Crypto gets blamed for a real-life currency crisis

The American, a former Internal Revenue Service special agent, left his wife and children at home in Georgia in late February with a small suitcase for what he thought was a quick business trip.

He hasn’t come back.

Nigerian authorities detained Gambaryan and a colleague, Nadeem Anjarwalla, a U.K. and Kenyan national and Binance’s regional manager for Africa, according to the men’s families.

The Binance employees, who are being held in a guarded house, haven’t been charged with any crimes. The government, which invited them to Nigeria for meetings, hasn’t publicly discussed the detentions.

Nigeria, Africa’s largest economy with a population of more than 220 million, has faced many currency crises before. This is the first time that crypto has played a starring role.

Nigerians flocked to cryptocurrencies in recent years to shelter their savings from a soaring inflation rate, which hit nearly 30% in January, and a plunging currency, one of the worst-performing in the world this year. Two-thirds of the population lives in poverty.

The country has the second-highest adoption of crypto in the world, after India, according to an index compiled by Chainalysis, a data provider. Nigerians received about $60 billion worth of crypto transactions in the 12 months through June 2023, according to Chainalysis.

Because the government rationed who could exchange the local currency for the dollar and at what exchange rate, many sought refuge in digital currencies pegged to the U.S. dollar, known as stablecoins.

The stablecoin trade in essence became a black market, displaying an unofficial exchange rate between the local currency, the naira, and the dollar that was much weaker than the government’s rates. Binance, the most popular exchange, became the go-to place to check that black-market rate, according to currency traders.

Bayo Onanuga, a special adviser to the Nigerian president, accused Binance of setting the exchange rate for Nigeria and hijacking the role of the central bank.

“Crypto should be banned in our country or else this bleeding of our currency will continue unabated," he wrote in a post on X.

A new government that came to power last year tried to simplify a complex system of multiple official exchange rates and give market forces more sway over the value of the currency.

But a persistent gap between what the government thought the currency was worth, and the rate on Binance’s website, proved intolerable.

Onanuga told The Wall Street Journal that Binance was cooperating with authorities and compensation to Nigeria was being discussed.

Website shutdown

The Nigerian Communications Commission ordered telecommunications companies to restrict access to the websites of Binance and other crypto platforms.

Olayemi Cardoso, the head of Nigeria’s central bank, suggested that crypto platforms were being used to manipulate the market.

In the case of Binance, he said, $26 billion had passed through its platform in Nigeria in the past year from sources and users whom the central bank couldn’t adequately identify. He didn’t say where the figure came from.

A Binance spokesman said the company requires all users to go through rigorous identity checks. While he didn’t comment on the $26 billion figure, he said not all trading is connected to the naira, given users can trade one cryptocurrency for another. Total trading volume shouldn’t be mistaken with real money flowing through the exchange, he added.

“We are working collaboratively with Nigerian authorities to bring Nadeem and Tigran back home safely to their families," he said. “We trust there will be a swift resolution to this matter."

Binance allows buyers and sellers to trade among themselves, so it doesn’t set prices, the company said in a blog post. When there is extreme volatility in the naira, the system automatically pauses to prevent manipulation. Merchants trying to manipulate the market are kicked out, the company added.

Founded in 2017 in China, Binance has a history of drawing the ire of governments. It has long operated without a headquarters and under the radar of regulators, offering unlicensed trading through its global website.

In November, Binance founder Changpeng Zhao stepped down as chief executive and pleaded guilty to violating U.S. anti-money-laundering requirements. The company agreed to pay $4.3 billion in fines, the largest ever levied on a crypto firm. Zhao is currently awaiting sentencing in the U.S.

In Nigeria, the securities regulator said last year that a local Binance entity was operating illegally and ordered it to stop offering its services. Users continued to have access to the global site, Binance.com.

Last week, Binance said it would stop any services involving the naira, dealing a blow to its efforts to rebuild its business in fast-growing emerging markets.

The use of cryptocurrencies tied to the U.S. dollar has ballooned in countries across the developing world. In economies under financial stress where actual dollars are scarce, such as Turkey, Argentina and Russia, locals have turned to crypto exchanges and the dollar-like digital currencies they offer as an alternative.

Play by the rules

Binance’s CEO, Richard Teng, a former regulator himself, vowed when he took over last year to play by the rules and engage with government authorities.

Gambaryan, 39 years old, and Anjarwalla, 37, landed in Abuja, Nigeria’s capital, on Feb. 25, at the invitation of government officials who requested a series of meetings, according to their families.

The next day, the two sat with officials from Nigeria’s central bank, securities regulator, national-security arm and financial-intelligence arm. The meeting lasted about two hours and left Gambaryan and Anjarwalla feeling progress had been made, their families said.

Instead, the two Binance employees were escorted back to their hotel and asked to pack their belongings and were taken to a guarded house. No reason was given.

While a special agent at the IRS, Gambaryan participated in the shutdown of digital-currency exchange BTC-e, which U.S. authorities accused of facilitating crime in 2017. He joined Binance in 2021.

Anjarwalla worked at a venture-capital firm and at Uber before joining Binance in 2022. Nigeria was added to his responsibilities in December.

A Nigerian court issued an order on Feb. 28, allowing the country’s Economic and Financial Crimes Commission to detain the men for two weeks, pending an investigation, according to Anjarwalla’s wife, Elahe Anjarwalla. She said the men and their families haven’t been informed what the probe is about.

At the house, the two men are allowed to use their phones from time to time, but always under supervision of guards.

Yuki Gambaryan, the wife of the detained compliance executive, said she speaks with her husband over text message two or three times a day when he is allowed. He is putting on a brave face for the sake of her and their two children, she said. They have a 10-year-old and a 4-year-old.

“My youngest asks when daddy is coming home every day, going into Tigran’s home office because it smells like daddy," she said.

There is a housekeeper who makes Anjarwalla’s favorite green-juice smoothie in the mornings, his wife, Elahe, said. He told her he would have to do laundry soon. The men watch TV and are allowed to go to a balcony to smoke. Anjarwalla, a Muslim, on Monday began fasting for Ramadan, and Gambaryan joined in solidarity.

Anjarwalla video calls Elahe back in Nairobi when he is allowed to. They don’t discuss anything sensitive, instead trying to calm one another. He talks with his 11-month-old son, who began to whisper papa. His first tooth is starting to grow in. His first birthday is next week.

“I am hoping and praying they get back in time for that," Elahe said.

—Gbenga Akingbule in Abuja, Nigeria, contributed to this article.

Write to Patricia Kowsmann at patricia.kowsmann@wsj.com, Caitlin Ostroff at caitlin.ostroff@wsj.com and Alexandra Wexler at alexandra.wexler@wsj.com