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How safe are mobile money handles?

By Mary Agidi


In recent times, Sub-Saharan African countries have experienced the proliferation of mobile money operators and virtual investment platforms, which many individuals, especially young adults, embrace without weighing the inherent benefits and the risks.

Mobile money is an electronic wallet service. This is available in many countries and allows users to store, send, and receive money using their mobile phone or any communication device that has an internet connection. It involves transactions and trading without physical contact with the operator or the availability of a physical office.

Currently, a cryptocurrency exchange operator who was recently banned by the Federal Government of Nigeria, Binance Holdings Ltd, has no official company headquarters, according to the Wikipedia account.

The safe and easy electronic payments make mobile money a popular alternative to bank accounts. It can be used on both smartphones and basic feature phones.

Mobile money is part of the virtual assets (VA), which is a digital form of value that can be traded or transferred online. Virtual assets are both suitable for payment and investment.

Virtual Asset Service Provider(VASPs) involves the process of issuing a virtual asset or conducting one or more specific activities on behalf of someone else. In general, a VASP has the option to transfer, manage, or supervise the sale of virtual assets through an issuer’s office.

VASPs encapsulate Mobile Money Operators. Cryptocurrencies exchange like bitcoin, Kraken, Coinbase exchange, Upbit, Bybit, M-Pesa, Binance, OKX, KuCoin, Tokocryto, and Deepcoin, including some emerging mining Apps like Pi, Musk Mining, 22BT Coin mining app, and other forex trading services entail transacting virtually.

The economic situation in Nigeria and the desire of many young adults to get quick money and profit without being involved in strenuous tasks aid the boom of these virtual money trading services.

According to the Financial Action Task Force (FATF), VASPs, including mobile money service providers, are more prone to serious risks. For example, VASPs can be exploited by criminals and terrorists for money laundering and funding terrorist activities.

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Over the years, Anti-Money Laundering (AML) initiatives have aimed to increase the difficulty of concealing illicit profits. Despite AML regulations mandating that financial institutions create advanced customer due diligence strategies for evaluating money laundering risks and spotting suspicious transactions, non-compliance cases continue to rise annually.

Initially, AML regulations primarily targeted banks and similar entities. However, they have expanded their reach to encompass a wide range of institutions. This includes not only traditional banks but also iGaming platforms or cryptocurrency exchanges.

 Aside from the cryptocurrency exchange, young adults in Nigeria have been investing their hard-earned money in iGaming, which includes Video game betting (eSports), Casino gaming, Sports betting, Fantasy sports, and Online poker among others.

Today, anti-money laundering and Counter-Terrorism Financing (AML/CTF) frameworks apply to specific crypto assets and services worldwide, and these definitions guide the determination of which types of digital assets and service providers should be addressed by AML compliance regulations on a global scale. 

According to the FATF, the virtual asset ecosystem has made its way to building anonymity-enhanced Cryptocurrencies, decentralized exchanges (DEXs), privacy wallets, and various other services throughout recent years. However, such services contribute to reduced transparency and increased obfuscation of financial flows.

According to the FATF, these new virtual asset business models pose risks related to money laundering, terrorist financing, market manipulation, and other fraud types. Moreover, emerging illicit tendencies include the growing use of virtual-to-virtual layering schemes.

 These scams aim to further hide illicit funds in a relatively easy and cost-effective way.

To combat fraud risks, the FATF provided universal AML compliance guidance for VASPs, financial institutions, other designated non-financial businesses, and other reporting entities. The FATF aims to help companies detect and report suspicious transactions.

The mentioned FATF report explains how to assess the risks of money laundering and terrorist financing associated with virtual assets. It also covers topics such as licensing and registration, actions needed to acquire customer information, as well as secure storage of this information.

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Given this fraud-related activity by these mobile money operators, the Federal government of Nigeria, through the CBN, issued a circular to deposit money banks (DMBs), non-bank financial institutions (NBFIs), and OFIs to close accounts of persons or entities involved in cryptocurrency transactions within their systems, in February 2021.

CBN raised concerns over money laundering (ML), terrorism financing (TF), cybercrime, and the volatility of cryptocurrencies as reasons for the ban.

The apex Nigerian bank further warned local financial institutions against dealing in crypto assets or facilitating payments for crypto exchanges.

CBN, however, shifted its position on December 22, 2023, by lifting the ban and directed all banks and other financial institutions to continue to carry out cryptocurrency services, but with operational guidelines.

CBN issued the operational guidelines on virtual assets service providers (VASPs) to all banks and OFIs.

 VASPs were defined by CBN as any entity that conducts exchange between virtual assets (cryptocurrencies), fiat currencies, and transfers of virtual assets.

Some of the regulated operational guidelines are: evidence of a valid license issued by the SEC for the entity to engage in the business of VASP/DAXIDAOP, certified true copy of the memorandum and article of association, certified true copy of Form CAC 2— Statement of share capital and return of allotment of shares, certified true copy of Form CAC 2.1 particulars of secretary, certified true copy of Form CAC 3—notice of registered address, certified true copy Form CAC 7— Particulars of Directors, verifiable registered address of the company. Others are copies of the Certificate of Capital Importation (CCI) (where applicable),  valid means of identification of all the directors, principal officers, and beneficial owners of the company, BVN of all the directors, principal officers, and beneficial owners of the company, Home address of all the directors, principal officers, and beneficial owners of the company, AML, CFT, and CPF Policy of the entity,  All other requirements of a corporate account in line with the CBN ODD Regulations; and any other requirement that the CBN may impose from time to time.

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In his contribution, a financial expert in Akure, Mr. Abayomi Egbuku who lauded the FG’s decision to regulate VASPs, affirmed that the trading and transaction of virtual assets are not safe for the individuals who invest in them.

According to him, the system does not involve hard currency but online, which is virtual, coupled with the fact that it is not licensed by the CBN like hard currencies which are being regulated by the CBN.

Citing the FG’s action against Binance, the accounting expert noted that the step taken by the government is in order, considering the fraudulent part of it.

He explained that the involvement of individuals in such investment was at their own risk because it is virtual, so if it crashes, no physical contact to hold responsible.

“It’s a forex trade, many people use it to dupe people by saying it crashes, it doesn’t crash for the owner, the owner already cashed out, only those who invested in it suffer the loss as it involves investing in something you don’t see”, he averred.

Also speaking, a cryptocurrency investor in Akure, Mr Samson Olugbenga, lamented how he lost N600,000 to cryptocurrency in 2022.

He informed The Hope that the cryptocurrency service provider who introduced it to him claimed that the system crashed with about a billion losses.

He disclosed how he invested in it with three different accounts not knowing that it wasn’t a safe money-making platform, as his provider claimed that the account was hacked.

 His experience has, therefore, justified the need for government regulation on VASPs to prevent more victims of fraudulent virtual investment platforms, just as the government of China prohibited Binance.

How safe are mobile money handles?

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