INTRODUCTION

Cryptocurrency scams pose a major risk to your financial security. Scammers will use a variety of strategies to get you to invest in phony or unsafe cryptocurrency schemes by offering high returns and low risks. As crypto knowledge and regulation are still comparatively lacking in Eswatini, our citizens are frequently targeted by Cryptocurrency scammers. This article has been written to better inform and arm Emaswati on cryptocurrencies and how they work, as well as how to recognize or avoid falling prey to crypto fraud.

Cryptocurrencies and crypto assets/investments relate to digital currencies issued by private entities or individuals that use cryptography or sophisticated digital files as value representations. They do not exist physically and have no legal tender status in Eswatini. 

Bitcoin and other cryptocurrencies remain volatile and those who participate find themselves vulnerable to these investment scams. The value of cryptocurrencies and investments is generally unrelated to any traditional store of value, such as fiat currency, resulting in significant price speculation. 

As a result of this volatility, consumers should be aware that investing or trading in cryptocurrencies or crypto assets is risky, and those who choose to invest in this type of products should carefully consider the fact that, while they have the potential to make huge gains, they also have the potential to lose a lot of money.

The Central Bank of eSwatini (CBE—later referred to as the Bank) and the Financial Services Regulatory Authority (FSRA) are aware of some websites, mobile apps, firms, and individuals promising high returns in crypto investments or related products. 

As with any investment, consumers are advised to ensure that they understand what they are investing in, and the risks involved. Consumers should always conduct due diligence that includes the review of fees and expenses associated with a product to ensure that the products are suitable for their financial situation, which includes their investment objectives, risk tolerance, and time horizon. The due diligence exercise must also include confirming the legitimacy of the person selling the products and verifying that they are licensed to provide financial advisory services.

THE RISKS 

Crypto scams are a type of investment fraud that can take many different forms, such as phishing scams, Ponzi Schemes and rug pulls. Because cryptocurrencies and related investments are currently not regulated in Eswatini, dishonest actors can easily prey on inexperienced investors. The Bank and FSRA warn the public about the following concerns and risks associated with cryptocurrency investments:

• Price Volatility: Cryptos are speculative and difficult to evaluate and exhibit high levels of volatility which exposes investors to significant financial loss.
• Price transparency and fees: Besides high volatility, there could be significant variation in the price of cryptos across different trading platforms (price across all platforms is the same, unless you are converting the crypto to your local currency then you might experience price differentials). There is a risk that you may not receive a fair and accurate price for the crypto when trading. Another risk could be that fees and charges may also be higher than those for regulated products.
• Fake Investments: As crypto investments continue to gain popularity and consumers suffer from the fear of missing out, many people have taken advantage of the sophistication of the technology to perpetrate investment scams. This includes fake virtual/Crypto asset service providers (VASP/CASP) exchanges, fake crypto or investment, pyramid and Ponzi schemes, and malware downloaded through imposter websites. 
• Leverage (on-margin) trading risks: Leverage trading is a complex and high-risk trading strategy in which investors borrow funds from a trading platform to multiply their potential profits and inversely, their potential losses from an investment based on a chosen leverage position. Some crypto asset trading platforms may allow for high levels of leverage that expose investors to extremely high levels of risk. For example, a trading platform offers 100 times leverage. In that case, gains are amplified significantly, but even a very small drop in the crypto asset of just one per cent would wipe out the entire investment. Many crypto assets move more than one per cent in a given hour. Even if you think you understand the general, long-term direction of a crypto asset, the day-to-day volatility may still result in the complete loss of capital from high levels of leverage.
• Liquidity: Trading crypto assets for another or for money that is legal tender may not be easy or cost-effective. There is limited liquidity in some crypto assets with prices and bid-ask spreads (that is, the spread between the price sought by a seller and the price offered by a buyer) varying widely across crypto asset trading platforms. Crypto asset trading platforms may limit or suspend trading, or there may be limitations or suspensions imposed on funding and withdrawals from accounts. These risks may limit your ability to liquidate your investment on a timely basis or without significant expense
• Foreign and online operators: Cryptocurrency exchanges operate online or outside of Eswatini. This arrangement makes it difficult to trace and verify the authenticity of the operation. If the investment fails, there is a risk that you could lose all your money with no compensation. 
• Exchange and wallet hacks: cryptocurrency exchanges have become a target of high-value hacks and data breaches, resulting in the loss of funds.
• Unregulated product: Cryptos are currently unregulated in Eswatini, meaning consumers buying or trading cryptos do not benefit from the consumer protection and safeguards associated with regulated financial services. The lack of proper regulation for crypto exchanges is one of the factors contributing to the failure of a number of exchanges in recent months. Some of the well-known crypto exchange failures include Celsius, Oracle, and most recently FTX, which lost USD 3.2 billion (55 billion Emalangeni) in customer funds due to mismanagement and a complete failure of cooperative control. Furthermore, while it has been claimed that blockchain projects are secure, back-to-back attacks in 2022 have demolished this myth.

 According to blockchain data platform Chainalysis, over USD 1.6 billion (E27 billion) in cryptocurrency has been stolen from users as of 2022. This means that you could lose your money in a single hack and have no way of recovering it because Eswatini is a largely unregulated space in crypto.

INVESTMENT SCAM WARNING SIGNS

• High, frequent, and guaranteed returns

 If it seems too good to be true, it is most likely to be a scam. Always remember that investments come with a set of risks, and there are no guaranteed returns. 

• Random Contact

Be wary of individuals and companies that contact you out of the blue to offer you investment opportunities. This could be through social media, cold calls, text messages, emails, or even brochures.

• Recruiting

Investment scams may also focus on recruiting through a known contact, such as a friend or colleague, who may claim to have invested in the crypto assets and made good returns. These include word of mouth marketing relying on affinity networks such as your church, children’s school, etcetera. Sometimes a prominent and influential person is used as a promoter or ambassador of the scam. 

• Pressure to invest

Most investment scams pressure you to make a rushed decision by offering you a limited time offer, discount, or bonus if you sign up before a deadline.

• They are not licensed by the Financial Services Regulatory Authority or the Central Bank of Eswatini.

• Complex products
• Opportunities to invest in new technologies may seem exciting, but scammers often use the complexity of cryptocurrencies to make investors feel like they are part of something big. Be suspicious if the advisor or recruiter fails to explain the product or business strategy in simple terms.

• Remote access to your computer

When calling and pitching crypto investment offers, scam artists may try to convince you to give them remote access to your computer to guide you to a fake crypto asset trading platform to invest. The scam artist may even try to help you with depositing money into the fake trading platform while stealing personal information, including bank account numbers.

• Unusual forms of payment or transfers

Scam artists may ask you to use an electronic transfer (wire money) or transfer crypto assets to their desired platform to assist you in a crypto investment opportunity. These transfers are instant, and hard to recover. It is nearly impossible to trace the recipient.

• Issues with receiving payments

Be sceptical if you must wait or if it is hard to cash out your investment funds. Even if your account balance shows up next to your name on the investment website or you get a screenshot showing that they sent money to your account, this is not a guarantee that you will get your money. Some scammers convince their victims to reinvest their payments with the promise of higher returns or pay more money when withdrawals are made in future. 

• Fake mobile apps

Some scammers try to get money from people who invest in cryptocurrency by making fake apps that can be downloaded from the Google Play Store and the Apple App Store. Investors should pay attention to misspellings in the name of the app, strange colouring, or distorted logos.

WHAT IS IMPORTANT TO NOTE:

The Bank and the FSRA remind the public that: 

• Cryptocurrencies are not legal tender in Eswatini. 
• Crypto investments or assets are currently unregulated in Eswatini; therefore, investors do not benefit from the legal protection associated with regulated instruments or products.

WHAT TO DO? 

• Always conduct your DUE DILIGENCE before investing in any product and make sure you understand your risk exposure. 
• ASK as many questions as you need to understand the product. 
• Be WARY of companies and individuals that avoid answering your questions or resort to using complex or technical words that cloud understanding. 
• Invest only with LICENSED firms. 
• Always CONFIRM with the Central Bank of Eswatini and the Financial Services Regulatory Authority if the firm is registered and allowed to provide the financial services in Eswatini:
  1. Central Bank of Eswatini (CBE): info@centralbank.org.sz  / +268 2408 2000
  2. Financial Services Regulatory Authority (FSRA): info@fsra.org.sz / +268 2406 8000
• Refer to the Eswatini Finance website (http://eswatinifinance.org/)  for resources and information on financial literacy. 

HOW TO REPORT CRYPTO SCAMS

Because many of the crypto scammers are located outside of Eswatini, our law enforcement institutions can only do so much if the scammer is not in Eswatini. However, you must still report these fraudulent schemes.

You can report crypto scams to the following institutions:

• Financial Services Regulator Authority (FSRA). 
• The Central Bank of Eswatini (CBE). 
• You can also file a complaint to the crypto exchange you used to send the money.

THE BOTTOM LINE 

Crypto assets are high-risk investments that are not suitable for all investors. The nature, longevity, and future application of crypto assets are largely unknown and rapidly evolving. Consequently, it may not be appropriate for your financial plans and goals. 

The CBE and the FSRA advise consumers to exercise caution and to be aware of the potential risks when investing in, trading, or dealing in any crypto-related financial products.

The Bank and the FSRA continue to monitor developing trends in cryptocurrency and crypto investments as part of its commitment to creating an enabling environment for innovative financial products.

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