Page 19 - Unlicensed Digital Investment Schemes (UDIS)

ence which may still be adversely influencing their qual- UDIS, the impact on markets and consumers, and
ity of life. Further, society can be cruel to victims, thus it the actions taken by government to prevent/inter-
is no surprise that they seek anonymity. rupt these schemes, seize assets/accounts and act
As illustrated in Box 1, interviews were conduct- to compensate victims. This entity should operate at
ed with several hundred victims of the Caring for Or- the national and sub national levels.
phans, Widows and the Elderly (COWE) Ponzi scheme iii. A protocol for information sharing on UDIS should
in Uganda in 2014, many of the COWE victims indicated be developed between the public and private sec-
that when they disclosed that had been victimized by tor such that financial services providers, social net-
a Ponzi scheme to a friend or trusted confidante, they works, instant messaging, domain name registrars
were subsequently ridiculed and told they deserved can convene regularly to share data on suspected
what they got. UDIS with the appropriate government lead agency.
Additionally, in many instances authorities in the
countries at issue might be unable to assist the victims. iv. Financial sector regulators should consider classify-
In fact, it is not uncommon for the crime victims to be ing UDIS as a predicate offense to money launder-
asked for bribes in order for authorities to pursue an ing, thus enabling national anti-money laundering
investigation. If Ponzi victims have lost their life savings authorities to address the issue and to collaborate
and also borrowed money to invest in that same fraud, it fully with other institutions to investigate and prose-
is unlikely they will even have the funds required to pay cute UDIS.
the police, or a lawyer, nor should they have to. v. Increased monitoring of the Internet and social
Another reason why consumers are persuaded to in- media is needed to identify and prevent UDIS, but
vest is that the promoters use public personalities and reliance on regulatory monitoring alone is insuffi-
celebrities to endorse their brands similar to how legit- cient. Appropriate incentives should be devised by
imate businesses sell products and services. Therefore, regulators, such the establishment of whistleblow-
more research needs to be done to determine how this er compensation policies, including offering mon-
messaging can be regulated perhaps through advertis- etary rewards to whistleblowers and protection
ing registration for financial products and/or counter of their identities and families. Incentives can be
veiled. offered to financial services employees and DFS
An interesting consumer diagnostic commissioned agents who spot suspicious transactions, which
by Financial Sector Deepening Kenya surveyed Kenyan turn out to be UDIS.
respondents nationwide and found that 44% of the re-
spondents had been approached to invest in an unli- vi. There should be multiple channels established for
censed investment scheme. Eight percent admitted to the public to submit complaints and information
investing and losing money (each person loosing on regulators about suspected UDIS, including online,
average USD 425). Extrapolating from their survey free hotlines and SMS. The use of social networks
data, the report concluded that 1 million Kenyans lost and messaging services should be used to con-
money to such frauds for a total of 31 billion Kenyan nect with consumers, in addition to offering walk
shillings lost. 38 in services and accepting email and standard mail.
Unfortunately, the Kenyan survey did not seek to un- Regular reports should be generated on these tips/
derstand consumers’ motivations for investing in the complaints and what investigative or enforcement
schemes nor why specifically they trusted the promoters. action followed which should be made public.
vii. Regulators should consider the establishment of a
victims’ compensation scheme to provide redress
10 RECOMMENDATIONS FOR ADDRESSING for the most vulnerable victims of UDIS.
UDIS AT NATIONAL AND INTERNATIONAL
LEVEL viii. Regulators should establish penalties for individuals
and corporations which knowingly facilitate UDIS
a) National level with the availability of punitive damages that can be
allocated to victims’ compensation funds.
i. Countries should designate one government body
with the primary responsibility for UDIS; including ix. Regulators should use new technologies such as ar-
developing a national strategy for combatting UDIS; tificial intelligence (AI) to proactively monitor social
which includes proactive market monitoring, pre- networks, instant messaging and communication
vention strategies, investigation/prosecution and services and the dark web for existence of UDIS.
consumer education and outreach campaigns. The
primary implementing body can opt to outsource b) International level
and/or coordinate these activities, but should bear i. To enable the establishment of a global entity, or a
the ultimate responsibility for UDIS.
dedicated department within an existing intergov-
ii. The designated authority should produce regular ernmental organization, such as the ITU, or any other
reports available to the public on the volume of international body at the conjuncture of the financial,

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