The recent directive from the Nigerian government mandating Point of Sale (POS) operators to register with the Corporate Affairs Commission (CAC) as part of its regulatory oversight to fortify the financial sector, has come under question.

A closer examination reveals underlying implications that demand scrutiny, particularly in the context of legitimizing Naira trading as a commodity amidst concerns of artificial arbitrage.

The Registrar-General of CAC, Hussaini Magaji, while announcing this measure, whose deadline is July 7, noted its alignment with legal requirements and CBN directives, seemingly positioning it as a safeguard for Fintech customers and an economic booster.

He said, “The measure is to safeguard the businesses of Fintech customers and strengthen the economy. The action is equally backed by Section 863, Sub-section 1 of the Companies and Allied Matters Act, (CAMA 2020), as well as the 2013 CBN guidelines on agent banking.’’

Representatives of major players in the industry, such as Opay, Momba, Palmpay Ltd., Paystack, Fairmoney Microfinance Bank, Moniepoint, and Teasy Pay were in attendance at the event. The focal point of the event was the signing of a document by these representatives, signaling their support for the project.

POS operators, as intermediaries in digital transactions, play a pivotal role in the exchange of goods and services for Naira. As of 2022, there’re over 1.8 million POS operators nationwide, making it one of the fastest-growing industries in the country. However, there is a wide belief that the POS operation, approved in 2013 by the CBN to bridge the gap in financial inclusion, only thrives as a Naira exchange means due to the high rate of unemployment in Nigeria. 

Though in support of the new directive, many have noted the need to curtail fraud enabled through POS operators, arguing that the registration of POS operators will significantly mitigate digital financial crimes. In 2023 alone, PoS terminals accounted for a whopping 26.37% of fraud incidents in Nigeria.

While the government’s stated aim is to regulate the burgeoning Fintech industry and protect consumer interests, a critical examination reveals potential pitfalls, particularly concerning the legitimization of Naira trading as a commodity amidst concerns of artificial arbitrage.

Many believe that by mandating their registration with the CAC, the government bestows a semblance of legitimacy upon their operations, implicitly endorsing the trading of Naira as a commodity. Economists say that this move inadvertently sanctions the commodification of Nigeria’s currency, potentially exacerbating existing vulnerabilities within the financial ecosystem.

One of the primary concerns stemming from this directive is the exacerbation of artificial arbitrage within the digital payment industry. Artificial arbitrage occurs when there is a significant variance in the value of the Naira across different platforms or markets, leading to exploitative practices by unscrupulous actors. 

By formalizing the operations of POS operators, the government is believed to have inadvertently provided a platform for the perpetuation of artificial arbitrage, further destabilizing the currency’s value and eroding consumer trust.

“POS can’t take over function of cash deposits and withdrawal from licensed commercial and microfinance banks,” financial analyst, Kalu Aja said. “Are we so debased in expectations of service that licensed trillion naira banks with billions of naira investment in retail branches and ATMs have no cash but a chap with an umbrella down the street has cash?”

Moreover, concerned Nigerians have noted that the registration mandate fails to address the root causes of artificial arbitrage or provide mechanisms for its mitigation. Instead of tackling systemic issues, the directive merely seeks to regulate the symptoms without addressing the underlying pathology. 

The directive’s emphasis on regulatory compliance overlooks the broader socio-economic implications of legitimizing Naira trading as a commodity. 

Since late 2022, a cash shortage induced by the CBN’s currency swap policy has persisted, with banks restricting ATM withdrawals to as little as N5,000 per transaction. Meanwhile, POS operators can dispense cash up to N500,000 for a fee. 

“This is an aberration,” Aja added. “These “umbrellas” [POS stands] are beside banks in the cities, so what’s this financial inclusion excuse? Bank on Broad Street near CBN has no cash but boy under “umbrella” in same Broad Street has cash.”

Critics argue that the government’s focus on the registration of POS operators overlooks more pressing issues such as scarcity of cash in the ATMs. This imbalance in regulatory priorities, they say, risks compounding existing inequalities and perpetuating a cycle of economic disenfranchisement.

While the Nigerian government’s directive to register POS operators with the CAC may be well-intentioned, its unintended consequences merit closer scrutiny. Financial experts warn that legitimizing Naira trading as a commodity amidst concerns of artificial arbitrage may aggravate existing vulnerabilities within the financial ecosystem. 

“As our employees were leaving the venue, they were approached by unknown persons who suggested to them to make a payment in settlement of the allegations.’ – Richard Teng, Bianance CEO, on its fight with the Nigerian government.

Richard is making a big mistake, running Nigeria to the ground is a poor strategy. You should stop digging and find a smarter way to help your employees. Your predecessor is going to jail in the US for largely the same reason Nigeria is prosecuting your colleagues. So, Nigeria does have points.

Visit Nigeria, negotiate, pay a $10 million settlement, and Nigeria will move on. That is what Europe does: fines are options. But going on Reuters and TVs to appear like a victim is not a good strategy. Nigeria’s case is clear: there could have been a problem with your KYC. If you do think so, you propose a settlement.

But where you want to educate Nigerian lawyers in their land, you will lose. Nigeria has limited records of prosecuting executives this way, but Nigeria wants to be respected. Your staff did not show respect and that could have been the reason this is going this way. You can still change the trajectory: apologize, offer/accept fines for settlement, agree for operations to be supervised for 12 months, and watch them return to their families.

But going to the media with innuendos is an own goal! This is not New York; this is Naija where men want to be treated with respect over digits in bank accounts. Do not annoy those men…and women.

In the end, this case will be settled. The CEO has to do that as soon as possible and get his men back to their families.

“As our employees were leaving the venue, they were approached by unknown persons who suggested to them to make a payment in settlement of the allegations.' – Richard Teng, Bianance CEO, on its fight with the Nigerian government.

Richard is making a big mistake, running Nigeria… pic.twitter.com/9sV0dB9HHF

— Ndubuisi Ekekwe (@ndekekwe) May 7, 2024

Binance says the Detention of Executives sets a ‘dangerous precedent’, Alleges Nigerian officials Demanded a Payment to Kill the Case

Richard Teng, the Chief Executive Officer of Binance, the world’s largest digital asset exchange platform, has launched a scathing critique against Nigerian authorities over the prolonged detention of two of its top executives. 

The detention, according to Teng, not only poses a grave threat to Binance’s operations but also establishes a chilling precedent for companies worldwide.

In an exclusive interview with Reuters on Tuesday, Teng pulled no punches as he condemned the ongoing confinement of Tigran Gambaryan, Binance’s head of financial crime compliance, and his colleague Nadeem Anjarwalla. Both executives have found themselves trapped in a legal tussle in Nigeria, facing charges of tax evasion and money laundering – allegations vehemently disputed by the company.

“To invite a company’s mid-level employees for collaborative policy meetings, only to detain them, has set a dangerous new precedent for all companies worldwide,” Teng said.

Teng provided a detailed account of the events leading up to the executives’ detention, shedding light on the company’s efforts to engage constructively with Nigerian authorities. Meetings held as early as January 2024 aimed at fostering collaboration were abruptly disrupted when Nigerian officials demanded the delisting of the country’s currency, the naira, from Binance’s platform, alongside intrusive demands for user data.

The CEO expressed profound dismay over the protracted detention of Gambaryan, lamenting what he termed as “dubious grounds” for his continued confinement. Despite diplomatic overtures and assurances of cooperation, Nigerian authorities have yet to relent, leaving Binance in a state of limbo.

However, the plot thickened with Teng’s revelation in a recent blog post, wherein he disclosed attempts at bribery directed at Binance executives before their detention. The CEO recounted a brazen encounter following a meeting with Nigerian officials on January 8, during which unidentified individuals purportedly offered to absolve the company of allegations in exchange for a substantial sum in cryptocurrency – a proposition summarily rejected by Binance.

“As our employees were leaving the venue, they were approached by unknown persons who suggested to them to make a payment in settlement of the allegations.

“Later that day, our local counsel — representing us at that time — was summoned by the committee through someone purporting to be their agent, who relayed the committee’s terms and instructed our local counsel to advise us.

“Counsel reported back that he had been presented with a demand for a significant payment in cryptocurrency to be paid in secret within 48 hours to make these issues go away and that our decision was expected by the morning.

“Our team grew increasingly concerned about their safety in Nigeria and immediately departed. We, of course, declined the payment demand via our counsel, not viewing it to be a legitimate settlement offer,” Teng said.

Binance’s ordeal is part of a broader crackdown on the crypto industry by the Nigerian government.

How we got here – the Backstory 

The unfolding drama surrounding the detention of two senior Binance executives, Nadeem Anjarwalla and Tigran Gambaryan, by Nigerian officials, has thrust the global cryptocurrency community into a whirlwind of speculation and intrigue. What began as a routine visit to Nigeria in February, in response to the country’s heightened scrutiny of cryptocurrency trading platforms escalated into a complex legal battle fraught with diplomatic tensions and allegations of impropriety. 

In response to the detention, Binance took decisive action, discontinuing the trading of the Nigerian naira against popular cryptocurrencies like bitcoin and tether on its platform. 

However, the plot thickened with the revelation on March 24 that Anjarwalla had managed to escape from lawful custody, throwing Nigerian authorities into disarray. The British-Kenyan executive, reportedly utilizing a Middle East airliner, fled Abuja despite his British passport remaining in Nigerian custody. The audacious escape prompted swift condemnation from the Nigerian government, which vowed to pursue international avenues, including cooperation with Interpol, to secure Anjarwalla’s extradition.

Amidst the escalating tensions, the Federal Inland Revenue Service (FIRS) in Abuja escalated the legal battle by filing proceedings against Binance, alleging four instances of tax evasion. The FIRS accused the cryptocurrency exchange of failing to remit Value Added Tax (VAT) and Company Income Tax (CIT), neglecting tax return filing obligations, and facilitating tax evasion among its users. The lawsuit also highlighted Binance’s purported failure to register for tax purposes and its alleged violations of Nigerian tax laws.

The gravity of the situation became further apparent as the Federal High Court adjourned the case against Binance and its executives to May 17. The charges, ranging from money laundering to tax evasion, underscored the multifaceted legal challenges confronting Binance in Nigeria. Allegations of manipulation of the local currency by peer-to-peer traders on the platform only added to the complexity of the case.

Throughout the legal proceedings, Binance and its team of executives have maintained their innocence, vehemently denying any wrongdoing. With both sides digging in their heels, the stage is set for a protracted legal battle that could have far-reaching implications for the Nigerian cryptocurrency industry.