- The situation involving Binance in Nigeria has turned sour due to several events.
- For a few years, the Binance marketplace seemed to work well enough, but in 2023, the Nigerian government ended the naira’s peg to the US dollar as part of sweeping economic reforms.
- In what is now a testament to the sprained relationship between Binance and Nigeria, the authorities filed tax evasion charges against the cryptocurrency exchange.
Binance Under Regulatory Spotlight
Binance’s journey from a small start-up to one of the largest cryptocurrency exchanges globally has been impressive but not a smooth run. The platform’s rapid growth and global expansion brought it under the regulatory spotlight globally.
From the United States to the European Union and various parts of Asia and Africa, Binance has faced various regulatory pressures concerning transparency, security, and compliance.
Late last year, Binance founder and CEO Changpeng Zhao pleaded guilty to violating US bank secrecy laws, failing to maintain an effective anti-money laundering program, and facilitating transactions by sanctioned parties. The CEO subsequently agreed to resign from his position in the company.
The current Binance CEO, Richard Teng, has described the challenges of the crypto exchange as normal for any business trying to establish a name in a nascent industry.
“We are in a very nascent industry, a high-speed developing industry where the rules are at a very early stage of development,” he said. “There’s a lack of clarity in many instances. But once those rules become clear, you can see our commitment to make those investments to comply with them.”
A tricky situation for Binance in Nigeria
The situation involving Binance in Nigeria has turned sour due to several events. Binance faced scrutiny and allegations of illegal operations in Nigeria, prompting its Naira services to discontinue.
The House of Representatives Committee on Financial Crimes summoned the company’s CEO to address investigations into money laundering and manipulating the country’s currency.
Binance vehemently denied these allegations and sent one Nadeem Anjarwalla, who works for Binance as the regional manager for Africa, to talk to government officials about the accusation and try to help calm things down.
In a surprising turn of events, Anjarwalla was detained by Nigerian authorities after appearing in a Federal High Court in Nigeria’s capital, Abuja, alongside Tigran Gambaryan, a US citizen and Binance’s head of financial crime compliance.
Gambaryan and Anjarwalla were caught up in a crackdown following a period during which several cryptocurrency websites emerged as platforms of choice for trading the Nigerian currency as the country battles chronic dollar shortages.
However, Nadeem Anjarwalla is reported to have escaped custody. Anjarwalla, who holds British and Kenyan citizenship, escaped custody after being in detention for 14 days and was due to appear in court on April 4.
This escape led to the arrest of the personnel responsible for his custody, with ongoing investigations into the circumstances of his flight. Anjarwalla escaped from a guest house in the capital city after guards allowed him entry to a nearby mosque for prayers in the spirit of Ramadhan. These events have further strained the relationship, leading to a challenging situation for Binance in Nigeria.
The Tension Between Binance and Nigeria
The tension between Binance and Nigeria dates to a few years ago when many Nigerians started trading cryptocurrency. Now, Nigeria is the second-largest in cryptocurrency adoption globally, according to Chainalysis data.
Nigerians have turned to cryptocurrency because it appears to be a safer store value. Nigeria’s currency, the naira, has suffered cycles of high devaluation amid stubborn inflation over the years. In January, inflation was up about 30 per cent from a year ago.
Dollar-pegged cryptocurrencies, also known as stablecoins, are prevalent, and many Nigerians have bought and sold their crypto on Binance. As such, Binance has claimed to match buyers and sellers, and they determine what the naira is worth against these dollar-pegged cryptocurrencies.
For a few years, the Binance marketplace seemed to work well enough, but in 2023, the Nigerian government ended the naira’s peg to the US dollar as part of sweeping economic reforms.
The goal was to let the market play a more significant role in determining the naira’s value based on supply and demand, but it has not gone quite as the government had hoped.
As the Naira plummets in value, a struggle has played out between the Nigerian government and what they think the currency is worth and what it seems to have been worth on Binance’s platform. Consequently, there is a disagreement about Binance’s role, if any, in causing the depreciation of the naira.
This has led the Central Bank of Nigeria (CBN) to declare a clampdown on Binance recently, with its drastic measures to save the soul of the naira and strengthen the economy. Binance has been fingered as the culprit dealing a massive blow to the naira due to its ‘illicit financial’ operations.
Read Also: Nigeria Detains and Holds Binance Executives in House Arrest
Charges Against Binance
In what is now a testament to the sprained nature of the relationship between Binance and Nigeria, the authorities filed tax evasion charges against the cryptocurrency exchange and its two executives, one of whom escaped custody and fled the country.
The Federal Inland Revenue Service accused the crypto platform of non-payment of company income and value-added tax, failure to file tax returns, and complicity in aiding tax evasion to its customers.
Governor Olayemi Cardoso last month alleged that Binance handled $26 billion in untraceable transactions. The money is suspected to have come from unidentified sources in 2023, probing into alleged involvement in terrorism financing and criminal activities.
Authorities in Nigeria are demanding a staggering $10 billion fine, accusing the Binance of market manipulation that resulted in significant financial losses for the country.
The regulators allege that Binance engaged in market manipulation, leading to the jaw-dropping $10 billion fine. The cryptocurrency platform also faces scrutiny for purportedly profiting from illegal trading activities, exacerbating losses within the Nigerian financial market.
Many Nigerians opted to trade in cryptoassests amid the naira depreciation. This prompted the financial regulators to crack down on platforms offering digital assets. As part of the crackdown, Nigerian authorities have taken severe measures. They have blocked Binance’s website and shut down its naira peer-to-peer marketplace.
Effect and Growth Prospects for Binance
Binance’s journey from a small start-up to one of the world’s largest cryptocurrency exchanges has been impressive, but it has not been without obstacles.
The platform’s global expansion and rapid growth brought it under the regulatory spotlight in numerous countries. However, Binance has faced various regulatory pressures concerning compliance, security, and transparency.
The regulation headwinds have led to a decline in Binance’s market share due to regulatory challenges worldwide, particularly in Nigeria, which hosts a significant crypto P2P market. The company’s approach to these challenges remains as the cryptocurrency sector deals with a complicated regulatory environment, casting doubt on the overall market’s future.
“There is quite a drastic drop in the trade volumes and trading activities on those platforms,” said Obinna Iwuno, president of an association of blockchain stakeholders in Nigeria. Nigeria risks missing an “opportunity to capture the massive global value from the fastest growing emerging technology in the world,” he said.
To secure its position as a leading cryptocurrency exchange, Binance must continue prioritising regulatory compliance, transparency, and the protection of its users’ assets. As the regulatory landscape evolves, Binance’s ability to adapt will be crucial in determining its long-term sustainability and success in the global cryptocurrency market.
