Everybody hates Binance: Two staff held in Nigeria; finding the cash for $4.3b in US fines

  • By Amy Castor and David Gerard

Nigeria has been deeply unhappy with Binance for a while. Now two Binance officials have been held in Nigeria after they arrived in Abuja on February 26.

Also, Binance is going to have to pay the first installment of its $4.3 billion fine to US regulators real soon. Where will it get the cash?



The naira problem

Nigeria’s local currency, the naira, is collapsing. Inflation in the country is at an all-time high of 31.7%. [Trading Economics]

Crypto isn’t really responsible, but the government needs someone to blame — so they’re pinning it on Binance.

Nigeria is the most populous country in Africa and its biggest oil exporter. Over the last 40 years, crude oil exports brought lots of fresh dollars into the country — and those dollars propped up the naira, which for years had been pegged to the US dollar at various rates.

But oil production began to decrease in the last two decades due to theft, pipeline vandalism, and a lack of investment in infrastructure — problems that have nothing to do with Binance.

This meant fewer dollars were flowing into the country. Nigeria has no major export that could replace oil. So maintaining the naira’s dollar peg was costing an increasing share of Nigeria’s foreign exchange reserves.

On taking office in May 2023, President Bola Tinubu ended the peg in favor of letting the naira float. It promptly sank.

Nigerians took to converting their savings to US dollars to protect against runaway inflation. However, the government set limits on currency exchange.

Many turned to stablecoins, such as tether, as the next best thing to actual dollars. Binance, the highest volume crypto exchange, set the exchange rate for naira to tether. The exchange often served as a point of reference for local foreign currency exchange rates.

Bayo Onanuga, a special adviser to Tinubu, said Binance was “blatantly” setting the exchange rate for Nigeria, a role that was reserved for the central bank.  [FT, archive]

Blockchain fixes this

Nigeria tried doing a central bank digital currency — the eNaira. But it failed to get the takeup that the Central Bank of Nigeria had hoped for. Its user base was around 0.5% of the population. Major retailers don’t accept the eNaira, nor do the largest payment providers, Jumia and Konga. [The Punch, 2022; Bloomberg, 2022, archive]

The eNaira can’t scale, because it runs on a blockchain, or Hyperledger at least. The bank is talking to other companies other than Bitt, the present supplier, about putting a different tech stack behind the eNaira. [Bloomberg, 2023; archive]

Half the white paper links on the official eNaira website don’t work anymore. [eNaira]

Nigeria and Binance

Nigeria’s Securities and Exchange Commission ordered Binance to cease operations in the country in June 2023. “Binance Nigeria Limited is neither registered nor regulated by the Commission and its operations in Nigeria are therefore illegal. Any member of the investing public dealing with the entity is doing so at his/her own risk.”

Despite the warnings, Nigerians were still able to trade on Binance.com. Then-CEO Changpeng Zhao said in July 2023 that Binance Nigeria was completely unlinked to Binance. Nobody believed this — certainly not Nigeria.

Last month, the Nigerian Communications Commission, the country’s telecom regulator, blocked access to all major crypto exchanges — Binance, Coinbase, Kraken, Forextime, OctaFX, Crypto.com, and FXTM. [Premium Times]

Binance has discontinued all naira services as of March 8. It removed the naira from its peer-to-peer service on February 28. All remaining naira balances on the main Binance exchange were automatically converted to tethers. [Binance, archive]

Some news reports said that Nigeria was demanding that Binance pay a $10 billion fine, but Onanuga says this was a miscommunication. “I said our government may impose heavy fines on Binance for what happened,” he told the People’s Gazette. “I never said Binance had been informed about the fines or that it would definitely be $10 billion.” [People’s Gazette]

Nigeria wants details of Binance’s top 100 local users and all transactions for the past six months. [FT, archive]

Binance posted to its blog on Wednesday about Nigeria, “in light of recent news.” The post talks about all of Binance’s great times working with the Nigerian government in 2023 and doesn’t address any of the recent unpleasantness. Binance believes that Nigeria “holds extraordinary potential and we hope to continue to invest there.” We’re sure they do. [Binance, archive]

The hostages

Nigeria is holding two Binance employees who went there to address the country’s issues with Binance. Tigran Gambaryan, a US citizen, is vice president of global intelligence and investigations. Nadeem Anjarwalla, a British lawyer who is based in Kenya, is Binance’s regional manager for Africa.

Gambaryan and Anjarwalla have not been charged, and they’re staying in a guest house rather than a jail cell, but officials took their phones and passports. [Wired, archive]

Gambarayan has an interesting history in crypto. He is a former US special agent with the US Internal Revenue Service who helped crack the Silk Road darknet market. He used to go after crypto crooks. Now he’s head of Binance investigations. [Wired, archive]

Binance has a reputation for hiring crypto investigators who formerly worked for law enforcement. No doubt it pays much better.

These guys don’t have the data Nigeria wants. They’re just being held hostage to get Binance to give Nigeria the information.

This is fine(d)

Back in the US, Judge Richard A. Jones has tightened Binance founder Changpeng Zhao’s bond restrictions. Since Binance and CZ pleaded guilty to federal charges in November, CZ’s been stuck in the US while he awaits sentencing in April. The court has ordered him to surrender his Canadian passport to a third party custodian and any other passports to his lawyers. He must also notify the court before traveling in the US. [Doc 71, PDF]

As part of its plea settlement, Binance had agreed to pay $4.3 billion in fines — real money, not tethers — to US regulatory agencies. The first installment of $898,618,825 is due on March 25 — that’s 30 days after the court approved their guilty plea. $1,612,031,763 is due within six months, and the final $1,805,475,575 is due within 15 months. [Sentencing memo, PDF; Bloomberg, archive]

Where will Binance find the money? It lost its US banking in June 2023. They’ll likely have to redeem stablecoins — tethers, USDC, and FDUSD.

As of this writing, Binance has 2.89 billion FDUSD, 2.17 billion USDC, and 24.02 billion USDT on the exchange. We expect that would mostly be customer funds. Binance would likely have to hit all three pools to cover the $4.3 billion. [Arkham]

USDC is pretty redeemable. FDUSD redeems for approved customers, and we’d expect Binance to be one. But Tether has its own struggles with banking — and it just doesn’t have the cash on hand to redeem tethers for US dollars in that sort of quantity.

Tether holds only a tiny percentage of its reserves in actual cash held at banks. In September 2022, Tether’s attestation said $6.3 billion was in banks; in June 2023, they admitted to just $91 million in cash in a bank. By December 2023, the date of their latest attestation, this had recovered to $395 million — out of a total of 97 billion tethers at the time. That’s only 0.4%. [Attestation, December 2023]

Compare that to USDC, which says it holds 11.1% of its reserves in cash. [January attestation]

Cantor holds $63 billion in Treasury bills for Tether. Selling those means sending the money via a suitable bank that will agree to touch crypto proceeds for this purpose.

We expect stablecoin redemptions at the scale needed to pay the fines to cause issues — such as delays in redemption.

The use case for Binance

The Counter ISIS Finance Group is a group of countries that acts to cut off funding to the Islamic State of Iraq and Syria. Most of their funding is in cash — but the US Treasury fact sheet on the CIFG’s January meeting has a whole section on ISIS’ fondness for tethers, particularly in western Africa. The US also takes credit for busting Binance over its carelessness with terrorist financing. Binance is particularly noted as having let ISIS use its services without a care. [Press release; fact sheet, PDF]

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2 Comments on “Everybody hates Binance: Two staff held in Nigeria; finding the cash for $4.3b in US fines”

  1. There are three groups in international monetary speculation.
    An ‘in’ group who are protected but not constrained.
    An ‘out’ group who are constrained but not protected.
    F–ing idiots.

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