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Binance’s legal issues in Nigeria are ramping up fast as the government may demand hefty financial compensation for the exchange’s alleged role in manipulating the local currency.
On March 1, the BBC reported that the Nigerian government was imposing penalties totaling $10 billion on Binance for its alleged facilitation of speculative currency trading
that has sharply devalued Nigeria’s Naira fiat currency. The Beeb quoted government official Bayo Onanuga saying Binance “harbors people who fix the exchange rate which quickly affects the Nigerian economy.”
However, the People’s Gazette subsequently quoted Onanuga walking back this astronomical sum, saying the government “may impose heavy fines on Binance for what happened” but insisted he “never said Binance had been informed about the fines or that it would definitely be $10 billion.” Onanuga added that “nothing has been finalized yet.”
A Binance Nigeria official told the Gazette that the exchange was indeed discussing the dispute with Nigeria’s government but insisted that “we did not hear any demand for $10 billion” from any government source. The official added that it hoped to have its local operations fully back online soon, “but we have no intention of paying fines for personnel or services.”
The Naira hit a record low against the U.S. dollar last week, causing no shortage of headaches for both the government and the Nigerian people. Last December, the Central Bank of Nigeria (CBN) lifted restrictions on digital asset firms accessing traditional bank services that had been imposed in 2021. Onanuga told the BBC that Binance had “almost messed up our economy in a very short time.”
The brouhaha started when Binance traders began using its controversial peer-to-peer (P2P) transfer platform to trade Naira for stablecoins pegged 1:1 with the U.S. dollar (primarily Tether’s USDT). The rates offered via P2P traders differed from the official rates offered by the CBN. Binance disabled Naira trades on its P2P platform after the government’s rhetoric reached a fever pitch.
Onanuga added that only the CBN has the authority to fix the Naira’s foreign exchange rate, and therefore, the non-aligned rates offered on Binance were illegal. The government is also demolishing illegal Bureau de Change retail outlets across the country, with a government official saying, “where people are trading forex under trees and other unlicensed places, we will not allow it.”
Execs arrested, CEO summoned
Nigeria’s government is clearly not messing around, as two Binance executives—one American, one British—were detained last Monday and questioned over suspected money laundering and terror financing. CBN President Olayemi Cardoso claimed many Binance transactions involved “sources and users that we cannot adequately identify.”
Onanuga said the detained Binance executives were “cooperating with the government to provide information” on its customers but couldn’t say how long the probe would last. Onanuga added that Nigeria’s Department of State Security was leading the probe into “the regulation of the currency exchange market.”
On March 2, Nigeria’s Punch reported that the country’s House of Representatives Committee on Financial Crimes has summoned Binance CEO Richard Teng to answer their questions on or before March 4. Committee chair Ginger Onwusibe warned that the government would exercise its constitutional powers to take appropriate measures should Binance fail to heed its summons.
Onwusibe also slammed Teng for ignoring a mid-December request to appear before the committee. “You cannot run a company with over 10 million Nigerians on your platform without paying tax and having a physical office where Nigerians can lodge their complaints…the era of exploitation is over and all culprits must be held accountable.”
As with most jurisdictions in which it operates, Binance has no license to operate in Nigeria, whose well over 200 million citizens make it an attractive market. In this case, Binance is (for once) not an outlier, as the government has yet to formally authorize any digital asset exchanges. The Nigerian Communications Commission (NCC) recently blocked not only Binance’s website but also those of U.S. exchanges Coinbase (NASDAQ: COIN), Kraken, and others.
Nigeria is the latest market to put Binance’s newly claimed commitment to regulatory compliance to the test. The $4.3 billion settlement Binance and its founder/CEO
Changpeng ‘CZ’ Zhao reached with U.S. authorities last November forced CZ to step down following years of disdain for complying with anti-money laundering (AML) and know-your-customer (KYC) requirements.
While CZ awaits his sentencing in a U.S. federal court on April 30, new CEO Teng has talked a good game about Binance disavowing its previous scofflaw ways and working collaboratively with regulators and governments. But as its current approach to the Philippines market shows, following through on these compliance claims is proving more difficult.
Pig butchers love Binance
Further to that last point, Binance recently had the dubious honor of starring in the latest study by John Griffin, a finance professor at the University of Texas at Austin’s McCombs School of Business. Griffin, who co-authored a seminal 2018 report on the manipulation of the BTC token’s fiat price via Tether-based wash trading, has now turned his investigative eye on the role ‘crypto’ plays in The Economics of Pig Butchering.
Tether also looms large in this new report by Griffin and co-author Kevin Mei, which claims that USDT is the preferred digital asset in as much as 84% of pig butchering scams’ exit strategies. The report raises eyebrows for its claim that pig butchering operations have stolen the staggering sum of “at least $75.3 billion.”
But Binance gains repeated mentions as one of the “less transparent” digital asset exchanges offering the kind of weak AML and KYC programs that scammers use to make good their fiscal escape. Among the three exchanges receiving the largest inflows from scammers, Binance was “the overall largest destination,” with more than twice the value sent to the next highest exchange (OKX).
The study also shows that the scammers’ primary victims used to reside in China, but this changed following that country’s crackdown on its residents accessing exchanges in mid-2021. By December of that year, the scammers’ focus had turned to American victims, handing U.S. authorities yet another reason to bring their hammer down.
CZ told to fork over passports
Griffin’s findings of Binance’s role in Americans losing their life’s savings could spell additional trouble for CZ, who is currently out on a $175 million bond as he waits to learn how long a prison sentence he will serve. He’s made several bids to garner permission to temporarily travel to Dubai, where his family is currently based, but the Department of Justice (DoJ) has protested these bids, and U.S. District Judge Richard Jones has sided with the DoJ each time.
The DoJ now appears concerned that CZ might try to leave the U.S. with or without the court’s permission. On February 23, the DoJ filed a motion asking Judge Jones to force CZ to surrender his Canadian passport to a “third-party custodian employed and supervised by his counsel of record.” This third party must accompany CZ on any travel within the continental U.S. for which identification documents are required.
The DoJ wants Jones to order CZ to surrender any other passports—valid or expired—he may have in his possession. They also want CZ to notify the government at least three days in advance of any travel within the continental U.S. so the government can consider whether or not it approves of such movement.
Such concerns aren’t entirely unwarranted. The FBI recently re-arrested a former informant
who’d been released on bail after being charged with lying about Hunter Biden’s alleged criminal history. Part of the justification for the re-arrest was the FBI’s fears that Alexander Smirnov had millions of dollars stashed away and his lawyers were reportedly assisting his plans to flee the country.
CZ has billions stashed away somewhere and may be unnerved by the DoJ’s post-settlement admission that they could seek a custodial sentence of up to 10 years.
Binance’s shifting legal lineup
On the other side of the country, Binance’s legal dust-up with the U.S. Securities and Exchange Commission (SEC) for selling unregistered securities and misleading customers is showing more signs of internal disharmony. On February 23, attorney Richard Grime announced that he was withdrawing from his role as Binance’s legal representative.
Grime’s exit came the day after the federal judge hearing the case denied two Binance motions seeking to keep certain evidence under seal. Judge Amy Berman Jackson ruled that there was good cause to keep the identities of certain Binance staff and shareholders under wraps but rejected bids for additional redactions.
There are many reasons why lawyers exit cases before the proceedings are through, so the timing of Grimes’ resignation and the failure to seal certain evidence could be entirely coincidental. For example, Binance lost an entire team of lawyers (from Wilmer Cutler Pickering Hale and Door LLP) on January 23, the day after Judge Berman gave short shrift to Binance’s motion to dismiss the SEC suit.
Grime also may have been unnerved by the civil suit recently filed against Binance over its alleged facilitation of terror financing related to the October 7 Hamas attack on Israel. Or maybe he just wanted to formally cut ties with Binance before CZ started making his lawyers offers they can’t refuse for helping him sneak out of the country.
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