Suspected of financial crimes, executives detained, potentially facing a fine of 10 billion? Binance is under scrutiny again

Written by: Tuo Luo Finance

Despite Bitcoin's rise, the world's largest cryptocurrency exchange Binance is facing tough times.

Recently, the Financial Crimes Committee of the Nigerian House of Representatives summoned Binance's current CEO Richard Teng to attend a hearing, accusing him of financial crimes such as terrorism financing and money laundering. Correspondingly, Nigeria is facing its most severe currency crisis in nearly thirty years. Since the Central Bank of Nigeria removed the peg of its local currency to the US dollar in June last year to attract foreign exchange inflows, the official currency Naira has depreciated by about 70% over the past year, becoming the worst-performing currency globally.

The exchange rate of the US dollar against the Naira has been rising over the past year, Source: Yicai

In this context, Nigerian authorities believe that Binance has played a severely negative role. Of course, this matter did not come out of nowhere.

Faced with the currency depreciation and outflow caused by soaring inflation, Nigeria previously implemented quite aggressive foreign exchange controls. Forced by circumstances, two-thirds of the population living below the poverty line turned to cryptocurrency, exchanging Naira for US dollar stablecoins to protect their wealth from further dilution. According to an index compiled by Chainalysis, the country's cryptocurrency adoption rate ranks second in the world, only behind India. In the 12 months leading up to June 2023, Nigerians received approximately $60 billion in cryptocurrency transactions.

Source: Chainalysis

Against this backdrop, the P2P stablecoin market, which enables peer-to-peer transactions, has become a gray exchange that surpasses the local currency market. The exchange rate of the Naira to the US dollar is significantly lower than the local government rate in Nigeria, and as the largest platform globally, the vast majority of transactions occur here. Last month, the Governor of the Central Bank of Nigeria, Olayemi Cardoso, stated that in just the past year, $26 billion had been transferred through Binance from "insufficiently identified sources and users."

Presidential advisor Bayo Onanuga responded on the X platform, "Binance faces regulation in many countries and causes chaos in the currency market; it should not be allowed to determine the value of the Naira on its cryptocurrency trading platform. Cryptocurrency should be banned in our country; otherwise, our currency will continue to bleed." As early as June last year, the Nigerian Securities and Exchange Commission stated that Binance was operating illegally in the country.

On February 24, this African nation with a population of 240 million requested its telecommunications companies and other internet service providers to block citizens' access to cryptocurrency trading platforms. Subsequently, Binance announced an emergency halt to the exchange of Naira for Bitcoin and USDT.

According to BBC reports, Nigerian authorities demanded that Binance pay at least $10 billion in compensation. This rumor was denied by Nigerian authorities, but interestingly, President Bola Tinubu had previously announced that the federal government planned to raise at least $10 billion to increase foreign exchange liquidity to stabilize the Naira. According to the Financial Times, the Nigerian National Security Advisor's office has requested Binance to resolve unpaid tax issues. Currently, Nigeria is pressuring Binance to provide personal information about the top 100 users in Nigeria, as well as all transaction history from the past six months.

More importantly, two Binance executives have been detained without reason since arriving in Nigeria on February 25, which undoubtedly adds more pressure on Binance. Although Binance claims to be doing its utmost to bring its colleagues home, the current situation suggests that it is not that simple. The involvement of these two foreign executives has forced the UK and US foreign ministries to intervene, complicating the situation further.

Foreign media WIRED conducted a detailed investigation into the detained individuals, citing their reports for clarification.

Tigran Gambaryan, a former IRS agent, led efforts to capture cryptocurrency fraudsters and money launderers, dark web drug dealers, and even dismantled cryptocurrency-funded child exploitation networks. However, unexpectedly, after taking on the role of Binance's financial crime compliance officer, he himself became a target of a country's cryptocurrency crackdown: for over two weeks, he and another Binance executive have been forcibly detained by Nigerian officials.

Since February 26, Gambaryan and Nadeem Anjarwalla, Binance's regional manager for Africa based in Kenya, have had their passports confiscated and have been held in a government property in Nigeria's capital, Abuja. According to their families, neither has been informed of any criminal charges against them. The Financial Times reported that as the Nigerian currency depreciated sharply, the country took extensive action to ban cryptocurrency exchanges, and these two were caught up in that action.

Gambaryan's wife, Yuki, stated, "What is happening to him? When will he come back? There are no clear answers to anything."

Gambaryan is a US citizen, while Anjarwalla holds dual citizenship in the UK and Kenya. Their families recalled that at the invitation of the Nigerian government, the two arrived in Abuja on February 25 to resolve the dispute between Nigeria and Binance. The next day, they met with Nigerian officials, intending to discuss the government's order for telecommunications companies in the country to block access to Binance and other cryptocurrency exchanges. Regulators accused Binance of causing the depreciation of Nigeria's official currency, the Naira, and leading to "illegal capital flows."

However, according to insiders, shortly after Gambaryan and Anjarwalla's first meeting with the Nigerian government, they were taken to a hotel, asked to pack their bags, and transferred to a "guesthouse" managed by the Nigerian National Security Agency. Officials confiscated their passports and disregarded their wishes, detaining them in this house for two weeks now.

Their families mentioned that a US State Department official visited Gambaryan, while a representative from the UK Foreign Office visited Anjarwalla, but Nigerian government guards were always present, preventing them from speaking privately.

In response, a Binance spokesperson declined to comment on the allegations against the two men or the company itself, as well as any demands the Nigerian government might make for their release. The spokesperson stated, "While we are currently unable to comment on the substance of the allegations, we can say that we are working with Nigerian authorities to do everything possible to bring Nadeem and Tigran home safely to reunite with their families. They are the most upright professionals, and we will provide them with all the support we can. We believe this matter will be resolved quickly."

Last week, after Anjarwalla fell ill, the two were transferred to a local hospital. His wife mentioned that his specific symptoms were unclear but could be malaria. However, he later recovered, and the two were sent back to a Nigerian government building, where they have remained detained since.

For Gambaryan, becoming a pawn in the dispute between Binance and the government is undoubtedly an ironic twist. Gambaryan was high-profile recruited as the head of Binance's compliance investigation team in 2021, widely seen as an effort to clean up the exchange's money laundering activities, comply better with regulations, and work more closely with law enforcement. At the end of November last year, Binance agreed to a plea deal with US prosecutors, paying a record $4.3 billion in settlement for money laundering allegations and facing strict scrutiny from US regulators.

Before joining Binance, Gambaryan served as an agent in the IRS Criminal Investigation (IRS-CI) division, earning a reputation in law enforcement for leading significant cryptocurrency cases. From 2014 to 2017 alone, Gambaryan led investigations into two corrupt federal agents who stole cryptocurrency from the Silk Road dark web drug market and sold law enforcement intelligence to its creator, tracked 650,000 bitcoins stolen from the Mt. Gox exchange, and assisted in developing a cryptocurrency tracking technology to locate servers running the large AlphaBay criminal market, participating in dismantling the cryptocurrency-based child exploitation network Welcome to Video.

Former prosecutor Will Frentzen, who worked closely with Gambaryan, described him as a "very upright" "top-notch agent" during his time at the IRS-CI. Frentzen stated, "The cases he was involved in were among the largest cryptocurrency cases at the time. He was very innovative in his investigations, and few could think of his investigative methods. He was also very selfless regarding the distribution of credit for contributions to cases. I believe no one else has had a greater impact on the investigation of related cryptocurrency cases than he has."

Gambaryan's wife, Yuki, pointed out that her husband has earned the support of the US government, which is now helping negotiate his release. She said, "He has done a lot of good for this country in his career. I believe it is now time for him to receive the same level of support from his country." However, she is unaware of any specific actions the US State Department or the US Embassy in Abuja has taken to rescue Gambaryan so far.

Anjarwalla is a government affairs expert at Binance, graduated from Oxford University and Stanford University, and joined the cryptocurrency company a year ago. His wife, Elahe Anjarwalla, stated in a statement that he is merely a mid-level manager at Binance and does not have decision-making power. She also noted that Anjarwalla is a Muslim and has been detained during Ramadan; their young child has grown their first tooth in the past two weeks and will celebrate their first birthday next week. "Anjarwalla is a loving husband and father; he is my best friend, and I just want him to come back to us."

Yuki said, "The two detained individuals can watch TV and go out to the balcony; I can see he is trying to stay positive, but this has a significant impact on him. He is starting to become impatient and feels desperate."

For Yuki, the anxiety and uncertainty have made the past two weeks "the hardest days of her life," and she has not yet told their two young children. Yuki stated, "I just ask them to let him go." According to the latest news, the two executives cannot leave until at least the follow-up hearing scheduled for March 20.

On the other hand, in addition to the turmoil in Nigeria, US authorities have also recently imposed travel restrictions on former CEO Changpeng Zhao (CZ). According to court documents submitted on March 11, CZ must notify pretrial services before traveling between states within the US. Additionally, he must hand over his current Canadian passport to a third-party custodian under the supervision of his lawyer, as well as surrender "all other valid and expired passports and travel documents." Without court permission, he cannot "apply for a new passport or travel document from any country."

In short, CZ must and can only stay in the US, with his freedom further restricted, while the previous criminal sentence has been postponed from February to the end of April. For a sentence that was originally expected to be up to 18 months in prison, US prosecutors seem to be considering a harsher judgment.

Overall, Binance has faced numerous difficulties at the start of this year. CZ may be trapped, and the new CEO must confront the first severe government negotiations since taking office. Globally, the clash between the global exchange payment services provided by exchanges and centralized government control has caused intense conflicts, especially in third-world countries where currencies are already struggling to hold firm. This situation is expected to escalate, and Nigeria may just be the beginning.

How to respond to such conflicts in the future, and how to resolve the inherent contradictions between the liberalized flow of the cryptocurrency economy and government centralized sovereignty, will require Binance, as a leader, to make more efforts to navigate these challenges.