FILE PHOTO: A collection of Bitcoin (virtual currency) tokens are displayed in this picture illustration taken December 8, 2017. REUTERS/Benoit Tessier/File Photo/File Photo

CAPE TOWN – South Africa has seen a rise in cryptocurrency scams in recent years with victims losing millions worth of rand to fraudulent scams.

As the industry is still relatively new, it opens up an avenue for scammers to prey on uneducated people on the subject matter, according to AltCoinTrader.

There are various types of scams currently operating in South Africa that demand payment in cryptocurrencies. One of the reasons for this is due to the anonymity of cryptos. 

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Illicit Financial Flows

Claims have been made that the crypto exchanges could be used to facilitate illicit financial flows through buying large amounts of cryptocurrency in South Africa and then cashing it out in one of the tax-haven countries. Using this process they are able to bypass South Africa’s exchange control regulations.

However, many local scams, provide exchange information that can be traced to an owner of the account.

In response to questions from BR, Richard de Sousa, the senior partner at AltCoinTrader, said in order for a person to take large amounts of cryptocurrency out of the country someone else had to bring it in. 

“So if you had to move R200 million out of South Africa, it means someone, on the other hand, is going to move R200 million worth of crypto into the country in order for that to be possible. 

“There is still a record of this money that the exchange has of that person in South Africa.  So, in essence, there is not actually a flow of funds going out of the country, but more of a rotational fund. Funds going in on the one hand and again funds going out on the other hand.”

Ponzi Schemes

Richard de Sousa said every day there are 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.”

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. It gives an opportunity for investors to question its legitimacy if there is no more recruiting, how would the scheme pay its investors out. 

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.

De Sousa said: “Some fraudsters give out their exchange Bitcoin address details, and as a result, investors will deposit their money into these accounts. As the exchange will have details of the owner of the account as per 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.”

Many people usually will have proof that they have deposited their money into an exchange’s account, and think 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 was promises of trading bots, that could make money for investors, said De Sousa. People were being lured on this premise that artificial intelligence (AI) software was 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 do not usually have employees on the ground who are promoting schemes that offer a specific monthly return. 

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. 

BUSINESS REPORT