Feb 4, 2023

Mawazo Writing Africa

Writing about the main

Sh14bn gangsters paradise: How Kenya turned into a playground for fraudsters

Six days after Bitstream Circle, the pyramid scheme designed as a crypto trading platform, which went under with over 1 billion shillings in investor funds, the Central Bank of Kenya issued a warning.

While at the World Day of Consumer Rights On March 22 in Mombasa, CBK Governor Patrick Njoroge warned financial institutions that support cryptocurrency transactions that they risk losing their licenses.

“There are people who are passionate about cryptocurrencies because they them as some kind of investment they can make money on,” the governor said.

Read more: Kenyans Lose Billions to Crypto Scams

“But for every person who wins, there are hundreds who lose,” warned Dr. Njoroge.

While it’s unclear if the governor was aware that Kenyans had just lost 1.18 billion shillings in Mombasa against cryptocurrency trading in the week before his address, it wasn’t the first time that dr Njoroge warned Kenyans against tr trading an unregulated digital currency.

Kenya has never prosecuted anyone for involvement in cryptocurrency fraud.

In fact, for the first time in December, CBK decided against cryptocurrency trading in 2015, when the bitcoin craze was just taking hold in Kenya. At the time, Safaricom was embroiled in a lawsuit after the mobile giant stopped exchanging Kenyan shillings for bitcoins through the Lipisha platform.

Lipisha was a payment processor for Bitpesa, a pan-African bitcoin exchange based in Nairobi platform whose board members had Joe Mucheru who had just been appointed ICT Cabinet Secretary by President Uhuru Kenyatta.

Upon his nomination to the Cabinet, Mr Mucheru immediately left Bitpesa and put his stake up for sale. According to Safaricom, however, bitcoin was illegal in Kenya at the time.

But when the case went to court, CBK dropped a bombshell.

“Domestic and international money transfer services in Kenya will regulated by the Central Bank of Kenya Act and other laws. In this regard, no company is currently licensed to offer money transfer services and products in Kenya using a virtual currency like bitcoin,” CBK said in a circular.

“Virtual currencies like bitcoin are not legal tender in Kenya and therefore there is no protection in the event that the platform that exchanges or holds the virtual currency fails or ceases operations,” the regulator said.

In short, this meant that licensed financial institutions ceased to exist allowed to offer the exchange of Kenyan currency into cryptocurrencies and vice versa. Kenyans were also advised against trading cryptocurrencies as they risked losing their money and there would be no redress. In short, cryptocurrency trading has been banned within Kenyan territory.

“Virtual currencies are traded on exchange platforms that tend to be unregulated around the world. Consumers can therefore lose their money without recourse if these exchanges collapse or close deals,” CBK warned.

“There is no underlying or asset hedging and the value of virtual currencies is speculative in nature. This can lead to high volatility in the value of virtual currencies, exposing users to potential losses,” the regulator said.

The CBK’s warning and subsequent ban on licensed financial firms from converting Kenyan shillings to their customers to allow cryptocurrencies and vice versa have only pushed the industry underground.

With a high unemployment rate, young population, smartphone penetration rate and good financial services infrastructure powered by mobile money, the number of eager Kenyans willing to try the fortunes of making a fortune trading virtual currency skyrocketed.

Motivated by over-the-top lifestyles showcased by early cryptocurrency investors in the West on the internet, how Cameron Winklevos, who is worth US$3 billion (Sh351 billion), Michael Sawyer (Sh269 billion), Tim Drapper (Sh176 billion) and Bri an Amstrong (Sh 760 billion) wanted to cash in on thousands of young Kenyans.

So great was the zeal of Kenyans to trade cryptocurrencies Kenya is currently the leader in Africa in crypto adoption and, according to Chainalaysis, ranks the world’s fifth ahead of some of the most developed countries like the United States, China, Russia, Germany and the United Kingdom.

The top four countries in terms of crypto adoption according to the company, which reviews annually are Vietnam, India, Pakistan and Ukraine.

Another survey by American company Finder says that 16 percent of Kenyan adults, or an estimated 4.8 million people in the country, own or have some form of cryptocurrency attempts to trade cryptocurrencies, which is higher than the global average.

Additionally, according to the Mastercard New Payments Index survey, 43 percent of Kenyans said they “ plan to use cryptocurrency in 2022, with more than 69 percent saying they are more open to using crypto than they were a year ago.”

This insane rush into cryptocurrency trading hasn’t just Has attracted the attention of Kenyan investors , but also scammers who have created get-rich-quick Ponzi schemes masquerading as cryptocurrency trading platforms. The losses were colossal.

“Last fiscal year, Kenyans lost about $120 million (Shilling 14 billion) to cryptocurrency scams? Many of your readers get caught up in these scams and end up suffering themselves because they don’t get that information,” said ICT CS Joe Mucheru at a recent crime journalists meeting.

“As you investigate these issues, you can also give people some guidance on how to invest and protect themselves,” the CS said.

Interestingly, all of this tremendous growth in the use of cryptocurrencies in the country has happened in a span of just seven years years and despite a tough stance by the CBK on trading and using cryptos.

However, behind this facade of growth and a display of Kenyans willing to adapt to the changing times, a darkness secret. Unlike other countries where cryptocurrency trading is regulated and governments actually earn taxes from those who buy and sell cryptos, Kenyans buy and sell cryptocurrencies online with other users directly.

Also Read: Why Crypto is the New Scammers Paradise

Also known as peer-to-peer crypto trading, or P2P, this is the act of buying and Selling cryptocurrencies directly between users, without a third party or intermediary. A number of websites and mobile applications such as Paxful, Binance, Local Bitcoins and Coin Desk currently enable P2P trading in Kenya, where traders can use platforms such as Mpesa.

P2P trading simply requires a user to register register and log into an app of their choice, then look for a person, operating under a pseudonym in most cases, who will sell anything they want and at a price of their choice, then close a sale

While this looks simple to the eye, it actually means that when you want to buy cryptocurrency through a P2P platform, you are essentially sending money to someone you don’t know and hope it sends crypto coins to your crypto wallet that you can use in trading.

According to the government, this anonymity is used by criminals to launder money or get cash to conduct activities like terrorism support.

< p>One of the recent cases being investigated by Interpol involving a senior politician and three Nigerians who had moved Sh25 billion i The Kenyan financial market has put cryptocurrencies in the spotlight. This is because some of that money was used to buy Sh5 billion worth of bitcoin to make it untraceable. The money was frozen by the Assets Recovery Agency (ARA) in March.

“A few years ago we had warned all Kenyans and even people outside our borders that we see significant risks from cryptocurrencies, not because it was unregulated, but because of the services it supported, most of these were illicit transactions,” CBK Governor Patrick Njoroge said in March.

Those lucky enough not to be scammed when trying to make their Changing Kenyan shillings crypto coins faces an even greater challenge. You need to decide which cryptocurrency trading platform is safe and which is a scam. And even if they are able to get to a real cryptocurrency trading platform, they still need to figure out how to trade to make a profit.

These two problems show the Catch-22- Situation that Kenyans find themselves in. On the one hand, a digital currency is being touted as the future of money and commerce that will be free from government control or global volatility, and on the other hand, it is a reality that many people still have no idea about it have what cryptocurrencies really are.

Apart from Bitstream Circle, cryptocurrency trading platforms that operated in Kenya include Velox 10 Global, CG and Nuru Coin, which alone disappeared with 2.7 billion shillings. but in recent years, under mysterious circumstances, investors’ money has collapsed, according to investigators.

Chainalalysis currently ranks Kenya third in Africa in terms of cryptocurrency food fraud in Africa to Nigeria and South Africa. According to experts, traders should watch out for excessive marketing, promises of guaranteed returns, celebrity endorsements, unnamed team members and free money when it comes to fake cryptocurrency trading platforms.

“Scammers sometimes create fake cryptocurrency trading platforms or fake versions of official crypto wallets to trick unsuspecting victims,” ​​says technology security company Karspersky.

“Initially, the site may allow you to withdraw a small amount of money. Since your investments seem to be doing well, you may invest more money in the site. However, if you subsequently attempt to withdraw your funds, the site will either close or the request will be denied,” the company warns.