South Africa could have the biggest crypto investment scam in the world – again

South Africa’s Mirror Trading International’s (MTI) scheme was named 2020’s biggest crypto investment scam – and now it seems the country could also have the biggest scam of 2021, say legal experts at Werksmans Attorneys.

“Africrypt, a private company established in 2019, was hacked in April this year and it appears that crypto assets worth an estimated R54 billion were stolen from the various investors’ wallets, controlled by the directors of Africrypt,” the firm said.

“At this stage, however, it seems that Africrypt’s business model differed from MTI’s business model because its investors were required to deposit government-issued currency with Africrypt, who then used the fiat currency to purchase crypto assets on a number of crypto-asset exchanges, with promises to some investors of returns equal to 10% of their investment per day.”

Whilst the MTI scam is allegedly the biggest crypto asset scam of 2020, it may well be that the alleged Africrypt scam will be the biggest crypto asset scam of 2021, with losses estimated to be three times as much those anticipated to be suffered by MTI’s investors, Werksmans said.

However, the country’s financial authorities appear to be taking some steps to limit these scams from happening, the firm said.

On 4 February 2021, the Financial Sector Conduct Authority (FSCA) warned investors of the substantial risks associated with investing in crypto assets, given that crypto assets were unregulated by the FSCA

Then on 11 June 2021, the Fintech Working Group, through the Crypto Assets Regulatory Working Group, published a position paper on crypto-assets wherein it was confirmed that ‘crypto assets will be brought into the South African regulatory purview in a phased and structured manner’ given their volatility and the inherent risks associated with investing in such products.

The position paper makes 25 recommendations in relation to regulating crypto assets, and has identified the following three main areas of focus:

• Anti‑money laundering and combatting the financing of terrorism,
• Cross‑border financial flows; and
• The application of financial sector laws.

Despite repeated warnings by the FSCA, it is becoming increasingly apparent that nefarious crypto-asset schemes will continue unabated and until such time as crypto assets are regulated and brought within the ambit of the law.

Commentary by Natalie Scott (director) and Kyra South (associate) at Werksmans attorneys.

Read: Finance regulator says it can’t do anything about the R51 billion South African crypto ‘heist’