chain illicit financial flows and their detrimental impact on development and poverty eradication in Nigeria, it is important to acknowledge that cryptocurrencies and the blockchain are deemed amoral— capable of being used for positive or negative purposes—as highlighted in this study (reviewed literature) by Schär (2021, p. 153-134). Despite challenges such as money laundering and investment scams leading to substantial revenue losses or IFF in Nigeria, cryptocurrency and its morphing ecosystem can pave the way for financial inclusivity and prosperity in the country. According to this, it behooves the leadership of Nigeria to recognize this potential and not discard the benefits because of its drawbacks (decentralization and anonymity). References ANEEJ. (2018). Impact of Illicit Financial Flow in Nigeria. 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Journal of Financial Regulation, 6(2), 172–203. https://doi.org/10.1093/jfr/fjaa010 World Bank Group. (2024). Nigeria by the Numbers, Overview and the latest. https://www.worldbank.org/en/country/nigeria/overview#1 126 Appendix Appendix 1: INTERVIEW QUESTIONS AND ANSWERS 1. What is your name? Eze Obiajulu Collins 2. Where do you work and what is your job position? United Bank for Africa, Relationship Officer. 3. How can one make an international transfer at UBA? It can be done through FCY, i.e the customer is sourcing for their dollars, or through Government Provision of the FCY i.e Form Q or Form A. 4. How many days does an international transfer take to reach the receiver? Within 24 to 48 hrs. 5. How much is an international transfer charge and at what percentage? There is a $50 flat charge. Plus 0.05% of the amount plus 0.075% VAT charges. 6. What is the highest international transferable amount in a day or month at the UBA? $10,000.00 7. Can one initiate an international transfer from the UBA mobile application? No, you would have to come over to the bank to initiate an international transfer. 8. How much is the transfer charge for a $10,000 foreign transfer at the UBA? $103.75 9. Where can I get the breakdown of these charges? It is system-generated. 10. Okay, can I get a copy of this? No 11. What amount of international transfer flags one up for money laundering? $10,000.00 12. Is there a charge at the receiver’s foreign bank after a successful transfer? Yes, it is called offshore charges. 13. Do you know about the blockchain and its international transfers? No, I don’t. 14. If yes, do you think international transfers on the blockchain are cheaper than those of the UBA? I have no idea. Okay, thank you. 10/08/2024 10/08/2024 Signature and date Signature and date Eze Obiajulu Collins Author