The Breakdown - Binance Executives Still Being Held Hostage in Nigeria

Episode Date: March 14, 2024

At this point, it's hard to call the situation anything other than a hostage situation, and the US government doesn't seem particularly fussed about it. Today's Show Brought To You By Kraken - Go to https://kraken.com/thebreakdown and see what crypto can be Ledger - 5% to Bitcoin Developers When You Buy https://shop.ledger.com/pages/bitcoin-hardware-wallet Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Wednesday, March 13th, and today we are talking about the finance executives that remain detained in Nigeria. Before that, however, if you are enjoying the breakdown, please go subscribe to it. Give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Hello, friends. Lots of pretty interesting things to discuss today. As I mentioned, our main story is going to be these finance executives that are stuck in Nigeria and the U.S. government's lack of a response to that,

but first let's do a quick macro check-in to lead us off. Yesterday, we got February's CPI numbers, and they came in a little hotter than expected. More important than that, though, they showed that inflation is stuck well above target. Headline CPI climbed slightly to 3.2% on an annualized basis compared to 3.1% the previous month. Core CPI, which excludes food and energy, dipped a little to 3.8% compared to January's 3.9%. Still, it's now been eight months without a meaningful drop in inflation, with CPI failing to break below 3%. The big implications of this is that lackluster progress will make it very difficult for the Fed to justify rate cuts anytime soon. Markets are currently pricing in three rate cuts this year beginning in June. Bitcoin seemed to react strongly

to the data release plunging by 3.6% to hit 69,300. Drop was partially filled within the hour recovering to 71,500, and the recovery continued throughout the day, with today beginning at fresh all-time highs above 73,000. This price action does suggest that Bitcoin is currently doing its best to ignore macro headwinds, doesn't need rate cuts to perform over the short term. Here's how the Kobayisi letter summed up the situation. They write, thought inflation was gone? Wow, on a three-month annualized basis, super-core inflation jumped to whopping 6.9% in February. Core services less shelter inflation is a key metric that the Fed follows, also known as super core inflation. In January, this metric jumps 0.7% month over month, the biggest jumps in September 2022. In February,

it was up another 0.5% month over month after multiple increases in 2023, all while real wage growth is turning negative again. The fight against inflation is far from over. Trying to find a slightly more nuanced take was Jason Furman, a former chair of the Council of Economic Advisors, who wrote, optimistic take? This is CPI, not PCE, which the Fed targets. The latter is running more slowly and elevation is mostly about shelter and that will fall. Pessimistic take? dumps cold water on January being an anomaly, shelter won't slow, and can't count on goods prices to keep falling. Maybe the most relevant commentary, at least for Crypto Land, came from CMS Holdings who wrote, If CPI comes in hot, remember, Bitcoin is an inflation hedge.

If CPI comes in low, it's risk on and Bitcoin is the fastest horse. Anyway, if you're trying to make sense of what this actually means, the big thing that I would say is that it seems very, very unlikely. The Powell is going to cut rates with headline CPI above 3% and rising. But with that, let's shift over to, to our main story. A pair of Binance executives have now been detained in Nigeria for two weeks. They flew into the country in late February to discuss Binance's ongoing dispute on the invitation of the Nigerian government.

Binance has found itself the scapegoat for Nigeria's currency crisis, with the exchange accused of devaluing the Naira and enabling, quote, illicit flow of funds. Centralized Binance services have been unavailable in Nigeria for several years, but peer-to-peer trading continued to operate until recently. After holding an initial meeting with government officials, the executives were whisked away to a, quote, guest house operated by the Nigerian National Security Agency. The pair were stripped of their phones and passports, and meetings with foreign diplomatic services have been monitored by guards. The pair were also reportedly admitted to hospital several days ago after exhibiting

symptoms of malaria, but their current status is unclear. Last week, reports surfaced that the Nigerian government was demanding a $10 billion payment from Binance, but those reports were later denied. For all intents and purposes, this looks like a hostage situation. A really important detail as well is that these are not the shady faceless crypto executives of the last decade. One of the executives is a UK citizen, Nadim Andrawala, who is the regional manager for Binance Africa. The other is Tigrin Gambarian, a high-profile former U.S. federal agent. During his time in the IRS criminal investigations unit, Gambarian led the investigation into multiple dark web-related crypto cases as well as tracing the proceeds of the Mount Gawks hack. He was hired by

Binance to the head of compliance in 2021 to lead their cleanup efforts. Will Frensen, a former prosecutor who worked closely with Gambarian said, The cases he was involved in are a who's who of the biggest crypto cases of that time. He was innovative in investigating things in ways that very few people in the country had figured out and incredibly selfless in terms of who got credit. I don't think anyone had a bigger impact on these types of investigations. Indeed, it's a little bit beyond the scope of this show, but Gambarian actually invented novel techniques for tracing criminal activity on crypto networks,

work which has been documented in the book Tracers in the Night by Andy Greenberg. While the State Department is involved in the matter and has met with Gambarian, There is a growing outcry surrounding the lack of visible action. Gambarian's wife, Yuki, argued that her husband has earned the support of the U.S. government, stating, he's done so much good for this country throughout his career. I believe it's his turn to get the same amount of support from his country. She said she is unaware of exactly how much the State Department and local embassy officials have done to lobby for Gambarian's release.

And while she said she had communicated with her husband, she said, quote, I can tell he's trying to stay positive, but it's getting to him. He's getting impatient. He's feeling hopeless. Sometimes it feels like I'll never see him again. I'm just begging them to let him go. Today's episode is brought to you by Cracken. For far too long, the whole financial system has been standing still, too slow, only on for certain hours, overly designed for some types of people, but not for others.

Crypto, at its best, represents progress. It asks the question, what if? It invites people in instead of leaving them out. It's on 24-7-365 and moves at the speed of real life. Not everyone believes it. We've got our fair share of detractors, but that's the way it always is when you're building something new. Cracken is a crypto company that has been through the highs and lows of the industry, facing forwards towards progress throughout. And now they're inviting us to see what crypto can be. Learn more at crackin.com slash the breakdown. Disclaimer, not investment advice. Crypto trading involves risk of loss.

Cryptocurrency services are provided to U.S. and U.S. territory customers by Payward Ventures Inc., PVI, DBA, DBA, Cracken. Hello, breakers. Today's episode is sponsored by Ledger. As another cycle ramps up, it's another chance to think about your Bitcoin custody best practices, and of course, to help all the new folks do the same. Ledger is the global platform for securing Bitcoin and other crypto. Ledger combines both hardware wallets and the Ledger Live app to offer the best way to buy, sell, swap, and stake without sacrificing on security or self-custody. ledger features cutting-edge technology in the form of a certified secure chip and a proprietary

operating system, but also brings ease of use. This makes Ledger a safe and secure way to manage your digital assets without all the stress. Check out the link to the Bitcoin Ledger Nano in the show notes. 5% of all sales of the Bitcoin Ledger Nano go to support Bitcoin development. Thanks once again to Ledger for supporting the breakdown. After this story received renewed attention on Tuesday, additional information was surfaced by the Financial Times. Nigeria is reportedly pressing Binance to disclose a list of the top 100 users in the country, as well as complete transaction history over the past six months. According to documents viewed by the FT, the Office of Nigeria's national security advisor

is also asking Binance to resolve any outstanding tax liabilities. One person briefed on the situation told the FT that they are being held, quote, simply as hostages, but are being well-treated. The view is that close ties between both the UK and the U.S. are the reason for this. Binance was unable to contact the executives during their first week of being detained. The exchange has now released a statement saying, while it is inappropriate for us to comment on the substance of the claims at this time, we can say that we are working collaboratively with Nigerian authorities to bring Nadim and Tigran back home to their families.

The crypto community is getting louder about this. Yesterday, the former chief strategy officer at Binance, Patrick Hillman, wrote, This is an incredible miscarriage of justice. I hope the fact that the White House and Joe Biden have done nothing to secure their release will haunt them in the election. Degren is an innocent citizen and a true patriot. Get them home. If people don't think the government playing politics with crypto and using inflammatory language and false accusations, like Senator Warren has consistently empowered the Nigerian

government to hold these two ransom, then I have a bridge to sell you. Nick Carter tweets, The Nigeria-Binan situation is pretty sickening. The U.S. should obviously intervene, but a U.S. passport under the completely ineffectual Biden regime means very little these days. Normally when U.S. citizens, especially former federal agents, are kidnapped by lawless foreign regimes, we do something about it. And for those who are thinking, well, these are the hot tempers of people in crypto, I would turn you over to Jeff John Roberts, the crypto editor at Fortune Magazine.

He writes, oh geez, the detained finance employee is former IRS agent, Tegrin Gambarian. Tegrin is one of the good eggs in crypto, helping law enforcement with numerous anti-terror probes. Nigerian government is holding him as a scapegoat for its financial incompetence. Eleanor Territ from Fox Business writes, this is pretty wild. I met Tegrin Gambarian, a former U.S. special agent that helped crack the Silk Road case at the Milken Institute conference two years ago. He's now being held in Nigeria over a political dispute between the Nigerian government and Binance, where Nigeria is blaming Binance for its plunging currency. Tegrin is an American citizen with a security clearance.

Will the White House step in here, or would the government consider it an optics issue due to its recent case against Binance? And indeed, this is one of the big questions. One scenario that's possible is that there is actually a lot going on behind the scenes. Another scenario is that there is not a lot going on behind the scenes, and then the question is why. More specifically, the question, as Eleanor has identified, is, does it have some something to do with the fact that these two are associated with finance, a company that the

U.S. is obviously on the outs with. On this question of whether the U.S.'s actions have emboldened Nigeria, I would point to a tweet from Bashir Ahmad, the digital communications assistant to a previous president of Nigeria who wrote, in the United States, a court has mandated the founder of finance to surrender his passport and keep authorities updated on his movements amid allegations of money laundering. Vindicated, Nigeria got this one right. I don't think I need to explain this to anyone listening to this particular show. But what does not matter in this situation is what one thinks of Binance specifically. This is a rule of law question. If those executives had broken the law, charge them and bring them before court while dealing with diplomatic channels. Cutting off

communication for several days, not giving any sense of what process is actually going on, makes it hard to view it as anything other than a hostage situation. For the Biden administration, this is a moment where they need to decide whether their dislike for the crypto industry is more important than the power of U.S. citizenship. We're not even talking about just a regular U.S. citizen here. We're talking about a former U.S. law enforcement professional. If it is now a question of whether the protection of the U.S. State Department is a negotiable expectation of citizenship, that has major implications for the U.S.'s status as a global empire. Anyways, it's an important situation in one we will continue to be watching closely. Staying on the theme of a few other

crime-related things as we wrap up here, Tether have assisted the DOJ and FBI in recovering $1.4 million in stolen funds. The U.S. Attorney's Office said this is one of the first time that U.S. authorities have recovered Tether from a self-hosted wallet. The funds are suspected to be the proceeds of a customer service scam, which largely targeted elderly victims. A press release from Tether said, We are proud of our collaboration with the United States government in combating financial fraud within the cryptocurrency ecosystem. The seizure of 1.4 million worth of Tether marks a significant milestone in our ongoing efforts to uphold integrity in this rapidly evolving industry. Our commitment to safeguarding users and eradicating illicit activities remains unwaver.

together with law enforcement agencies across the globe, we will continue to lead the charge in fostering a safer and more secure environment." It's unclear at the moment how the funds were recovered, as the investigation is still ongoing. An affidavit filed in January suggests that the funds were traced to five distinct wallets. Patrick Allard writes, Not news, but in case you missed it from founder of Tether Palo Arduino in his own words, we're collaborating with the FBI, DOJ, and Mossad. Stay safe and on.

On the flip side, USDT is here to stay, though. This, of course, is a trend that we have been watching closely here at the break down, the shift of tether into a mainstream-aligned institution. Finally, today, the trial of Roman Sterlingov has concluded with the 35-year-old found guilty on all charges. Sterlingov was accused of developing a mixer called Bitcoin Fog, which facilitated the transmission of 1.2 million Bitcoin worth of payments. He was charged with money laundering and operating an unlicensed money transmission service. This was the largest crypto money laundering case that has ever gone to trial. And throughout the trial, Sterlingov's legal team denied that he ever operated

or collected fees from Bitcoin Fog, though he admitted to using the service. On the witness stand, he said he could not recall setting up the Bitcoin Fog website and doubted he had done so. During closing arguments, his lawyer Tor Echelen said, There is no evidence anywhere that Mr. Stirlingov operated Bitcoin Fog, including no eyewitness accounts or server logs. The government didn't find any references to Bitcoin Fog on Sterlingov's electronic devices or notebooks. Sentencing his schedules for July 15th, with Sterlingov facing up to 20 years in prison. Echolen said they would be appealing the verdict. The case is the latest in a string of successful prosecutions for operating crypto-mixers.

It will no doubt be referenced in trials against two alleged tornado cash developers, which are scheduled for later this year. The most controversial aspect of the case related to forensic blockchain evidence, which was heavily relied upon to tie Sterlingov to Bitcoin fog. Law professor and crypto privacy advocate, J.W. Verrett, worked on the case and testified as an expert witness. He described the shortcomings of government evidence in an op-ed on Coin Telegraph, writing that it, quote, focused on a Bitcoin transaction from Sterlingov's Mount Gox account that traveled to a Bitcoin wallet. We don't know who owned that wallet or held as private key. From there, a series of transactions were eventually linked to the purchase of a Bitcoin fog

clear net site that described how to find Bitcoin fog on the darknet. Sterlingov may have sold Bitcoin to someone who bought the Bitcoin Fog website, or that someone may have later sold Bitcoin to someone else and so forth who eventually purchased the domain. End quote. In many ways, this trial was about the shortcomings of chain analytics and whether they stand up as criminal evidence. There have been many critiques of the assumptions baked into these tools, including from senior DOJ prosecutors, who advise obtaining corroborating evidence.

Verrett recalled the presentation of the tracing evidence in this trial, writing, the chain analysis expert testified about critiques of her tools, and suggested a secret sauce in the chain alice's source code fixes them. Since the code is proprietary, she can't share it, and we should just trust her. Crypto Privacy Advocate Lauren Temtie writes, Today is a really sad day for crypto. The consequences of this verdict are profound. It's pure madness to use the results of blockchain analyses as primary evidence, especially on UTXO-based systems. It's a recipe for more judicial disasters. And to be clear about what I mean. Results of blockchain analysis being used as primary evidence means that no user

is safe from a judicial error. It doesn't matter that you stay far away from dark markets or from mixers. Any transaction is potentially a risk for you now. Crypto lawyer Gabriel Shapiro wrote, gutted to hear this. Can't believe the land of the free has criminalized privacy software. And J. W. Verrett again writes, if you use a privacy tool to protect yourself, Alden Pelker and Chris Brown from the DOJ crypto team will claim you are an unlicensed money transmitter and arrest you. If you're a hack victim, don't talk to that team. It's not safe. they may prosecute you. It feels like every case right now has big implications for beyond just the case in question, and this one is no different. As it goes to the appeals process, I will do my best to keep you

posted about how it evolves. However, for now, that is going to do it for today's breakdown. Big ups and thank you to my sponsors for today's show. Go to crackin.com slash the breakdown and see what crypto can be. And of course, thanks to Ledger, go check out the Ledger Bitcoin Nano. 5% of sales, go to Bitcoin Development. Until next time, be safe and take care of each other. Peace.