Binance, the world’s largest crypto-currency exchange, has found itself embroiled in legal battles in Nigeria, as Africa’s most populous nation seeks to clamp down on an industry that it accuses of facilitating criminal activity and undermining the naira.
In February two of Binance’s senior executives were arrested after flying to Nigeria to challenge the country’s decision to ban several crypto trading websites. The company’s head of financial crime compliance, Tigran Gambaryan, and its regional manager for Africa, Nadeem Anjarwalla, were both detained over allegations that Binance had turned a blind eye to criminal offences including tax evasion and money laundering.
The governor of the Nigerian central bank, Olayemi Cardoso, said at the time that “we are concerned that certain practices go on that indicate illicit flows going through a number of these entities [crypto platforms] 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.”
Since then, Anjarwalla has managed to escape from custody and leave Nigeria. Days later he, Gambaryan and Binance itself were charged with tax evasion and money laundering. Gambaryan remains in custody after being denied bail on 17 May.
Wider legal challenges
It is not just in Nigeria that Binance employees have been charged with criminal offences. On 30 April Binance’s founder and former CEO, Changpeng Zhao, was sentenced to four months in prison in the US after pleading guilty to violating US laws against money laundering.
And the latest debacle in Nigeria is not the first time that Binance has encountered legal difficulties in the West African country.
Last year the Nigerian Securities and Exchange Commission (SEC) declared that “Binance Nigeria is neither registered nor regulated by the Commission and its operations in Nigeria and are therefore illegal. Any member of the investing public dealing with the entity is doing so at his/her own risk.”
Binance denied that the locally registered company “Binance Nigeria” was anything to do with it, causing widespread confusion.
Olaleye Oladimeji, partner at Legalpreneur Attorneys and Consulting in Lagos, explains that these issues have caused Binance “to suspend services to Nigerians and delist Nigerian naira-linked trading pairs due to the legal issues, and several other exchanges took similar steps to suspend service availability to Nigerians”.
While the authorities have consistently said that their recent cases against Binance and its executives are motivated by national security concerns, some industry figures claim that the Nigerian government is looking for someone to blame for the rapid depreciation of the Nigerian naira (NGN).
The pain of market reforms
Since taking office in May 2023, President Bola Tinubu has instigated a variety of market reforms designed to attract overseas investment and bolster the Nigerian economy. These have included ending Nigeria’s policy of propping up the naira to keep the currency artificially strong, and closing the gap between the official and black-market exchange rates.
Although some analysts deem this a necessary move to liberalise the country’s financial markets, the reforms have also prompted a sizeable devaluation of the naira and therefore contributed to significantly higher prices on imported goods. This in turn has prompted a fierce political backlash from citizens struggling with the higher cost of living.
Perhaps because of this, the Nigerian government has sought to deflect blame for the weakening naira onto crypto exchanges such as Binance. In February Bayo Onanuga, a special adviser to Tinubu, said that Binance had a “deleterious effect” on the Nigerian economy because it allowed consumers to sell off their naira. He said that Nigeria could impose a fine of $10bn on the company as “retribution” because Binance “really messed up” the Nigerian economy.
Rume Ophi, a blockchain analyst based in Lagos, suspects that there are more profound reasons for the decline of the naira than Binance and cryptocurrencies.
“In my opinion, crypto has not aided the decline of the Nigerian naira,” he tells African Business. “The decline of the naira is because of the failure of economic policies going back years. People are using crypto because they believe it is a hedge against inflation and that it will protect the value of their savings from currency depreciation.”
Olaleye says that “Nigeria’s economic issues are largely due to financial mismanagement, oil dependency, corruption, and bad governance. Cryptocurrencies provide financial inclusion and are a cheaper alternative for remittances… most claims regarding the naira’s decline seem to be based on theoretical impacts rather than concrete data.”
Ahmed Amer, CEO of Cairo-based Emurgo Africa, a crypto-focused venture capital fund, also notes that there is little evidence to suggest that cryptocurrencies are to blame for the weakness of the naira as the Nigerian government has suggested. He suggests instead that the authorities’ action against Binance could be motivated by a desire to promote the “eNaira,” a central bank digital currency (CBDC) that was issued in 2021 but that has seen limited adoption since.
An element of the authorities’ position towards crypto might, Amer says, be “influenced by the launch of the eNaira and how the crypto community reacted with a lack of enthusiasm and disdain towards it”.
Cryptenthusiasm
Despite the legal status of cryptocurrencies being consistently unclear, crypto trading activity is growing in Nigeria. Between July 2022 and June 2023 its volume grew 9% year-over-year, to $56.7bn, according to the global blockchain research firm Chainalysis.
A study from the KuCoin exchange found that 35% of Nigerians aged between 16 and 18 are investing in or trading cryptocurrencies, with another study putting Nigeria as the top country for cryptocurrency usage and ownership anywhere in the world.
Amer doubts that Nigerians’ apparent enthusiasm for digital assets will be dented by Binance’s legal troubles.
“Binance is the Nigerian and African market leader in cryptoexchanges and the need for their services due to unstable local fiat currencies is far more critical than the legal difficulties expected,” he says. “Both retail and institutional investors will continue to find ways to access the platform as long as there is a strong need for it.”
“The Nigerian government is trying to set a precedent for companies operating outside of their auspices and without their blessing,” Amer adds. “The government sees this as an opportunity to capitalise on a highly liquid cash cow.”
Olaleye believes that restricted access to Binance and other exchanges may dent trading volumes for retail investors in the short term but that “long term this may not matter” should “clearer guidelines emerge”. However, he fears that corporate investors may be deterred from putting capital in Nigerian crypto-related businesses.
“Institutional investors and businesses might adopt a more cautious approach due to regulatory uncertainties,” he says. “Compliance risks and potential legal ramifications could deter significant institutional investment in the short term. This could lead to blockchain start-ups moving operations or creating subsidiaries in regions with clearer regulatory frameworks for virtual assets.”
It seems unlikely that the legal battles with which Binance is embroiled will dent Nigerians’ enthusiasm for crypto more broadly. Regardless of the exchange being used, many Nigerians have demonstrated a consistent appetite for using crypto to access financial services in a cheaper, faster, and more inclusive way than is often offered by the formal financial sector.
High inflation and rapid currency depreciation, which continues to be a problem in Nigeria and other African countries, also means that retail investors will be likely to continue searching for alternative stores of value, particularly at a time when crypto prices are back on the rise.
“Binance is walking on thin ice now with the Nigerian authorities, as well as those in the US. However, they will continue to operate where they can and generate cash flow,” Amer says. “But if not Binance, another exchange will swoop in and eat up its market share. Remember, we are in a bull market, appetites are big, and demand is at an all-time high, especially in developing countries.”
