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FG can’t impose $10bn fine on Binance

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Nigeria govt files tax evasion charges against Binance

– It’s a futile battle against crypto trade – Analysts

When fortnight ago, the Nigerian federal government moved against Binance, world’s leading crypto currency trading platform, and others, such as Luno, Forextime, OctaFX, Crypto, FXTM, Coinbase and Kraken, blaming them for contributing significantly to the rapid fall of the naira, it was for understandable reasons.

But the $10bn fine being muted by the administration, many agree, is a bit of an overreach, and crypto experts are in consensus that such is a waste of time, as Binance won’t consider the payment.

Many Nigerians, had for long embraced cryptocurrency trading as a way to earn a living amid biting unemployment. Data had shown that Nigeria traded 60,215 bitcoins worth more than $566 million between 2015 to 2020, a figure surpassed only by the U.S, where 535,660 bitcoins were traded between 2015 to 2020 with the value standing at $3.8 billion.

But a recent wave of funds movement into crypto trading platforms, notably Binance, had little to do with the trade. It was mostly rich men seeking safe heavens for their funds as Naira plummeted and banks stopped honouring withdrawal request in domiciliary accounts in the deposit currency, but in naira at rates determined by them. As a way out, many people, who couldn’t care about crypto, saw a need to convert their funds to USDT, a stable coin tied to the U.S dollar.

“We saw massive inflow of funds into Binance in recent months,” said Dube Eze, a seasoned crypto trader. “A lot of big men, especially politicians, who don’t even understand what crypto is, upon receiving advice, started moving their funds into Binance and converting them to USDT.

“You know, if you put your money in domiciliary account, the banks won’t give you dollar when you want to withdraw. They will give you naira at the rate they will also determine. So, for many people it’s either chasing after BDCs or converting. Many big men chose to convert. I know many crypto traders, who converted tens of millions of naira to USDT for politicians. The advantage is that in Binance, you can also stake your money and earn interest in dollars, yet withdraw it anytime you want.”

The massive funds inflow into Binance and other crypto platforms worsened the naira situation. As the local currency continued to fall, many rushed to convert, leading to yet more rapid fall. Within the first nine months of the Tunubu government, the currency collapsed from just a little over N700 to the dollar to as much as N1900 to the dollar.

Speaking after the Monetary Policy Committee meeting of the Central Bank of Nigeria (CBN) last week, Olayemi Cardoso, governor of the apex bank, disclosed that as much as $26bn was moved through Binance Nigeria in one year, alleging that the platform has been used to funnel illicit and suspicious funds.

“Certain practices go on that indicate illicit flows going through a number of these entities,” he said. “In the case of Binance, in the last one year alone, $26 billion has passed through Binance Nigeria from sources and users, who we cannot adequately identify.”

Cardoso’s comments came a week after many Nigerians woke to observed that Peer to Peer (P-2-P) transactions had been restricted on Binance, while access to other platforms had been blocked, signaling the beginning of crypto clampdown by the government.

Bayo Onanuga, the president’s Special Adviser on Information and Strategy, subsequently confirmed that the government had instructed telecommunications companies to block access to such platforms.

Onanuga, who led the charge, lashed out at Binance, saying that, “It was blatantly setting exchange rate for Nigeria, hijacking CBN role.”

He continued: “Binance, facing regulatory showdown in many countries, and causing disruptions in the currency market, should not be allowed to dictate the value of the naira, not on its crypto exchange platform. Other crypto platforms, such as Kucoin, and Bybit should be banned from operating in our cyberspace. FX platform Aboki should be re-banned.

“The EFCC and the CBN should move against these platforms trying to manipulate our national currency to Ground Zero. Crypto should be banned in our country or else this bleeding of our currency will continue unabated.”

The government’s clampdown caused panic, forcing budding investors to sell off, which crashed the rate of dollars on P-2-P to as low as N1,500 on Binance. This is even as the exchange promised to collaborate with the government and initially opted to peg exchange rate on its platform. But the government wanted more.

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On Wednesday, news broke that the office of National Security Adviser, Nuhu Ribadu, had detained two Binance executives, who flew into the country for negotiations. And having managed to crash dollar rate to as low as N1,400 at some point in the crackdown, the government must reasoned it could achieve much more, hence it muted the Idea of getting Binance to pay $10bn in fines.

Tinubu had, while speaking at the inaugural Public Wealth Management Conference organised by the Ministry of Finance Incorporated (MOFI) recently, disclosed that his administration was looking to raise $10 billion, including from the sale of public assets, to defend the domestic currency. Many had wondered how the president wanted to go about it.

But with the disclosure, last week, by Onanuga, that the administration was considering imposing a $10bn fine on Binance, many are uncannily concluding that, perhaps, the government was looking in the direction of Binance to raise the funds.

“When Tinubu said his administration will secure $10bn to defend the naira, I was wondering how,” said an X user, Ola Lateef. “But now I know he’s actually thinking he could kidnap Binance executives and make the company pay $10bn ransom.”

In an apparent reference to the suggested fine, Olumide Adesina, an economist and former analyst with Nairametrics, remarked that, “That’s not how to raise $10 billion,” subsequently noting that, “SEC hasn’t said anything, a fine of $10 billion within a short time frame is a record in itself, it’s under the jurisdiction of SEC.”

Fines Not New

Since 2015 when it successfully got MTN Nigeria to pay a fine of $1.671bn, the Nigerian government has developed a habit of imposing hefty fines on companies over infractions.

MTN, under the Muhammadu Buhari administration was in October 2015, fined $5.2 billion by the Nigerian Communications Commission (NCC) for failing to disconnect 5.2 million subscribers (at $1,000 each) as part of a crackdown against unregistered SIM cards, which the Nigerian government said were being used by terrorist organisation, Boko Haram.

After months of negotiations, MTN in June 2016, eventually agreed to pay a $1.671 billion, a third of of the original $5.2 billion imposed.

Again, in October 2022, the Advertising Regulatory Council of Nigeria (ARCON) filed a legal case against Meta Platforms Incorporated, which owns Facebook, Instagram, and WhatsApp, accusing the company of rendering unapproved advert materials in the country, and demanding up to N30 billion as damages.

While there is no record of the government winning the case, it did succeed in getting Meta, and other digital platforms to pay tax, such that by August 2023, Google, Netflix, Facebook and other foreign companies operating in Nigeria had paid over N1.98trn in taxes to the account of the Federal Government in 15 months, according to the Federal Inland Revenue Service.

Waste of Effort

Being a well established firm in Nigeria, it was easy for the federal government to successfully impose fine on MTN, but with Binance, it’s a different kettle of fish. The firm has no physical presence in the country. Indeed, the closest the government could ever get to Binance, as an institution is the detention of two of its executives, an act many have described as an abduction. And analysts have been quick to dismiss the move to impose fines as a waste of time.

“It is a performative nonsense and propaganda,” said Victor Asemota, a tech entrepreneur and venture capitalist. “Is there a Binance building or bank account in Nigeria? Do they want to kidnap their employees for ransom?”

Those, who argue in support of the fine have cited the case of the United States, where Binance agreed pay a total of $4.3bn in fines in November last year, with its then CEO Changpeng Zhao, stepping down from his role, as part of guilty pleas in what was one of the largest penalties the justice department had ever obtained from a criminal matter.

The U.S Justice Department had charged the company with conducting an unlicensed money transmitting business, a conspiracy charge and violating the International Emergency Economic Powers Act.

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The U.S attorney general Merrick Garland had said at a press conference that Zhao had “willfully violated federal law that guards against money laundering and terrorist financing”. The Binance chief, he said, had entered a guilty plea in person on Tuesday in Seattle.

“From the very beginning, Zhao and other Binance executives had engaged in a deliberate and calculated effort to profit from the U.S market without implementing the controls that are required by U.S law.”

The U.S attorney general identified millions in transactions from the U.S to Iranian users, users in Syria and Russian-occupied Ukraine, and terrorist groups including Isis.

“Binance willfully enabled hundreds of millions of dollars in transactions between American users and users subject to U.S sanctions. Its platform accommodated criminals across the world, who used Binance to move stolen funds and other criminal proceeds,” he had added.

The settlement with Binance came less than a month after Sam Bankman-Fried was convicted on seven counts of fraud and conspiracy for his part in the collapse of FTX, a trading platform that had been second only in size to Binance, in what was a big blow to the crypto market.

However, the difference between Nigeria and the United States is that Binance has physical presence in the U.S, a country with huge economic leverage globally.

“Binance has no office in Nigeria, they had a whole business setup in U.S,” noted a crypto investor, Miracle Okeke @MiracleOkeke. “Thus the reason they paid the fine is to continue business. Also, Binance indictment in U.S was KYC leakages leading to laundering. Here, you blame them for causing your naira to fall.. laughable.”

In an intervention, a lawyer, Baron Chymaker, @chymaker, who noted that Distributed Ledger Technology (DTL) firms, as they relate to Cross-Border Regulatory Regimes, is one of his area of expertise, explained that while such firms operating without registration in Nigeria is on the face of it, in breach of the local laws, the country must also understand and appreciate the current business environment globally, which, according to him, is that most of these firms are operating on the Web.

“Therefore, it would be wrong in practice to hold them liable for transaction that happens within a country’s jurisdiction unless and, of course, Regulators, such SEC and CBN, had previously reached out to them on certain activities as well as seek to bring them under the country’s regulatory regime,” he added.

“I also understand that Global Binance is not registered in Nigeria and have disassociated herself from the entity that once dubbed herself “Binance Nigeria” and SEC also confirmed that the entity “Binance Nigeria” is not registered with them.

“Whilst transactions done by or through Binance on the face of it maybe deemed illegal because Global Binance isn’t registered in Nigeria, it actually isn’t.

“This is because I am not aware Global Binance have any office in Nigeria, no registered bank accounts, and above all, I am not sure they do have any agent in Nigeria. If they do, I should think that Regulators would have reached out to them.

“However, when we look at the issue of Binance KYC, then we can technically put Binance within Nigeria Regulatory Regime. Binance may argue that they are following FATF guidelines for KYC as it relates to Nigeria.

“At this point it is moot and difficult to argue that Global Binance is in breach of any Nigerian Regulatory Requirements to warrant a fine.”

Chymaker advised the CBN and SEC to invite the DLT firms so they could abide with the country’s regulatory regime, instead of banning them, given that cryptocurrency is the in-thing and has come to stay and DLT firms have also come to stay.

“There are global standard for regulating DLT firms following FATF guidances, FSB Global Regulatory Framework for Crypto-Asset Activities, Regulations in the U.S, UK, EU, Germany, UAE, Singapore etc would have served as guidance to put a regulatory framework in place,” he said.

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“To block DLT firms and detain their executives, who out of their own free will honoured an invitation, demanding $10b is not only ridiculous but outrightly criminal. It sends a very wrong message to potential investors, and will lead to more loss of value of Naira.

“The best decision is to release those executives then start regulatory discussions with them in line with global Best Practices.

“The advantages are: Investors confidence, Tax, Regulatory oversight, Protection of Consumer, Money Laundering compliance, etc.

No plans to pay

Meanwhile, Binance Holdings Ltd last week, denied having any talks with the Nigerian government over payment of $10 billion in fines.

“We recently discussed ways to resolve issues with Nigeria, but we did not hear any demand for $10 billion,” People’s Gazette quoted a Binance official to have said.

“Our aim is to chart a good relationship with the government and the people of Nigeria. We want to see our services restored in Nigeria very soon, but we have no intention of paying fines for personnel or services,” Binance added.

Onanuga also last week said his statement to the BBC was misrepresented in the media, noting that he never said the company had been informed or that the fine had been concluded by Nigerian regulators.

“I said our government may impose heavy fines on Binance for what happened,” he said, noting further that, “I never said Binance had been informed about the fines or that it would definitely be $10 billion.

“I only said the amount may be imposed, which is because nothing has been finalised yet,” Onanuga said, placing repeated emphasis on the uncertainties around the fines.

Traders dump Binance

Amid the back and forth with Nigerian authorities, Binance has disabled its P-2-P feature for Nigerian users, and suspended naira to USDT conversion, making it impossible for Nigerians to deposit funds on the platform.

But traders are increasingly migrating to alternative platforms like Huobi and OKX, where such features are still available to traders.

“Those, who are up to date are abandoning Binance,” said Eze. “You can easily do your trade on Huobi or OKX. The problem with Binance is that it has decided to follow Nigerian government, instead of Nigerian youths. Now, you can’t add or remove naira on Binance, that’s the only problem. But you can move your USDT from Binance to other platforms at a little fee.”

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