Page 14 - Unlicensed Digital Investment Schemes (UDIS)

CASE 2
KENYA: REPORT OF THE PYRAMID SCHEME TASK FORCE

In response to public outcry during the period It is unclear whether the State ever initiated crim-
around Kenyan elections in 2007 which saw rising inal prosecutions related to the enumerated scams,
levels of frauds by unlicensed investment schemes, however, it is unlikely given that the crime victims
the Ministry of Cooperative Affairs in Kenya es- themselves subsequently organized an advocacy
tablished a task force charged with assessing the organization called the National Pyramid Schemes
scope of problem in the country. The task force Victims Initiative (NPSVI). The NPSVI itself filed a
also sought to give the crime victims a voice and class action on behalf of its 40,000 members alleg-
to make recommendations regarding how to best ing negligence on the part of the Attorney General’s
respond to the problem. Office and the Central Bank Kenya causing them to
In June 2009, the taskforce presented a report collectively lose 5.7 billion Kenyan shillings. NPSVI
to the Ministry which indicated that 148,784 inves- initially filed its class action on behalf of victims in
tors had lost over 8 billion Kenyan shillings (USD early 2015 and has continually been met with de-
78.8 million) in recent years. The report identified lays and postponements in the case with its next
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some 270 fraudulent schemes, and even docu- court hearing scheduled for 6 November 2019. It
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mented land purchases by the accused criminals is unlikely that this legal action will provide the vic-
with the ill-gotten gains from the fraudulent in- tims with redress any time soon.
vestment schemes. The report noted that the del- The task force’s key recommendations are that
eterious effects on victims were many, including more awareness campaigns are necessary for the
suicides, depression, hypertension and diabetes to public; it proposes the formation of a permanent
name only the health consequences. agency tasked with eradicating pyramid/Ponzi
The report recommended that criminal prose- schemes.
cutions proceed against the named perpetrators.

5.1 Everyone is the boss, but no one is really in charge do not fall within its jurisdiction. Similarly, RBI has made
of UDIS. the claim that entities operating Ponzis do not fall under
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In the three countries analyzed, we noted multiple its mandate.
regulators actually have the legal authority to take If both SEBI and RBI are allowed to opt out of their
preventative action, including seizure of accounts if regulatory mandates vis-a-vis UDIS, then that will leave
necessary. In Nigeria, for example, there are a total of only TRAI (and the police) left to act. Similarly, in Kenya
five main government actors which perform functions and Nigeria the telecommunications regulator has the
that impact digital and financial services and that can statutory authority to act to shut down UDIS, but ap-
therefore investigate, intervene and shut down unli- pears to not be monitoring internet content for UDIS.
censed digital investment schemes; including the Ni- For instance, as of the drafting of this paper, the
gerian Communications Commission (telecom regu- MMM-Country Name websites are all still live. 18
lator), National Information Technology Development
Agency (regulator for information technology prac- 5.2 Low rates of prosecution for UDIS and rare
tices), the Central Bank, the Securities and Exchange reimbursements for the consumer
Commission and the Economic and Financial Crimes Too many responsible authorities can also cause confu-
Commission. sion for consumers, leaving them unsure of where to re-
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None of the three countries, however, seems to have port potential UDIS. Low rates of prosecution for UDIS
a lead authority or coordinating body charged with UDIS and rare reimbursements for the consumer are already
prevention/supervisory efforts amongst existing regula- the norm.
tory bodies and/or police. In fact, in India, where there Of the three countries compared, India appears most
are three regulators with the authority to prevent UDIS: prolific in its prosecutions, but as with all three focus
the Securities and Exchange Board of India (SEBI), the countries there is no central database (to date), nor one
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Reserve Bank of India (RBI) and the Telecom Regulatory lead authority responsible for UDIS prevention. A pri-
Authority of India (TRAI): the first of the two regulators, vate consulting firm named Strategy India, does howev-
SEBI and RBI both seek to renounce legal responsibility er keep a running tab on unlicensed, potentially fraudu-
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for prevention of unlicensed investment schemes. It has lent businesses inclusive of UDIS.
been reported that SEBI has asked the Supreme Court The Ministry of Corporate Affairs in India investigat-
for a declaratory judgment stating that Ponzi schemes ed 185 such schemes in the past 3 years through the

12 • Unlicensed Digital Investment Schemes (UDIS)