The relationship between a bank and its customer is fundamentally contractual in nature, giving rise to reciprocal rights and obligations between the parties.[1] One of the most fundamental obligations owed by a bank is the duty to honour its customer’s mandate and permit access to funds standing to the credit of the customer.[2] This obligation is rooted not only in contract but also in the confidence and trust reposed in financial institutions by their customers.
Notwithstanding, freezing orders, the freezing of bank accounts, and the imposition of account restrictions have become increasingly common features of Nigeria’s financial and regulatory landscape, and a recurring source of disputes between financial institutions and their customers. This development is hardly surprising given the rapid growth of digital banking, electronic payment systems, and instant fund transfers, which have transformed the way financial transactions are conducted. While these innovations have improved efficiency and accessibility, they have also increased the incidence and sophistication of fraud, cybercrime, money laundering, and other financial crimes.
Consequently, banks, regulators, and law enforcement agencies have increasingly resorted to account freezing measures and Post-No-Debit restrictions as tools for preserving funds, preventing their dissipation, and facilitating investigations. While these measures serve legitimate public interests by preserving funds and facilitating investigations, they also interfere with a customer’s ability to access and utilize funds and may have significant commercial, operational, and personal consequences.
The growing use of these restrictions has raised important legal questions. To what extent can banks restrict a customer’s account without a court order? When does compliance with regulatory directives shield a bank from liability? Conversely, when might a bank be exposed to liability for wrongfully restricting a customer’s account? These questions have become increasingly relevant in light of evolving statutory provisions, regulatory directives, and judicial pronouncements that seek to balance the competing interests of effective financial crime enforcement and the protection of customer rights.
Regulatory and Judicial Basis for Post-No-Debit and Account Freezing Measures
As a general rule, a bank is under a contractual obligation to honour its customer’s mandate and permit unrestricted access to funds standing to the credit of the customer[3]. Consequently, a bank cannot arbitrarily restrict the operation of a customer’s account or refuse to honour withdrawal instructions except where authorised by law, contract, or a valid court order[4].
The authority to impose Post-No-Debit (“PND”) restrictions and account freezing measures derives from a combination of statutory provisions, regulatory directives, and judicial orders. Regulatory agencies such as the Central Bank of Nigeria (“CBN”), the Economic and Financial Crimes Commission (“EFCC”), and other law enforcement bodies are vested with investigative powers under their respective enabling statutes.
For instance, the Chairman of the Economic and Financial Crimes Commission (EFCC) or an officer authorized by him, may apply to the court via ex parte application for an order to freeze an account. This can only happen if the officer is satisfied that the funds in the account are connected to an offence under the EFCC Act or any other enactments specified in Section 6(2)(a)–(f) of the EFCC Act[5].
Another statutory basis for account freezing measures is found in the Banks and Other Financial Institutions Act, 2020 (“BOFIA”). Under the provision, where the Governor of the Central Bank of Nigeria has reason to believe that transactions conducted through an account may be connected with the commission of a criminal offence, the Governor may approach the Federal High Court by way of an ex parte application, supported by an affidavit setting out the basis for such belief. Upon obtaining the requisite court order, the Governor may direct the relevant bank or financial institution to freeze the affected account pending further investigation or other lawful action.[6]
Therefore,The relevant authority is required to seek and obtain an Order of court before directing that an account of a bank customer be frozen. Where an account is frozen/restrained without a court order first sought and obtained, the fundamental right of the customer is deemed breached and as such both the authorizing authority and the bank, may be liable[7]. The Customer can in such cases claim damages from both the relevant authorizing authority and the bank.
A further delve into statutory provisions of the Money Laundering (Prevention and Prohibition) Act, 2022 also shows that where the Special control unit against Money Laundering (SCUML), Nigerian Financial Intelligence Unit (NFIU) or their authorised representatives discover that an account or transaction is suspected to be connected with an unlawful activity, they are empowered to place a stop order on the account or transaction for a period not exceeding seventy-two (72) hours.[8] The purpose of the stop order is to preserve the status quo and prevent the dissipation of funds while preliminary investigations are conducted into the source and nature of the transaction. Significantly, this temporary restriction may be imposed without a prior court order, reflecting the need for swift regulatory intervention in cases involving suspected money laundering or other financial crimes.
However, the Act does not permit an indefinite restriction of the account on the basis of mere suspicion. Where the relevant authorities are unable to ascertain the origin of the funds within the 72-hour period, they must apply to the Federal High Court for an order blocking the funds, account, or securities in question.[9]
Notably, the CBN Circular on the Establishment of Fraud Desks in Banks and Other Financial Institutions (2015) requires financial institutions to establish mechanisms for responding to fraud complaints and suspected fraudulent transactions. Pursuant to the circular, banks, payment service providers, and other financial institutions may place restrictions on accounts upon receiving complaints relating to fraudulent transfers or suspicious transactions.[10]
The courts have increasingly recognized fraud related disputes and have made judicial pronouncements on the statutory powers of the banks and other financial institutions to place restrictions on accounts in response to fraud complaints. Specifically, the court of appeal has held that a Bank will be justified to place a Post No Debit restriction on its customer’s account whence there is a complaint of fraudulent transaction against the customer and further held that the CBN circular “did not require a court order before posting a no debit order on the account of any customer suspected of holding funds from suspected fraud”.[11]
These decisions reflect a judicial appreciation of the need for prompt intervention in fraud-related cases, particularly in the context of electronic banking transactions where funds can be transferred and dissipated within minutes.
Significantly, it must also be pointed out that the Courts give a heightened recognition to Banker –customer relationship. The decision in Kuda Microfinance Bank Ltd v. Amarachi Kenneth Blessing[12] underscores this point as the court placed reliance on the terms and conditions governing the operation of the customer’s account. The Court observed that the customer had expressly agreed that the bank reserved the right to close, suspend, freeze, or limit access to the account where there was a report of, or investigation into, fraudulent or suspicious activities. Accordingly, the Court reaffirmed the settled principle that parties are bound by the terms of their contract and that neither the parties nor the courts may rewrite those terms. Having voluntarily accepted the bank’s terms and conditions, the customer was deemed to have consented to the possibility of a temporary account restriction in circumstances involving suspected fraud. In this instance, the restriction is not merely a regulatory response to suspected fraud but also an exercise of a contractual right agreed upon by the parties.
Balancing Bankers’ Liability and Consumer Rights
The framework governing account freezing and Post-No-Debit restrictions reflects an ongoing attempt to balance two competing interests. On the one hand, banks are expected to act as gatekeepers within the financial system by preventing fraud, money laundering, and other financial crimes. On the other hand, customers possess contractual and proprietary rights which entitle them to access and utilize funds held in their accounts without undue interference.
For banks, the challenge lies in navigating the competing risks associated with either action or inaction. A bank that fails to promptly restrict an account upon receiving a legitimate fraud complaint or regulatory directive may face regulatory sanctions, exposure to financial losses, or claims from victims whose funds have been dissipated. In an era of instantaneous electronic transfers, delays in intervention may render recovery efforts futile. Consequently, regulatory frameworks increasingly require banks to take proactive measures to preserve disputed funds and assist investigative authorities.
However, the converse is equally true. Where a bank imposes restrictions without legal justification, exceeds the scope of its authority, or acts negligently in implementing a restriction, it may expose itself to liability for breach of contract and other civil claims.[13] This is particularly so where the restriction is based on unverified allegations,[14] is maintained for an unreasonable period, or is imposed in circumstances not contemplated by law, regulation, or the governing contractual terms.
From the customer’s perspective, account restrictions can have profound consequences. For businesses, the inability to access funds may disrupt operations, hinder the payment of salaries and suppliers, and damage commercial relationships. Individual customers may similarly find themselves unable to meet financial obligations or conduct legitimate transactions. These consequences are often exacerbated by the fact that restrictions are frequently imposed without prior notice and, in some cases, through ex parte proceedings in which the affected customer is not initially afforded an opportunity to be heard.
Recent judicial decisions suggest that Nigerian courts are increasingly seeking to strike a pragmatic balance between these competing interests. While the courts have recognised the statutory, regulatory, and contractual bases upon which banks may restrict accounts, they have also emphasised that such powers are not absolute. Regulatory directives, contractual provisions, and court orders do not operate as blanket shields against liability. Rather, the legality of a restriction will often depend on the circumstances of each case, including the existence of a lawful basis for the restriction, the manner in which it was implemented, and the duration for which it was maintained.
Ultimately, the objective should not be to eliminate the power to freeze accounts, but to ensure that such powers are exercised transparently, proportionately, and in accordance with due process. Achieving this balance is essential to maintaining public confidence in the banking system while preserving the effectiveness of efforts to combat financial crime.
Best Practices for Businesses and Individuals
To minimise the risk of account restrictions and mitigate the impact of freezing orders, businesses and individuals should consider the following measures:
- Maintain proper records and supporting documentation for all significant transactions, including invoices, contracts, payment instructions, and receipts.
- Ensure that the source and purpose of funds can be readily verified, particularly for high-value or unusual transactions.
- Familiarize yourself with the terms and conditions governing your bank account, especially provisions relating to fraud investigations, account restrictions, and Post-No-Debit directives.
- Promptly respond to requests for information or documentation from financial institutions and regulatory authorities.
- Implement robust Know-Your-Customer (KYC), Anti-Money Laundering (AML), and compliance procedures, particularly for businesses operating in high-risk sectors.
- Conduct adequate due diligence on customers, vendors, business partners, and counterparties before entering into transactions.
- Monitor account activity regularly and promptly investigate any unusual or suspicious transactions.
- Seek legal advice immediately upon becoming aware of an account restriction, freezing order, or regulatory investigation.
- Maintain open communication with your bank where issues arise and cooperate with legitimate requests aimed at resolving disputes or investigations.
- Diversify banking arrangements where possible and avoid over-reliance on a single account for critical business operations.
- Establish contingency plans to ensure business continuity in the event of an account restriction or temporary freezing of funds.
- Regularly review internal policies and compliance frameworks to ensure alignment with evolving regulatory and judicial developments.
Conclusion
The legal regime governing account freezing and Post-No-Debit restrictions in Nigeria reflects the increasingly complex role played by financial institutions in combating financial crime while simultaneously protecting the rights of their customers. Although the general principle remains that a customer’s account should not be restricted without lawful authority, statutory provisions, regulatory directives, and contractual arrangements have created recognised exceptions that permit banks to act in certain circumstances without first obtaining a court order.
Recent judicial decisions demonstrate a growing appreciation of the realities of modern banking, particularly the need for swift intervention where fraud or suspicious transactions are alleged. At the same time, the courts have remained vigilant in ensuring that such powers are not exercised arbitrarily or in a manner that unjustifiably infringes upon the contractual and proprietary rights of customers.
Ultimately, neither banks nor customers can claim absolute protection. Banks must carefully navigate their regulatory obligations while ensuring strict compliance with the law, and customers must recognise that the operation of their accounts may be subject to lawful restrictions in appropriate circumstances. The continuing challenge for regulators, financial institutions, and the courts will be to maintain a framework that effectively combats financial crime without sacrificing the principles of due process, fairness, and accountability that underpin the banker-customer relationship.
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[1] UBA P.L.C v Wasiu (2017) 4 NWLR (Pt.1555) 318
[2] Omni Products (Nig.) Ltd. v. U.B.N. Plc (2021) 10 NWLR (Pt. 1783) 92
[3] U.B.N. Plc v. Chimaeze (2014) (NWLR (Pt. 1411) 166. Here, the supreme court held that It is the duty of a banker to its customer to honour and pay cheques drawn on it by the customer as long as it has in its possession at the material time, sufficient and available funds for the purpose. Therefore, when there is sufficient and available funds in a customer’s account and a cheque is presented but payment is refused, the holder is entitled to treat the cheque as dishonoured, even if requested to represent the cheque.
[4] Diamond Bank v. Unaka & Ors (2019) LPELR-50350 (CA); Polaris Bank Ltd V. Yayamu Global Services Ltd & Anor (2022) Lpelr-57376(CA.)
[5] Section 34(1) of the Economic and Financial Crimes Commission (EFCC) Act.
[6] Section 97 Bofia Act.
[7] G.T.B. Plc v. Adedamola (2019) 5 NWLR (Pt. 1664) 30 wherein the Court of Appeal ruled that a bank cannot freeze a customer’s account solely based on the directive of the EFCC without obtaining a Court order.
[8] Section 7(6) Money Laundering (Prevention and Prohibition) Act, 2022; NPG Prop. & Const. Works Ltd. v. Zenith Bank Plc (2023) 15 NWLR (Pt. 1908) 423 where the court of appeal reinforced the provisions of section 6(5) (b), Money Laundering Act 2011 (Now section 7(6) Money Laundering (Prevention and Prohibition) Act, 2022) that the chairman of the EFCC or its authorized representatives can place a stop order not exceeding 72 hours on any account if it is discovered in the course of their duties that such account or transaction is suspected to be involved in any crime.
[9] Section 8 Money Laundering (Prevention and Prohibition) Act, 2022; See also Mr. Ipinloju Damola Femi v. EFCC & 3 Ors (2024) LPELR-61914 (CA) where the court of appeal held that the EFCC is allowed to restrain an account without court order for 72 hours but must seek order of court to keep the account blocked beyond 72 hours.
[10] Paragraph 3 CBN Circular on the Establishment of Fraud Desks in Banks and Other Financial Institutions (2015).
[11] Mr. Ipinloju Damola Femi v. EFCC & 3 Ors (2024) LPELR-61914 (CA); Kuda Microfinance Bank Ltd v. Amarachi Kenneth Blessing (2024) LPELR-80643(CA) Specifically, the Court held that the Central Bank of Nigeria has the statutory clout to make rules, regulations and guidelines with regard to monetary policy and control of the banking industry and as a subsidiary legislation, all financial institutions must comply with the guidelines or regulations issued by the Central Bank of Nigeria.
[12] Kuda microfinance bank ltd v. Amarachi Kenneth Blessing (2024) LPELR-80643(CA).
[13] Yusuf Wali V United Bank for Africa PLC & EFCC unreported SUIT NO: FCT/HC/CV/3085/22.
[14] Oma Oil & Industries Limited, Ononuju Kessinger Okafor V. First City Monument Bank Plc unreported SUIT NO: HOW/1014/2019 where the High court sitting at Owerri Judicial Division held that taking action to freeze or prevent access to a customer’s account based solely on allegations of fraud, without a valid court order, is considered self-help and is illegal.