Page 18 - Unlicensed Digital Investment Schemes (UDIS)

fraud facilitation in the focus countries, Kenya, Nige- regulators, criminal investigators and the private sector.
ria and India? And, would ISPs, social networks and In fact, a cursory review of social network terms and
messaging companies that facilitate UDIS be subject conditions reveals that Facebook’s own terms and con-
to liability? ditions disallow the use of Facebook “to do anything
These questions remain unanswered because we unlawful, misleading, malicious or discriminatory.”
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have not found any related case law in the three juris- And, recently, Facebook has announced a new advertis-
dictions. However, legislation and pending legislation ing policy (also valid for affiliate services like Messenger
on consumer protection, data privacy and communi- and Instagram) which states that “ads must not pro-
cations issues seem to lean in the direction of a finding mote financial products and services that are frequently
of liability for Internet intermediaries which facilitate associated with misleading or deceptive promotional
fraud or the spread of false, or harmful information. practices, such as binary options, initial coin offerings or
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In India, for example, the Information Technology Act cryptocurrencies.”
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of 2000, prescribes obligations for Internet intermediar- In the event that social networks, instant messag-
ies with respect to data privacy, but it is unclear whether ing services and ISPs are reluctant to scan for criminals
these same standards of care should apply to the trans- that run fraudulent UDISs, external intelligence gath-
fer of funds. Payment processors and wallet issuers have ering can and should be used to crawl the internet to
indeed been victimized by frauds recently. find online accounts advertising such UDIS’s. This type
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of intelligence is called Open Source Intelligence, and
there are several companies in existence that provide
8 NEW TECHNOLOGIES COULD BE USED TO products and services for such intelligence gathering.
COMBAT UDIS This technology is directed at finding criminal and ter-
rorist organizations but can certainly be redirected to
Recently, the background checking company Trooly find fraudulent UDISs.
was acquired by client Airbnb to help root out bad be-
havior in its online home renting business. Trooly and
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like technology can be used to detect past bad conduct 9 WHY DO VICTIMS CONTINUALLY FALL FOR
by individuals, and thus assess the risk of future likeli- SUCH OBVIOUS FRAUDS?
hood to engage in risky or criminal behavior.
It is suggested that similar type of technology be There are many theories about what causes humans to
used to conduct due diligence on individuals who are suspend rationality, causing them to fail to do any due
promoting UDIS, or as a know your customer (KYC) diligence on potential investments, but there have not
measure by financial services providers for account been concrete studies which explore the Ponzi victim
opening purposes.For example, US Traffic Monsoon behavior to determine whether any warnings would
fraudster Charles Scoville had previously been banned have been effective to dissuade them. A behavioral
by Paypal in the past for conduct which had violated economic approach which researches and develops
the company’s terms of use. Thus, if PayPal had done and the new educational methods and regulatory/ed-
a scan of account closures for bad behavior, they could ucational policies is certainly needed to combat UDIS.
have prevented Mr. Scoville from being given a new ac- It has also been argued by some that the lack of ap-
count, or could take necessary measures to more close- propriate investment vehicles for consumers in the for-
ly monitor his account and transactions. mal economy may be contributing to their investing in
Furthermore, social networks which are facilitating these informal schemes. Thus, this too may be an inter-
UDIS have the ability to analyze big data and even the esting area of research for legitimate financial services
technology to manipulate human emotions, and thus providers.
behavior. This same technology could be engineered There are of course victims who were not entirely in-
to send messaging to potential investors who are dis- nocent, meaning that they may have invested knowing
cussing potential investments to beware of potentially that the scheme was a Ponzi and they hoped to cash out
fraudulent offers. Just as advertising content is sent to in time to make a profit: that is before the scheme col-
consumers whose psychometric states are deemed re- lapsed and they may even have recruited others to join
ceptive in order to entice us to spend money, or to vote for that purpose. Those individuals are not the focus of
in a certain manner, so too can public interest messag- this paper, but rather, we are concerned with consumers
ing be sent to consumers to warn of potential frauds who believed the scheme to be a legitimate investment.
which are thriving on social networks. Those are the individuals that regulators must seek to
Additionally, when Internet services providers, mes- better inform and protect.
saging services (e.g. WhatsApp, Facebook Messenger Conducting research regarding how to better pro-
and Telegram) and social networks are made aware of tect these consumers requires interviewing those vic-
existing UDIS, they should be obligated to shut down tims of unlicensed investment schemes to better under-
accounts perpetrating frauds. This too is an important stand whether and why they blindly trusted the scheme
role for the telecommunications regulator, and it implies perpetrators. However, these victims are often embar-
close collaboration and information sharing amongst rassed and unwilling to talk about a traumatic experi-

16 • Unlicensed Digital Investment Schemes (UDIS)