Crypto Crime Drops Against Rising Global Illicit Financial Transactions

Eva Crouwel, head of financial crime at Luno

Reported fraud across the financial services industry in Africa has spiked however, Eva Crouwel, head of financial crime at Luno, a leading global cryptocurrency platform, says that while financial crime is on the rise, there has been a decline in illicit crypto transactions according to the foremost blockchain analysis company Chainalysis

The 2020 UN Report on Trade and Development, estimates illicit losses of USD 88.6 million each year in Africa alone. In 2019, 2,1% of all global crypto transactions globally were categorised as illicit, in 2020 this number dropped to 0.34% of all global cryptocurrency transactions. This translates to roughly USD 10 billion globally,” she says.

Reasons for rise in financial crime

According to Crouwel, there is a perfect storm of three main reasons for the rise in financial crimes across the continent.

“First, financial education levels tend to be lower in Africa and combined with financial hardship caused by Covid-19, citizens are seeking good returns. Second, crypto is a new technology, so users are uncertain about how it works and how to protect themselves.

Finally, personal data in Africa has not been well protected compared to Asian and European markets, even though POPIA was recently introduced in South Africa, one of the continent’s largest economies. This makes it easy for people with bad intentions to get hold of personal information,” she explained.

Among its 9 million customers across 40 countries, in around 95% of Luno’s current financial crime cases, customers have been scammed.

This varies from traditional ‘get-rich-quick’ scams to cases where customers are scammed into surrendering their login information to fraudsters, who sometimes pretend to be from Luno.

Regulation, or the lack thereof, is a significant factor. “Luno fully supports regulation of crypto and believes that it will help to combat fraud. But the reality is that even highly regulated sectors experience financial crime, especially scams,” she said.

Given that crypto is so new, crypto businesses have a significant role to play in teaching customers how to stay safe and protecting customers.

Luno uses external blockchain monitoring companies and restricts crypto movements when the data indicates that customers are at risk.

Crouwel, said: “Interestingly, there is no specific demographic for victims, despite widely-held perceptions that scammers target either the ignorant elderly, or young mavericks looking to make a quick buck or previously disadvantaged users.”

Keeping customers safe

Luno recently underwent the rigorous process of independently verifying the existence of customer funds by means of a proof of reserves report prepared by Mazars South Africa.

“The proof of reserve report confirms to crypto holders that their wallets do in fact contain the cryptocurrency stated and avoids the dangerous situation of thinking they have digital assets which don’t exist.”

In addition, Luno conducts financial audits, security audits, audit of reserves and compliance audits. “We invest heavily in advanced technology that allows our dedicated investigations team to access  real time, tech-driven insights, which means we are able to respond much more quickly to behaviour that has been identified as risky.

We have always said that Luno is a safe platform to secure and store cryptocurrency and we now have external validation of this,” she said.

The financial services industry tracks patterns and fraud margins. “While risk appetite differs between institutions, traditional financial service providers like banks would generally consider overall fraud loss thresholds of 5% or even as high as 8% as acceptable.

In fact, according to a recent PWC report on fraud losses, most fraud is not even further investigated. Luno’s threshold is much lower at between 0,5% and 1,5% depending on the region. While it is a bold statement, based on these numbers Luno can confirm that our security is better than bank-grade.”

Customers also need to be alert and careful. “We also count on our customers to keep the best interest of their funds in mind when dealing with cryptocurrency. We recently embarked on an email campaign to our customers to explain the risks and what to look out for.”

Tips to keep your crypto safe

  • Use a recognised, reputable exchange, as the significant investment in security will mean that your money remains safe.

  • The weakest link is human beings. It is very rare to see actual hacking in crypto financial fraud.

  • It is true that crypto is volatile but be aware that if something sounds too good to be true, it usually is.

  • Treat your login information with as much respect as you do your bank login details.

African Eye Report