Africa: new playground for crypto scams and money laundering

2021-08-09

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 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.

A 2021 crypto hack by a South African company saw US$3.6 billion stolen from investors

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 number of crypto currencies on the global market has surged to around 4 921. Bitcoin currently has the highest value, trading at around US$60 000 apiece.

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.

So far, the two main types of crypto crime reported in Africa are ransomware attacks and crypto scams

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