Crypto fraud shock: Batswana lose millions to scams
Mbongeni Mguni | Monday June 6, 2022 06:00
The poor response comes as a report from the Financial Intelligence Agency (FIA) indicates a 400% increase in the value of suspicious transaction reports received last year, with cryptocurrency scams leading the pack.
Under the Virtual Assets Act passed in February, all operators of cryptocurrency and other virtual assets offering these within Botswana were required to have approached NBFIRA by May 31 or face fines of up to P250,000 and/or five years in jail, should they continue operating. The new law, which Parliament passed in line with anti-money laundering global best practice covers Virtual Asset Service Providers (VASPs).
On Tuesday, the expiry of the deadline, NBFIRA spokesperson, Boa Ntebele said just one operator had approached the regulator for licensing.
“All VASPs require a license (and) those who have been operating before the commencement of the Virtual Assets Act on February 25, 2022, are currently not considered to be operating illegally,” she told Mmegi. “They were however, given up to three months from the commencement of the Act to have applied for a license. “Failure to apply for a license will result in their operations being regarded as illegal,” she further said.
Ntebele added: “Following the lapse of the transition period, the regulatory authority will issue a public notice to inform all operators of VASPS activities who have not applied for licensing, to cease and desist. “The regulatory authority will take appropriate and proportional regulatory intervention against any VASPs who fail to comply.”
She said the low response to the licensing requirement by VASPs was possibly due to the novelty of the Act and the chance that interested parties may require some time to familiarise themselves with the new law. In addition, Ntebele said, the virtual assets industry is considered a new area of operation in the local context and this may account for greater levels of caution on the part of prospective market entrants.
On Tuesday, Keletso Thophego, Botswana country manager for Yellow Card Financial, a US entity operating one of Africa’s largest crypto exchange platforms, told Mmegi the group had approached NBFIRA for a licence. Previously, Yellow Card, which says it has a “massive presence” in Botswana, told Mmegi it had also approached FIA to understand the new law better.
A local crypto analyst following the latest developments told Mmegi that the low response was most likely due to the fact that nearly all operators offering their products to the local market are based outside the country.
“They may either not know about the new requirement or if they do, they feel they are outside the reach of the regulator,” the analyst said. “Few countries in Africa and even the world have formally regulated cryptocurrencies and therefore NBFIRA faces an uphill task to coordinate with other regulators to gather information and enforce its law. “Many of the transactions in crypto are also peer to peer, outside of the well-known exchanges and thus fly below the radar of regulators who may be on the lookout for them.”
Meanwhile, an explosive report by the FIA has not only hinted at the extent of cryptocurrency uptake in the local market for the first time, but also revealed how many Batswana are being robbed of millions of Pula by scammers in the virtual asset arena.
According to the FIA’s report, cryptocurrency scams comprised the majority of cases investigated last year, when the value of suspicious transaction reports shot up 400% to P394.8 million. Of the 140 suspicious transaction reports prioritised for analysis by the FIA, cryptocurrency scams accounted for 31 cases, followed by money laundering and obtaining by false pretence.
By law, banks, bureaux de change, car dealers, microlenders, attorneys and others are required to file suspicious transaction reports with the FIA.
“During the period under review, the most reported underlying predicate offence was fraud, in particular, obtaining by false pretences from the public under the pretext of investing in virtual assets,” the Authority said. “Cybercrime continues to escalate in scale and complexity with the increase in online usage.This is a continuing trend from previous years, however, we have observed an escalation in the number of incidents and amounts involved. Syndicates and individual fraudsters using business and personal bank accounts funnel funds from the public under the pretext of investing in virtual currency more specifically bitcoins,” further said the authority.
In one incident uncovered by the FIA, a syndicate of seven individuals with four business entities defrauded Batswana of just over P14 million using a total of 16 bank accounts to funnel the funds, between February and June 2021.
The FIA detailed the typical methods used by crypto scammers locally.
“The public is coerced using mostly social circles and media to avoid face-to-face contact,” the financial intelligence watchdog said in its report. “New payment methods such as electronic wallets and mobile money transfer service are the preferred avenues to solicit funds from victims. Typically, the first few ‘investors’ earn their funds back with interest whilst the rest lose out as their funds are used to settle earlier ‘investors’ and the rest is used to finance luxurious goods and lifestyle of the fraudsters,”said FIA.
The FIA added: “The luxury lifestyle and goods for some of the syndicate members include luxury hotel stays, purchasing of vehicles and financial gifts to loved ones and associates.”
WhatsApp group conversations from a failed local crypto scheme shown to Mmegi this week, indicated that members had invested amounts ranging from between P90,000 and P50,000 each, when the enterprise collapsed recently.
Information passed to Mmegi indicates that at its collapse, the group had 200 members at the time of its collapse, with messages of despair and confusion rampant in the WhatsApp group.
NBFIRA and the Botswana Investment Professionals Society recently partnered to run educational campaigns aimed at discouraging members of the public from engaging in unregulated investment schemes or those with illogical promises of profits.
“Financial literacy is at the core of why there’s such a huge problem with people into risky forex and others,” the Society’s chair, Tapologo Motshubi told Mmegi. “Those pictures you see on social media of people sitting on a Maserati and saying they can help you get that one percent return per day, if you don’t have financial literacy to say this cannot be real, you may fall for it.”
Anecdotal evidence suggests crypto scams have flourished in Botswana in recent years as ordinary households have had their incomes squeezed hard by the pandemic. The growing uptake of social media, which enables word-of-mouth marketing, combined with low financial literacy, has also helped stoke scams from across the country’s borders, often with the help of local intermediaries.