The Wall Street Journal: Nigeria's currency crisis, should Binance take the blame?

Written by: Patricia Kowsmann, Caitlin Ostroff, and Alexandra Wexler

Compiled by: Luffy, Foresight News

American Tigran Gambaryan is one of the two Binance employees detained in Nigeria

Binance's head of financial crime compliance, Tigran Gambaryan, flew to Nigeria's capital to address an issue: the government accused the world's largest cryptocurrency exchange of causing the collapse of the national currency.

The American, a former IRS agent, left his wife and children at their home in Georgia in late February, carrying a small suitcase, expecting to make a brief business trip. But he has yet to return.

According to Gambaryan's family, Nigerian authorities detained Gambaryan and his colleague Nadeem Anjarwalla, a British and Kenyan citizen who is Binance's regional manager for Africa.

The Binance employees are being held in a guarded house and have not yet been charged with any crimes. The local government that invited them to Nigeria for meetings has also not publicly discussed the detention.

Nigeria, Africa's largest economy with a population of over 220 million, has faced multiple currency crises in the past. This is the first time cryptocurrency has taken center stage.

The dollar value of cryptocurrency transactions in sub-Saharan African countries

In recent years, Nigerians have flocked to cryptocurrency to protect their savings from soaring inflation rates (which reached nearly 30% in January) and the plummeting currency. Two-thirds of the local population lives in poverty.

According to an index compiled by Chainalysis, Nigeria ranks second in the world for cryptocurrency adoption, behind India. Chainalysis reports that Nigerians received approximately $60 billion in cryptocurrency transactions over the 12 months ending in June 2023.

Due to strict foreign exchange controls imposed by the local government, many residents seek refuge in digital currencies pegged to the dollar (stablecoins).

Stablecoin trading has essentially turned into a black market, with the market exchange rate between the local currency naira and the dollar significantly lower than the government rate. According to currency traders, Binance is the most popular exchange and has become the go-to place for checking black market rates.

Nigeria's presidential special advisor Bayo Onanuga accused Binance of interfering with Nigeria's exchange rate determination and usurping the role of the central bank.

He wrote in a post on X, "Our country should ban cryptocurrency, or our currency outflow will continue to increase."

Nadeem Anjarwalla, Binance's regional manager for Africa

The new government that took office last year is attempting to simplify the complex exchange rate system composed of multiple official rates and give the market greater influence over currency value.

However, the government finds the persistent gap between the value of the currency and the exchange rates on the Binance website intolerable.

Onanuga told the Wall Street Journal that Binance is cooperating with authorities to discuss compensation for Nigeria.

Last week, following the detention incident, Binance announced it would halt any services involving the naira, which dealt a blow to its efforts to rebuild business in the fast-growing emerging market.

Restrictions on Cryptocurrency Websites

The Nigerian Communications Commission ordered telecom companies to restrict residents' access to Binance and other cryptocurrency platforms.

Nigerian Central Bank Governor Olayemi Cardoso stated that cryptocurrency platforms are being used to manipulate the market.

He noted that, in the case of Binance, $26 billion flowed through its platform in Nigeria last year, and the sources and users of those funds are not adequately identifiable by the central bank. Cardoso did not disclose the source of this figure.

The exchange rate of the naira to the dollar before and after Nigerian authorities restricted cryptocurrency websites

A Binance spokesperson stated that the company requires all users to undergo strict identity verification. While he did not comment on the $26 billion figure, he mentioned that since users can exchange one cryptocurrency for another, not all transactions are related to the naira. He added that total transaction volume should not be mistaken for actual funds flowing through the exchange.

He said, "We are working with Nigerian authorities to safely bring Nadeem and Tigran home to reunite with their families." "We believe this matter will be resolved quickly."

The company stated in a blog post that Binance allows buyers and sellers to trade with each other, thus not setting prices. When the naira experiences significant fluctuations, the system automatically pauses to prevent manipulation. The company added that traders attempting to manipulate the market will be kicked out.

Binance was founded in China in 2017 and has repeatedly drawn the ire of governments. The company has long operated without a headquarters and under the scrutiny of regulators, instead providing unlicensed trading through its global website.

In November, Binance founder Changpeng Zhao stepped down as CEO and admitted to violating U.S. anti-money laundering requirements. The company agreed to pay a $4.3 billion fine, the largest ever imposed on a cryptocurrency company. Zhao is currently awaiting trial in the U.S.

Last year, Nigeria's securities regulator stated that a local Binance entity was operating illegally and was ordered to cease operations. However, users continued to access the global site Binance.com.

Street currency traders holding dollars and Nigerian naira; Source: Bloomberg News

In developing countries, the use of dollar stablecoins has surged. In economies facing financial crises, such as Turkey, Argentina, and Russia, where actual dollars are scarce, locals have turned to cryptocurrency exchanges and the dollar stablecoins they offer as alternatives.

Compliance with Rules

Binance CEO Richard Teng, who previously worked for regulators, vowed to comply with rules and engage with government authorities when he took over last year.

According to their families, 39-year-old Gambaryan and 37-year-old Anjarwalla arrived in Nigeria's capital Abuja on February 25 at the invitation of Nigerian government officials, who requested a series of meetings.

The next day, the two met with officials from Nigeria's central bank, securities regulator, national security agency, and financial intelligence unit. Gambaryan and Anjarwalla's families said the meeting lasted about two hours, and they felt progress was made.

However, unexpectedly, they were then escorted back to their hotel, packed their bags, and were taken to a guarded house. Nigerian authorities did not provide any reason.

The exchange rate of the Nigerian naira to the dollar in recent years

During his time as an IRS agent, Gambaryan was involved in the case that led to the closure of the cryptocurrency exchange BTC-e, which U.S. authorities accused of facilitating criminal activities in 2017. He joined Binance in 2021.

Anjarwalla worked at a venture capital firm and Uber before joining Binance in 2022. He became Binance's regional manager for Nigeria in December of that year.

Anjarwalla's wife, Elahe Anjarwalla, stated that a Nigerian court issued an order on February 28 allowing the country's Economic and Financial Crimes Commission to detain Gambaryan and Anjarwalla for two weeks pending investigation. She said they and their families have not been informed of the nature of the investigation.

In the guarded house, they are allowed to use their phones occasionally, but always under the supervision of guards.

Gambaryan's wife, Yuki Gambaryan, stated that if her husband were allowed, she would text him two to three times a day. She said he is being brave for her and their two children. Their two children are aged 4 and 10.

"My youngest child asks every day when daddy will come home and often walks into Tigran's home office because it smells like daddy," she said.

Anjarwalla's wife, Elahe, said a caretaker makes Anjarwalla his favorite green juice smoothie every morning. He told her he would soon do laundry. In the house, the men can watch TV and go out to the balcony to smoke. Muslim Anjarwalla began fasting for Ramadan on Monday, and Gambaryan joined him.

When allowed, Anjarwalla would video call Elahe back. They do not discuss any sensitive matters but try to calm each other down. He talks to their 11-month-old son, who is starting to learn to say "dada." His first tooth is coming in, and next week is his first birthday.

"I hope and pray they can come back in time," Elahe said.

Nigerian Central Bank headquarters located in Abuja, Nigeria; Photo Source: Bloomberg News