Why is Nigeria Cracking Down on Binance?
At the end of February, the Nigerian government publicly stated it believes $26 billion was illegally transferred abroad through Binance in 2023. This estimate was made by the country’s central bank governor, who indicated that the country was losing tax revenue from unregistered crypto activities.
Days later, two Binance executives—Tigran Gambaryan, responsible for the exchange’s financial crime compliance, and Nadeem Anjarwalla, the company’s manager for the African region—were invited to the country to discuss the issue. Authorities reportedly asked them to disclose the names of Nigerians trading on their platform.
On February 26, Gambaryan and Anjarwalla were detained but not charged with any crime. The court approved a request by the Economic and Financial Crimes Commission of Nigeria to detain the two executives for 14 days, although they were scheduled to appear in court on April 4, BBC reported that the continued detention of Gambaryan and Anjarwalla was “illegal.”
Reportedly, upon arrival in the country, the two were intercepted by national security officials for Binance’s illegal operation in Nigeria. A week prior, the country had acted to block access to multiple cryptocurrency platforms to strengthen forex and capital controls over its collapsing local currency, the Naira.
Nigeria faces a dollar shortage, with the Naira’s exchange rate against the dollar having fallen about 70% since last year. Olayemi Cardoso, the governor of the Central Bank of Nigeria, directly named Binance at a press conference at the end of February when he announced a record rate hike to stop the Naira’s crash.
Whether Binance has impacted Nigeria’s worsening economic situation is undoubtedly controversial, but from the level of middle management detention by the country’s authorities, Nigeria seems to be seeking a hard line against the exchange and finding a scapegoat for its financial troubles.
At this moment, Binance is somewhat an international pariah. The world’s largest exchange recently agreed to pay a record $4.3 billion fine to the US Justice Department for its “horrific” crimes, including facilitating financing for terrorism and the worst possible thing one could do on the internet.
The exchange has been kicked out of countless countries globally, its founding CEO, and long-time spokesperson for Binance, Changpeng Zhao, was ordered to step down and could face federal prison time. In other words, many international courts or better business establishments are unlikely to care about the survival of the exchange (which refuses to establish headquarters in any specific country, making the situation worse).
Hence, it’s conceivable that Nigeria sees Binance as a target for extortion, a matter no embassy would defend, and many tend to believe it might have facilitated illegal transfer of funds or tax evasion in the country. Notably, despite the Nigerian government’s action to block access to other cryptocurrency platforms, Binance seems to be the only one attacked.
In early March, Nigerian Presidential Advisor Bayo Onanuga suggested the country could impose a $10 billion fine on Binance, though he later stated his comments were misquoted and nothing was “finalized.” On Monday, the country finally began accusing Binance of tax evasion.
On Monday, the Federal Inland Revenue Service of Nigeria announced Binance faced four charges, including alleged failure to pay value-added tax (VAT or sales tax) and corporate income tax, failure to submit tax returns, and conspiracy to assist clients in tax evasion through its platform.
Measures taken by Binance
The tax agency identified Gambaryan and Anjarwalla (reportedly jailbroken) as defendants in the case filed in the Federal High Court in Abuja, the capital. Reportedly, in initial conversations, Nigerian authorities expressed two main concerns about Binance: it could not track funds flowing through the exchange and the exchange pressured the Naira by facilitating trades on its peer-to-peer market.
Under pressure from the Nigerian government, Binance halted all support for its Nigerian P2P market in early March. This service apparently became increasingly popular in 2021 after former President Muhammadu Buharithe banned many of the country’s cryptocurrency activities. In July 2023, the Nigerian Securities and Exchange Commission warned against Binance, stating “any investing public dealing with the entity” did so at the “high risk” of losing their funds.
However, Binance isn’t the only target of Nigeria. Bloomberg reports that “anti-corruption” officials have been arresting street currency traders and other allegedly unlicensed forex operators. This undoubtedly provides background for Nigeria’s request for information on Binance’s top 100 users in the country and the exchange’s trade history over the past six months.
Binance stated it had cooperated with Nigerian institutions before and after Gambaryan and Anjarwalla’s arrest, responding to 626 information requests from law enforcement over the past four years. A team even attended a training course by anti-corruption agencies last year.
Cryptocurrency will undoubtedly exacerbate Nigeria’s economic conditions. In countries facing inflation and economic turmoil, the adoption and use of Bitcoin and stablecoins are above average because cryptocurrencies offer a way out of the adverse situation. This might be why the Central Bank of Nigeria reversed its ban on banks engaging in cryptocurrency in December 2023 and issued regulatory guidelines for Virtual Asset Service Providers. This would allow authorities to have better control and insight into the use of cryptocurrencies.
However, many economists believe that the Naira has been hit by a variety of factors. President Bola Tinubu’s relaxation of the country’s forex policy and slashing of the Naira’s pegged rate, to attract foreign investments and diversify the economy of this oil-dependent nation, added insult to injury to an already frail economy. Unfortunately, investments have been slow to come (in fact, many foreign companies are leaving the country), and the Naira has been on a decline for months.
It’s a sorry tale. President Tinubu, who took office in May 2023, pledged support for local businesses, investment in infrastructure, and addressing the issue of jihadists intruding into Nigerian shipping. Cryptocurrency was also a national priority, an interesting signal for the entire cryptocurrency industry, legal or not.
-
-
-
-
-
-
-
-
