Basotho exposed to money scams

. . . spotlight on Ecocash, Mpesa mobile money

KANANELO BOLOETSE

MASERU – Lesotho’s only two telecommunication companies Econet Telecom Lesotho (ETL) and Vodacom Lesotho (VCL) could have been breaching anti-money laundering laws and exposing the poor to scams, Public Eye has learnt. The constituency EcoCash and M-Pesa are supposed to bring financial services to – the poor and the unbanked – are being scammed out of their hard-earned money by nefarious scammers who use these two platforms.

The Central Bank of Lesotho (CBL) is yet to act decisively to curb scammers in mobile money transactions. This paper has found out that there are a lot of mule EcoCash and M-Pesa accounts opened for illegal purposes. These mule accounts, which are the conduits through which scammers swindle unsuspecting mobile money users, cannot be traced back to people who opened them.

On September 8 this year, the Lesotho Mounted Police Service (LMPS) released a statement warning the public about scams using police deputy spokesperson ’Mareabetsoe Mofoka’s name to fraudulently receive mobile money. The scammers, according to the police statement, used four M-Pesa accounts and one EcoCash account, whose numbers police publicised.

The central bank knows about these scams being easily committed via mobile money platforms. On December 12, 2019, it collaborated with mobile money issuers, ETL, VCL and Lesotho PostBank to make the public aware of the concerns perpetrated via mobile money platforms. These concerns included job promise scams, mobile money agent/merchant short message service (SMS) scams, foreign exchange investment scams, counterfeit banknotes and mobile money transfers.

“There are fraudsters who lure mobile money users to send money through M-Pesa, EcoCash and Khetsi under the false pretense of being officials and/or employees of various companies, organisations or government ministries,” read the joint statement.

It continued: “In return, these fraudsters promise mobile money users jobs in the companies, organisations or government ministries. Members of the public are warned that no legitimate company, organisation or government ministry would request money from anyone when making a job offer.”

Public Eye asked CBL about ETL and VCL’s operations of their mobile phone-based money transfer services, EcoCash and M-Pesa respectively, but despite giving the bank over a month to respond, our queries remain unanswered.

Last month Public Eye reported that both ETL and VCL could have overstepped the bounds and violated financial and companies’ laws when they ventured into financial services business yet they were incorporated as telecommunication businesses. ETL launched its mobile phone-based money transfer and payments service, EcoCash in October 2012, while VCL launched its M-Pesa in July 2013. The inquiries by this publication have revealed that EcoCash and M-Pesa operations did not fully comply with anti-money laundering laws.

Their non-compliance opened floodgates to frauds and outright scams. Anti-money laundering laws make it mandatory for ETL and VCL to identify and verify EcoCash and M-Pesa clients when opening an account, and periodically over time. In other words, the two companies are obliged to make sure that their clients are genuinely who they claim to be. In 2014, the parliament enacted the Payment Systems Act to make provision for the management of interbank systems, clearing houses and securities settlement systems, and for related purposes.

Section 10(1) of the Act makes it an offence for any person to operate a payment system in Lesotho, like EcoCash and M-Pesa, unless such person is in possession of a license for this purpose, obtained from the central bank. In 2017, the central bank promulgated the Payment Systems (Issuers of Electronic Payments Instruments) Regulations which prescribed licensing requirements for operating a payment system in Lesotho.

Section 24(1)(a) of the above-mentioned regulations state that an issuer of electronic payment instruments shall ensure that the design and implementation of its payments system, reduces the opportunities and incentives for abuse and provides the means to filter out suspicious activities.

The regulations require issuers of electronic payment instruments to put in place “Know Your Customer” procedures as prescribed under the Money Laundering (Accountable Institutions) Guidelines of 2013. The Money Laundering Guidelines, on the other hand, under Section 6(1), state that an Accountable Institution shall satisfy itself that a prospective customer, client or any other person on whose behalf the customer or client is acting is who he or she claims to be.

Accountable institutions are also required to obtain identification particulars of a customer or client by reference to a document obtained from a reputable source which bears a clear and easily identifiable photograph. Under Section 9, the Guidelines further state that an Accountable Institution shall endeavour to make specific checks on the customer or client’s income details to ensure that they are commensurate with the customer’s or client’s identity details.

Accountable institutions are financial institutions as defined in the Financial Institutions Act, and include a person who, among others, carries on the business of acceptance of deposits and other repayable funds from the public, money transmission services and issuing and administering means of payment.

VCL has also not responded to some of the questions sent to it last month – though it responded to some though – while ETL referred Public Eye to the central bank.

On July 2, this year, Public Eye published the findings of a recent assessment done by the World Bank which revealed that youth unemployment in Lesotho is among the highest in the world, and three times higher than the average rate observed in other lower-middle-income countries.

The assessment provided an analysis of how effective Lesotho is in establishing a social protection system that responds to the needs of the people, and its findings and recommendations were contained in a report titled: Lesotho Social Protection Programmes and Systems Review.

“Basotho suffer from both high inactivity and unemployment. High youth unemployment creates a specific vulnerable group not typically captured in lifecycle perspectives on social assistance,” read the report. This situation provides a fertile breeding ground for employment scams targeting desperate job seekers. In the absence of apt regulation to ensure that mobile money issuers’ systems reduce the opportunities and incentives for abuse and provide means to filter out suspicious activities, poor citizens will lose millions of maloti in direct loses related to job scams.

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