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Africa: crypto scams and money laundering

The continent’s crypto market is still comparatively small, but the options for fraudsters and cyber criminals abound. Africa has the smallest crypto currency economy globally, but the market is growing steadily. The legitimate use of cryptos can boost commerce on the continent, particularly among individuals, small businesses and entrepreneurs. These were the users responsible for most of the recent increases in crypto transfers recorded in Nigeria, South Africa Uganda and Kenya. But Africa must prepare for the threats that come with digital currencies – notably crypto scams, organised crime and financial crimes such as money laundering or crypto laundering.The world’s biggest crypto scam in 2020 was perpetrated in South Africa by Mirror Trading International. Using a Ponzi scheme, hundreds of thousands of victims were swindled out of US$588 million in Bitcoin. In April 2021, South Africa was again in the news with an even bigger crypto hack – this time by a company called Africrypt, whose two founders stole US$3.6 billion from investors in a matter of hours. Crypto currencies – made famous by Bitcoin, which was the first to be launched in 2009 – are virtual or digital money in the form of tokens or coins. They are used to purchase goods and services and have become popular investment vehicles.

Crypto Crimes

Crypto crimes occur when criminals steal crypto or the funds invested in these currencies, using ransomware, scamming, hacking and theft. The latest Crypto Crime Report released by Chainalysis identified Russia, China, the United States, the United Kingdom, France, Ukraine, South Korea, Vietnam, Turkey and South Africa as receiving the highest volume of crypto currency from illicit addresses. South Africa was the only African country mentioned in the Chainalysis report. So far, the two main types of crypto crime reported in Africa are ransomware attacks and crypto scams. Crypto currencies are decentralised and unregulated. Unlike the dollar or rand, no central banking authority manages their value, which derives from what users are willing to pay per unit. Blockchain technology enables, records and stores all online transactions and is based on strong cryptography to secure each transaction. The global reach and speed of transacting make these currencies appealing to criminal syndicates. And in most cases, they can send and receive payments without revealing their identity. Bitcoin’s users can now be traced via email addresses used to establish the account, but many other crypto currencies have not addressed this gap, providing users with complete anonymity.

Money laundering

The final laundering phase is integration – when dirty money is returned to the criminal after the source of the original funds becomes untraceable. Criminals send their ‘clean’ digital currencies to crypto service providers that specialise in laundering or have weak compliance measures. The crypto funds are then converted into a regular currency. Although Africa’s crypto economy is still relatively small, the threat of crypto laundering cannot be ignored.  Countries with the highest use of crypto currency in Africa are Kenya, South Africa, Nigeria, Ghana, Morocco, and Egypt. Currently, crypto currency transactions to and from Africa are mainly remittances and legitimate business dealings. The use of cryptos is rising due to the predisposition of local currencies to hyperinflation, the high penetration of internet usage, an increasing youth population and high use of mobile money markets. These are the same reasons that make cryptos attractive for organised crime syndicates to launder their illicit proceeds. The expansion of crypto currency markets in Africa, coupled with a growing digital skills pool and transnational organised criminal networks, present the perfect breeding ground for crypto laundering to flourish. The problem should be tackled now to prevent Africa from becoming the next playground for crypto criminals.

Why are cryptocurrency scams on the rise?. Fraudsters are masters at using current events and buzzy trends to trick their victims. And they don’t come much more than cryptocurrency. Headlines and social media posts are partly to blame, creating a feedback loop that only adds to the hysteria over virtual currencies. There are few if any regulations governing the cryptocurrency market for investors, versus the traditional stock market. Huge media interest makes it a regular hook for phishing and scams. Soaring cryptocurrency prices attract consumers dreaming of getting rich quick. Social media helps to amplify the buzz, real or fictional. There’s also the lure of mining coins for money which phishers can use as a hook.

Here are some of the most common: Ponzi schemes: This is a type of investment scam where victims are tricked into investing in a non-existent company or a “get-rich-quick scheme”, which in fact is doing nothing but lining the pocket of the fraudster. Cryptocurrency is ideal for this as fraudsters are always inventing new, unspecified and “cutting-edge” technology to attract investors and generate larger virtual profits. Falsifying the data is easy when the currency is virtual anyway.

Pump and dump: Scammers encourage investors to buy shares in little-known cryptocurrency companies, based on false information. The share price subsequently rises and the fraudster sells their own shares, making a tidy profit and leaving the victim with worthless stocks or coins.

Fake celebrity endorsements: Scammers hijack celebrity social media accounts or create fake ones, and encourage followers to invest in fake schemes like the ones above. In one ploy, some US$2-million was lost to scammers who even name-dropped Elon Musk into a bitcoin address in order to make the ruse more trustworthy.

Fake and copycat exchanges: Fraudsters send e-mails or post social media messages promising access to virtual cash stored in cryptocurrency exchanges. The only catch is the user must usually pay a small fee first. The exchange doesn’t exist and their money is lost forever. Copycat sites offer what appear to be legitimate wallet services. Users are encouraged to download wallets which then install malware on the user’s device. In these instances, iOS devices have been compromised where in the past the problem was limited to Android.

Impostor apps: Cybercriminals spoof legitimate cryptocurrency apps and upload them to app stores. If you install one it could steal your personal and financial details or implant malware on your device. Others may trick users into paying for non-existent services, or try to steal logins for your cryptocurrency wallet.

Phishing: Phishing is one of the most popular ways fraudsters operate. E-mails, texts and social media messages are spoofed to appear as if sent from a legitimate, trusted source with an urgent request for payment in cryptocurrency.

How you can avoid falling victim?

The best weapon to fight fraud is a healthy dose of scepticism. With that in mind, try the following to avoid getting scammed:Never provide your personal details to an entity that makes unsolicited contact with you, via e-mail, text or social media. It may even appear to be your friend, but in reality could be a hacker who has hijacked their e-mail or social account. Check with them separately via another contact method. If something is too good to be true it usually is. Take any investment scheme with a heavy pinch of salt. Switch on two-factor authentication for any cryptocurrency account you have. Dismiss any investment “opportunity” that requires an upfront payment.