As incidents of cryptocurrency fraud seem to be on the rise in South Africa and globally, industry watchers are urging consumers to educate themselves about the topic and be vigilant.
Though statistics are not available in South Africa, globally however cryptocurrency scammers and fraudsters stole US$1.2 billion in the first quarter of 2019 alone, according to CipherTrace.
Founded in 2015, CipherTrace is backed the US Department of Homeland Security, Science and Technology, and the Defense Advanced Research Projects Agency.
There are various types of scams currently operating in South Africa that demand payment in cryptocurrencies.
Pyramid schemes
“Everyday we see new scams involving promises of huge returns coming up. Also, Ponzi schemes operate on the basis that you need to get more people or friends in it. That should be the first indicator of a red flag,” Richard de Sousa, Senior Partner at AltCoinTrader, said.
“Schemes that operate on the basis that you need to recruit more people that gives promise to a higher return for an individual that does, is usually a sign of a pyramid scheme,” de Sousa explained.
“If there is no more recruiting, how would the scheme pay its investors out. We have recently seen how some owners of local scams have been probed by authorities over illegal runnings, leading to the scam not only collapsing as expected but also losing millions of investor capital with it. ”
Bitcoin address
De Sousa said some fraudsters were giving out their exchange Bitcoin address details, and as a result investors would deposit their money into these accounts.
“As the exchange will have details of the owner of the account as per the FICA law, it can be traced back to the person that holds the account.
“The exchange, however, will not have owner account information of another wallet that the money will get transferred to after it has left the exchange’s wallet.”
De Sousa also said that many people usually would have proof that they have deposited their money into an exchange’s account, and thought that they deposited directly to the exchange itself.
However, what usually happens is the fraudster has given them the details of their personal exchange account, so the deposit will be received into the scammers account on the exchange.
Automated Robots
Another scheme to be aware of is promises of Automated Robots that can make money for investors. People are being lured on this premise that Automated Intelligence software is working on their behalf to give crazy returns.
“Some fraudsters could also pose as extensions of a specific exchange that they need people to deposit in. Be vigilant of that as exchanges don’t usually have employees on the ground who are promoting any schemes that offer any specific monthly return,” he said.
Exchanges usually only operate online and is a medium that allows people to buy cryptocurrencies. As a result of this, exchanges accept deposits, in Rand or Crypto and hold or allow withdrawals in both Rand or Crypto. Exchanges do not ever promote any guarantee of any sort of high returns.
De Sousa called on people to start educating themselves more on the topic, considering they were parting ways with their hard-earned cash.
Landline number
AltCoinTrader has a landline number on its website, so consumers can call in to double-check if a person is claiming that they promoting a scheme that is being offered by the exchange.
Asked why there are no fraud and scam statistics in South Africa, de Sousa told Crypto Magazine that it is because the industry was still new. “There are so many out there that open up and disappear into thin air that only the investors might know of as their money disappeared,” he said.
Enacted in 2001 in South Africa and amended in 2017, FICA (Financial Intelligence Centre Act) provides a risk-based approach to client identification and verification, strengthens customers due diligence measures including with respect to beneficial ownership and persons in prominent positions, and provides the obligation to keep identity and verification and transaction records, among others.
