The Billion-Dollar Cryptocurrency Scams You’ve Never Heard About

The
suicide note cited “personal reasons.” But Ashraf Nusubuga, a radiology student
at Kampala’s Makerere University — Uganda’s leading higher education
institution — didn’t hang himself over a love affair gone wrong or because of
academic pressure. The 22-year-old killed himself after losing money he had
invested in a bogus cryptocurrency firm.

He had put all of his money — and some he had borrowed — into what turned out to be a Ponzi scheme, lured by the promise of high returns, according to Luke Oweyesigire, deputy spokesperson for Kampala Metropolitan Police. But Nusubuga isn’t the only one to have fallen victim.

A series of large cryptocurrency scams is rocking Uganda, turning the East African nation into an unlikely hub for fraudulent firms claiming to offer digital currencies, while preying on weak governance and low financial literacy. Other major cryptocurrency scams in 2019 involved developed economies — Japan’s BITPoint exchange lost $28 million, and con men in the U.K. and the Netherlands stole $27 million from Bitcoin users. Globally, cybercriminals stole $4.3 billion from users and exchanges last year. But Uganda is the worst hit — by far.  

At least five cryptocurrency firms have closed shop and walked away with a total of more than $26 million of their clients’ money in the past six months. From students and churchgoers to army officers and government officials, the victims span Ugandan society. Robert Bakalikwira, a criminal investigations officer probing these cases, estimates that in all, 200,000 Ugandans have lost about $1 billion, or almost 4 percent of the country’s GDP of $28 billion, over the past two years.

Ugandans are better off investing their money in cows than plunging into the unknown world of cryptocurrencies.

Patrick Mweheire, chairman, Uganda Bankers Association

These scams are different from those in the West, where hackers have stolen from exchanges or robbed from people. In Uganda, fake firms claiming to offer cryptocurrencies are luring people to buy in, before walking away with their money. The country’s growing crisis holds lessons for other poor nations with weak regulations unable to keep up with the sometimes misleading promise of technology.

“We have received very many cases of cryptocurrency scams,”
says Fred Enanga, Uganda’s national police spokesperson. “We advise Ugandans to
avoid being fleeced off their money in such deals.”

But the role of President Yoweri Museveni’s government is coming under scrutiny. It has set up a 10-member commission of inquiry, and is issuing public statements to alert Ugandans that the government and central bank don’t recognize any cryptocurrency. Yet even though the country has no regulations for the sector, the government hasn’t made it illegal to operate a cryptocurrency firm in Uganda. In parliament earlier this month, an MP pointed out that Kwame Rugunda, the son of Prime Minister…