Nigeria detains Binance executives in cryptocurrency crackdown

Nigeria detains global executives in war on crypto

Nigeria has declared war on leading global cryptocurrency exchanges. On 26 February it detained two top international executives of Binance after they flew in for discussions with Nigerian authorities and is still holding them against their will. Binance has since switched off access to trading naira against cryptocurrencies on its platform.

On 12 March, the Financial Times newspaper, reported that that “one person briefed on the situation” said the two men are being held “simply as hostages” but are being well treated. The Nigerian Government is demanding information on the top 100 users in Nigeria and all transaction history for the past six months.

According to the report, Bayo Onanuga, a special adviser to President Bola Tinubu, said Nigeria may also demand a payment of $10bn as “retribution”, although this is not final. The BBC also reported this on 1 March. The FT‘s reporters said they had seen documents from the Office of Nigeria’s National Security Adviser asking Binance to resolve any outstanding tax liabilities. The FT newspaper first broke the story of the detentions on 28 February.

The two senior executives were named in reports this week, including in Wired and the Wall Street Journal (also available on MSN). One is US citizen Tigran Gambaryan, a former US federal agent who was instrumental in many of the leading crackdowns on global crime and who joined Binance in 2021 to lead its criminal investigations team with the aim of cleaning up operations and boosting cooperation with law enforcement. The other is Nadeem Anjarwalla, Binance’s Kenya-based regional manager for Africa, with joint UK and Kenyan citizenship and a specialist in government affairs who had been educated at Oxford and Stanford universities.

The Nigerian Government invited them to come and discuss the ban with top cyber security officials and investigators from the Office of Nigeria’s National Security Advisor. They arrived in Abuja on 25 February and met officials the next day.

According to reports, after two hours of initial discussions, the authorities escorted them back to their hotel, seized their passports and phones and detained them in a guesthouse adjacent to the Office of National Security Advisor, Mallam Nuhu Ribadu, famous for his anti-corruption history who coordinates activities of Nigeria’s intelligence and security agencies. The Economic and Financial Crimes Commission (EFCC) took over the investigation, according to Premium Times Nigeria.

In the Wired article a former prosecutor who worked with Gambaryan described him as a “top-notch agent” of the “highest integrity. The cases he was involved in are a who’s who of the biggest crypto cases of that time.”

As of today (13 March) the two had not been formally arrested and charges had not been laid. A court issued a warrant for 12 days detention which has expired, but we did not find news of an extension. Officials told Bloomberg said they could be charged with tax evasion, currency manipulation and illegal operations. In early March the two were transferred to hospital after Anjarwalla fell ill, but he recovered and they returned to the guesthouse.

Binance on 13 March published details, of its extensive cooperation with Nigerian authorities since 2020, including two full-day sessions training officials of EFCC in August 2023. (the original Binance post is not available in UK, but it is summarized by website Milkroad).

Background – naira rate crisis

The current clamp-down comes after the Nigerian Government has tried to reform a difficult system of multiple exchange rates and has twice devalued the naira (NGN). From NGN462=$1 on 31 May 2023, it fell to NGN822=$1 on 24 June, and then stabilized until December, when it slipped back to NGN905 just before Christmas. Rates are usually taken from the Nigeria Autonomous Foreign Exchange Market (NAFEM), where forex (FX) is officially traded.

In September, Nigeria’s Securities and Exchange Commission (SEC) said Binance Nigeria was “neither registered nor regulated by the Commission and its operations in Nigeria are therefore illegal” (for example, see Premium Times Nigeria report). The global version of Binance continued to offer trading in NGN against Tether’s USDT stable coin tokens (see below for explanation). It enjoyed growing popularity among young Nigerians as well as suspected currency speculators and money launderers.

Moreover, in December 2023 the Central Bank of Nigeria told banks to ignore its previous three-year ban on crypto transactions.

Drama began around 1 February, when the FX rate fell to NGN1,194, then NGN1,414 by 4 February and NGN1,606 by 21 February. Street traders were reportedly quoting rates as low as NGN1,900=$1 on 22 February, and officials told reporters (for example Semafor Africa) that street traders said they were basing prices on rates quoted for trading on Binance between NGN and stable coins.

Annual inflation has soared to nearly 30% and there have been protests in many cities as people can no longer afford basic foodstuffs.

Some news reports from Nigeria (for example DL News on 22 February) allege that people were using advertisements and trades on Binance that were not fulfilled to manipulate prices.

Late on 21 February, Nigeria’s telecoms regulator National Communications Commission ordered telecom providers to block Nigerians from accessing leading global cryptocurrency exchanges including Binance, Kraken, Coinbase, Forextime and OctaFX, according to this report in the FT. The telcos responded immediately.

On 23 February, the Central Bank of Nigeria revoked the licences of 4,173 operators of Bureaux de Change (out of a total of 5,690), confirmed by a CBN announcement on 1 March , and there were reported roundups of street traders. On 27 February the CBN had announced it would $20,000 to each of eligible BDCs at NGN1,301=$1, presumably in the hope of reining in the price, and blamed “continued price distortions at the retail end of the market”

Special Advisor Onanuga said Binance was hijacking the central bank’s role in setting exchange rates. It has been accused of operating illegally in Nigeria, and depriving the Government of taxes, according to news reports including the FT.

On 27 February, Olayemi Cardoso, Governor of the Central Bank of Nigeria, singled out Binance at a press conference: “We are concerned that certain practices go on that indicate illicit flows going through a number of these entities (referring to cryptocurrency exchanges) and suspicious flows at best. In the case of Binance, in the last one year alone, $26bn has passed through Binance Nigeria from sources and users who we cannot adequately identify.”

He said Nigeria’s National Security Adviser, police and an anti-corruption agency were working together to investigate cryptocurrency exchanges.

Mr. Cardoso also announced a 400bp (4 percentage points) hike in Nigeria’s monetary policy interest rate to 22.75% as part of battle to counter inflation and protect the value of the naira.

On 28 February Binance blocked the P2P platform for NGN-USDT and NGN-BTC trades and it stopped naira deposits on 5 March and withdrawals from 8 March.

Traders are switching to trading on WhatsApp, Telegram and other networks, and new exchanges are stepping up to fill the gap.

Crypto offers market access

Binance has enjoyed soaring popularity in Africa, particularly in countries where only a few people get access to foreign currency and domestic currencies are fast losing value. Young, tech-savvy Africans have eagerly adopted cryptocurrencies to dodge bans and hedge against falling currency values and domestic inflation of up to 30%, with interest growing in stable coins, such as USDC and more popular USDT, which hold value against a defined currency such as US dollar.

Recent months have seen a surge of global interest in volatile cryptocurrencies which have gaining value fast. For example Bitcoin (BTC) climbed past BTC1=$73,500 on the morning of 13 March, up by 165% compared to the US dollar in the last five months.

Binance offers an electronic trading platform for peer-to-peer (P2P) transactions, allowing users to advertise interest to sell or buy currencies of their choice and where buyers and sellers could trade without interference by third parties. The platform allows users to become traders and merchants in a wide range of currencies. It is popular in many countries where currencies are declining in value, and regulators are demanding it complies with local regulations, as reported on DL News.

Although naira was the first African currency added to Binance in 2020, it is also popular for trading Ethiopian Birr and other currencies which are hard to exchange through official channels. A Binance promotion in October 2023 featured currencies from 29 African nations available to clients who passed its “know your client” (KYC) identity tests.

Last September blockchain research firm Chainalysis reported that the volume of crypto transactions involving Nigeria rose 9% to $56.7bn for the year to June 2023, accounting for nearly half the total $117.1bn trading of sub-Saharan Africa, a large amount than all but the top four African economies measured by gross domestic product (GDP). Nigeria ranked second in the firm’s Global Crypto Adoption Index.

South Africa is second, followed by Kenya. South Africa’s Financial Sector Conduct Authority published a licensing regime for cryptocurrency businesses and declared crypto assets to be financial products in 2022. This provided greater legal clarity and empowered financial investigators to fight illicit activity. Kenya last year proposed a bill on digital currencies and Nigeria has approved a national blockchain policy. Mauritius passed legislation in 2021.

Sub-Saharan Africa accounts for 2.3% of world cryptocurrency volumes. Retail transactions of under $1,000 make up 8-% of all transfers, more than in any other region. Supporters of cryptocurrency in Africa argue that regular payment systems are expensive, slow or not working across Africa, particularly for cross-border transactions.

For a great account of how crypto is used in Africa, including how to make low-cost and almost immediate transfers between different African currencies, see this blog by Wiza Jalakasi from last November (NB the NGN examples would not work currently). This outlines the huge potential for crypto for users in countries that embrace it and provide clear regulatory frameworks.

Binance paid US authorities $4.3bn in penalties

Globally Binance has been trying to repair relations with authorities, including paying US authorities $4.3bn last November in criminal fines and forfeitures, as covered in this report in The Guardian newspaper. Founder and former Chief Executive Changpeng Zhao quit the company and pled guilty to money laundering in person in the USA.

US Attorney General Merrick Garland said Zhao had: “willfully violated federal law that guards against money laundering and terrorist financing”.

He added: “From the very beginning, Zhao and other Binance executives had engaged in a deliberate and calculated effort to profit from the US market without implementing the controls that are required by US law,” Garland said. The US attorney general identified millions in transactions from the US to Iranian users, users in Syria and Russian-occupied Ukraine, and terrorist groups including Isis.

Treasury secretary Janet Yellen said US authorities had investigated Binance for three years and found consistent breaking of US laws, it had “allowed illicit actors to transact freely.. supporting activities from child sexual abuse, to illegal narcotics and terrorism across more than 100,000 transactions”. She warned: “We’re also sending a message to the virtual currency industry more broadly – today and for the future, the virtual currency exchanges and financial technology firms, they must play by the rules”.

In Nigeria, cryptocurrency has been used for payment of ransoms. India, France and other countries are also moving to take action against exchanges.

Binance launched in July 2017 as a crypto-to-crypto exchange and became the world’s largest within six months. In recent years it and many other exchanges have been working hard to improve relations with authorities.

Officials from the US and UK embassies have visited the two detainees but the foreign ministries are not commenting significantly. Meanwhile Gambaryan and Anjarwalla’s wives and young children anxiously await their return.


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