Nigeria, a nation grappling with a currency crisis, has become a battleground for cryptocurrency regulation. At the centre of the storm is Binance, the world's largest crypto exchange, which has been locked in a bitter dispute with Nigerian authorities.
Nigeria has a well-established cryptocurrency scene, with many citizens turning to digital currencies to hedge against the weakening naira. This has caused friction with the Nigerian government, which is battling chronic dollar shortages.
As a result, cryptocurrency platforms have become popular avenues for trading the naira, much to the government's dismay.
Nigeria's currency, the naira, has been under strain for several years due to chronic dollar shortages. As a result, Nigerians have increasingly turned to cryptocurrency platforms like Binance as a way to hedge against inflation and access foreign currency.
In February 2024, the situation took a sharp turn when Nigerian authorities detained Tigran Gambaryan and his colleague Nadeem Anjarwalla. Both had travelled to Nigeria to meet with officials about the ongoing investigation into crypto exchanges.
L-R: Tigran Gambaryan and Nadeem Anjarwalla
Following their detention, both executives faced a barrage of accusations, including tax evasion, money laundering exceeding $35 million, and even financing terrorism.
While Binance maintains their innocence and is contesting the charges, Gambaryan, a U.S. citizen and Binance's head of financial crime compliance, remains in custody. Anjarwalla, a British-Kenyan national, managed to escape the country.
The situation further deteriorated when Binance CEO Richard Teng released a scathing blog post accusing Nigerian officials of misconduct. Teng claimed that Gambaryan and Anjarwalla were invited to Nigeria under the pretence of cooperation but were then detained without cause.
Furthermore, Teng alleged that during "hostile" meetings with Nigerian officials, Binance executives were pressured to delist the naira from their platform and hand over extensive user data.
Most explosively, Teng accused unnamed Nigerian officials of demanding a $150 million bribe in cryptocurrency to halt the investigations.
The situation has escalated significantly, with accusations flying between both parties.
Teng claims Gambaryan is an innocent mid-level employee being held hostage to pressure Binance. He alleges that the exchange's executives were promised safe passage for their meetings but were instead subjected to aggressive behaviour and extortion attempts.
In response to the escalating tensions, Binance delisted the naira from its platform and disabled its peer-to-peer (P2P) trading product for Nigerian users. This move was presented as a "good faith gesture" by Binance, hoping to de-escalate the situation and pave the way for productive dialogue.
However, tensions continued to rise as Nigerian authorities pressed charges against Binance and the detained executives.
Nigeria accuses Binance of facilitating money laundering, terrorist financing, and foreign exchange manipulation. Binance denies these charges and contends that they are being scapegoated for the Nigerian government's failures to manage the national currency.
The Nigerian government's accusations against Binance raise questions about their motives. While it is essential to address potential criminal activity, the timing of the detentions and the severity of the charges suggest that the Nigerian government may be seeking to deflect blame for its own economic struggles.
According to Teng, the story begins in May 2022, when Nigeria's Securities and Exchange Commission (SEC) introduced regulations for digital assets. Binance proactively reached out to the SEC, seeking clarification on the licensing process and offering to collaborate.
However, the SEC never responded, and to this date, no Virtual Asset Service Provider (VASP) has been licensed under the new regulations.
In June 2023, the SEC published a circular targeting Binance, directing them to cease soliciting Nigerian investors.
Binance responded by immediately suspending solicitation activities in Nigeria. They also reiterated their commitment to cooperating with the SEC and requested a meeting, but again, there was no response from the SEC.
Despite the lack of communication from the SEC, Binance continued its efforts to engage with Nigeria's regulatory landscape. They participated in law enforcement training for the Nigerian Financial Intelligence Unit (NFIU) and Economic and Financial Crimes Commission (EFCC) in November 2023. Additionally, Binance provided commentary on the SEC's amended regulations in March 2024.
In December 2023, Binance received a letter from the Chairman of the House Committee on Financial Crimes (HCFC) requesting their appearance at a public hearing. Binance agreed to send a delegation, and Tigran Gambaryan was part of the team that travelled to Nigeria in January 2024.
During a pre-hearing meeting with the HCFC, the Committee threatened to issue arrest warrants against Binance's team and CEO and prevent them from leaving the country. The committee also demanded a significant payment in cryptocurrency to make the allegations disappear.
Binance refused the payment and requested to see the details of the allegations before engaging in any settlement discussions.
Following their refusal to pay, Binance's team was pressured to leave Nigeria. Binance maintained their stance, demanding to see the official allegations and insisting on a legal resolution.
Around this time, Nigeria's currency, the naira (NGN), was experiencing a steep decline. Binance, a leading crypto platform in Nigeria at the time, offered P2P (peer-to-peer) trading, which some Nigerians used to protect themselves from the currency decline.
This use of P2P trading led to concerns from Nigerian authorities that Binance was influencing the country's foreign exchange rate.
Binance addressed these concerns by explaining that they have no role in setting P2P prices and that the advertised prices do not always reflect actual traded prices. They also implemented measures to remove abnormally priced ads and limit user activity.
Despite assurances of safety, Tigran Gambaryan and Nadeem Anjarwalla, Head of Binance Africa, were detained in February 2024 after meetings with Nigerian officials.
The initial meetings seemed productive, but the tone shifted when EFCC officials made demands, including delisting the naira from the Binance platform and providing financial/tax compliance information.
Tigran and Nadeem were subsequently detained and held against their will.
Following the detention, Binance took steps to appease the Nigerian government but the tension remains. Teng emphasised that Binance is committed to working with Nigerian authorities and resolving any outstanding issues.
He also hopes that, “my next update is one where our employees are safe at home with their families”.
The Nigerian Naira is currently nearing a historic low of 1,000 Naira to 0.71 US Dollar. This dramatic decline stems from a confluence of factors creating a perfect storm for the Nigerian currency.
Firstly, a backlog of unmet forex demands plagues the official market. This forces businesses and individuals to resort to the black market for their dollar needs.
Secondly, Nigeria's oil exports, the lifeblood of the nation's income, have dwindled in recent years. This decrease in dollar inflow starves the official market, further weakening the Naira.
Adding fuel to the fire, President Tinubu's decision to abolish currency controls backfired. Investors initially cheered, hoping for easier access to foreign exchange.
However, a massive $7 billion backlog of matured forex forwards owed to corporations remains unsettled. This situation cripples businesses and banks alike, hindering new dollar access.
Nigeria's foreign exchange reserves also paint a grim picture. Shrinking from $37 billion to a mere $33.5 billion, the usable reserves are further burdened by a hefty $19 billion derivatives commitment.
Speculation estimates place Nigeria's net usable reserves at a shockingly low $3.7 billion.
The central bank is mum on a timeline for clearing the forex backlog, and the crucial Excess Crude Account, once a $20 billion buffer, sits depleted at a meagre $473 million.
With the official budget predicated on an unrealistic exchange rate and the black market already demanding 1,300 Naira to the dollar, experts predict further devaluation and potential inflationary spirals.
The Naira's fight for survival hangs in the balance.
Nigeria has long been a breeding ground for online fraud, with the infamous "Nigerian Prince" scam being the pioneer.
This scam, also known as the "419" scam (referencing the Nigerian Criminal Code section on fraud), entices victims with the promise of a share in a hidden fortune in exchange for help transferring the money out of the country.
An example of Nigerian Prince scam. (Source: nordvpn’s blog)
The methods have become more sophisticated, with scammers now impersonating anyone from business executives to soldiers stationed abroad. They leverage real-world events to make their stories seem more believable.
In addition to the classic advance-fee scams, criminals are branching out into Bereiche like inheritance scams, romance scams, and even bogus government benefit programs.
Nigerian scammers are not limited to small-time cons. Federal authorities have linked sophisticated Nigerian crime networks to multi-million dollar thefts from businesses. These groups may impersonate supervisors or vendors to trick employees into wiring money.
The fight against Nigerian fraud is ongoing. Nigeria's whistleblowing program, launched in 2016, allows citizens to report suspicious activity and has led to the recovery of millions of dollars.
This has led to the anti-corruption unit receiving a tip on an apartment building in Nigeria. Subsequently, the raid has netted $43 million in cash, highlighting the vast sums involved in these criminal enterprises.
Nigeria, Africa's largest economy, is facing a perfect storm of economic woes. With inflation reaching nearly 30% and two-thirds of the population living in poverty, many Nigerians are turning to cryptocurrencies as a lifeline.
This surge has made Nigeria the world's second-highest adopter of crypto, with about $60 billion worth of transactions received in the past year.
However, this crypto boom has clashed with the Nigerian government's struggle to control its own currency, the naira.
As the naira weakens, Nigerians flock to stablecoins, digital currencies pegged to the U.S. dollar, creating an unofficial exchange rate that bypasses government control.
This has led to accusations from Nigerian officials that crypto platforms like Binance are manipulating the market and "bleeding" the country's currency.
Nigeria's currency, the naira, has been on a downward spiral after the government ended its policy of pegging it to the US dollar. The value has plummeted by more than two-thirds, making imports significantly more expensive.
As Nigerians struggle to afford basic necessities, the Central Bank of Nigeria (CBN) has thrown them a curveball - a new 0.5% levy on electronic banking transactions to improve cybersecurity. This move, however, has sparked outrage as the country grapples with its worst economic crisis in a generation.
Critics like Dr. Abdulrazaq Fagge, an economics professor, argue this is a bad time to impose additional strain. Businesses, especially small ones dependent on digital transactions, are also likely to suffer.
The levy's unpopularity is evident. Bread seller Abubakar Sheka plans to abandon electronic transactions altogether. The Nigeria Labour Congress and rights groups are voicing their opposition, and some even threaten legal action.
Analysts fear this policy reversal. Public affairs analyst Habu Sani warns of a return to cash, potentially causing another cash shortage like the one experienced in 2023. This could further hinder Nigeria's already low digital payment adoption rate, currently at only 8% among those aged 16-64.
With low mobile network coverage and smartphone affordability issues, Nigeria's cashless dream seems to be fading fast.
Nigeria faces a complex economic situation, with a weakened naira and a growing crypto market. While the current tensions between regulators and crypto exchanges are a hurdle, there's a potential lesson to be learned from El Salvador's bold move to adopt Bitcoin as legal tender.
Nigeria could explore a controlled crypto integration strategy. This could involve creating a national digital currency pegged to the naira, but built on blockchain technology for increased transparency and security.
This could potentially provide a more stable alternative to the current naira while leveraging the growing popularity of cryptocurrencies in Nigeria.
However, careful planning and international collaboration would be crucial to ensure a smooth implementation and mitigate any potential risks.
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