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

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.