The Billion-Dollar Cryptocurrency Scams You’ve Never Heard About | OZY

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No country is losing as much to cryptocurrency scams as Uganda.

The suicide note cited “personal reasons.” But Ashraf Nusubuga, a radiology student at Kampala’s Makerere University — Uganda’s leading higher education institution — didn’t hang himself over a love affair gone wrong or because of academic pressure. The 22-year-old killed himself after losing money he had invested in a bogus cryptocurrency firm.

He had put all of his money — and some he had borrowed — into what turned out to be a Ponzi scheme, lured by the promise of high returns, according to Luke Oweyesigire, deputy spokesperson for Kampala Metropolitan Police. But Nusubuga isn’t the only one to have fallen victim.

A series of large cryptocurrency scams is rocking Uganda, turning the East African nation into an unlikely hub for fraudulent firms claiming to offer digital currencies, while preying on weak governance and low financial literacy. Other major cryptocurrency scams in 2019 involved developed economies — Japan’s BITPoint exchange lost $28 million, and con men in the U.K. and the Netherlands stole $27 million from Bitcoin users. Globally, cybercriminals stole $4.3 billion from users and exchanges last year. But Uganda is the worst hit — by far.  

At least five cryptocurrency firms have closed shop and walked away with a total of more than $26 million of their clients’ money in the past six months. From students and churchgoers to army officers and government officials, the victims span Ugandan society. Robert Bakalikwira, a criminal investigations officer probing these cases, estimates that in all, 200,000 Ugandans have lost about $1 billion, or almost 4 percent of the country’s GDP of $28 billion, over the past two years.

Ugandans are better off investing their money in cows than plunging into the unknown world of cryptocurrencies.

Patrick Mweheire, chairman, Uganda Bankers Association

These scams are different from those in the West, where hackers have stolen from exchanges or robbed from people. In Uganda, fake firms claiming to offer cryptocurrencies are luring people to buy in, before walking away with their money. The country’s growing crisis holds lessons for other poor nations with weak regulations unable to keep up with the sometimes misleading promise of technology.

“We have received very many cases of cryptocurrency scams,” says Fred Enanga, Uganda’s national police spokesperson. “We advise Ugandans to avoid being fleeced off their money in such deals.”

But the role of President Yoweri Museveni’s government is coming under scrutiny. It has set up a 10-member commission of inquiry, and is issuing public statements to alert Ugandans that the government and central bank don’t recognize any cryptocurrency. Yet even though the country has no regulations for the sector, the government hasn’t made it illegal to operate a cryptocurrency firm in Uganda. In parliament earlier this month, an MP pointed out that Kwame Rugunda, the son of Prime Minister Ruhakana Rugunda, is CEO of CryptoSavannah, a cryptocurrency advisory firm.

Museveni himself appeared to be an early proponent of cryptocurrencies. At an event in Kampala in January 2017, where Bank of Uganda Governor Emmanuel Mutebile said he wasn’t confident about the credibility of cryptocurrency, the president rebuffed him. Museveni said Mutebile was being dogmatic, and emphasized the need to embrace technology. 

Many ordinary people in the country — which has the lowest literacy rate in the region — took it as a government endorsement of digital currencies. A flood of firms — some legitimate and several fraudulent — entered the country.

“Museveni is partly responsible for our suffering,” says 50-year-old Ken Wamala from the southern Uganda town of Masaka who says scams have cost him around $41,000.

The fraud firms include Dumanis Coins, whose management disappeared on Dec. 3, 2019, after collecting $2.7 million in Ugandan shillings. More than 10,000 people had invested in the company. Police have arrested one of the firm’s directors but are still searching for four others, says Kampala police spokesman Patrick Onyango. John Kalevu, whose shop is next to Dumanis Coins’ former office, says he came to work one day to find the cryptocurrency firm’s doors open, but the office empty.

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Global Cryptocurrencies closed overnight in November. Andrew Kagwa, its chief executive, was arrested after two weeks on the run. More than 10,000 people had invested $8.2 million in the firm. Lion Cryptocurrency closed down in October 2019, taking with it $5.4 million in investments made by 17,000 people, says Henry Musagala, the investigating officer. One Coin, another of the fraud firms, duped 12,000 people out of $6.8 million. The D9 cryptocurrency company shut shop with $3.2 million in investments from 9,000 people.  

Other cryptocurrency companies that have closed since early 2018 — leaving thousands of people confused and stranded — include Team, Dutch International, Finetegry and Fital-Science.

Employees of these firms haven’t escaped unscathed either. Sheila Nassali, a nurse by training, recalls how a Global Cryptocurrency director convinced her to join the company as a secretary and a customer. She was shocked when “the director disappeared, leaving me to face angry customers who wanted to get their money.”

Patrick Mweheire, chairman of the Uganda Bankers Association, says, “Ugandans are better off investing their money in cows than plunging into the unknown world of cryptocurrencies.”

But experts and former employees of these firms say ignorance isn’t the only problem. Muzamiru Kigundu, who used to work with Lion Cryptocurrency before it shut down, alleges that many government officials are among the owners of cryptocurrency companies mushrooming in Uganda. That lends the industry legitimacy in the eyes of ordinary people. The directors of these firms rent fancy offices and drive expensive cars to create the impression that they’re wealth creators, he says.

Uganda’s corruption — it ranks 160 in Transparency International’s index — is also to blame. Some of the fake firms were registered as companies even though they didn’t meet statutory requirements. “The major cause of the cryptocurrency scams is corruption,” says Joseph Bogere, professor of economics at Makerere University.

Ultimately, though, it’s the responsibility of the country’s “leaders and security organizations” to protect “citizens against such crooks,” says Solomon Male, a pastor. That isn’t happening yet. An already poor nation is bleeding further, while gaining an unwanted reputation.