From ‘ebicupuli’ cheques to ATMs: The changing faces of financial fraud

Saturday January 11 2020

Withdrawal.  A man withdraws cash from an ATM.

Withdrawal. A man withdraws cash from an ATM. Experts say financial fraud is taking a new trend with new innovative financial products coming up. FILE PHOTO 

By Tom Malaba

Audit advisory firm Deloitte’s 2013 Financial Crimes Survey report indicates that Uganda loses up to nearly $10 million (about Shs24.9b) to fraud every year.
Mr Robert Nyamu, the director of forensic and litigation support at Deloitte, says the fraudsters target cheques and cash, and more recently wire fraud, targeting real-time gross settlement systems (RTGS), electronic funds transfer (EFT), and point of sale EFT.
Uganda financial system comprises both regulated and non-regulated institutions that wire huge amounts of money through RTGS and EFT.
RTGS and EFT are used to transfer money from one bank to another or within the same financial institution in the shortest time possible.
In its report, Deloitte blames the increased cases of fraud on financial institutions’ failure to put in place high-tech controls that match the kind of innovative products put on the market.
“We feel a lot needs to be done because as more innovations are rolled out, there is need to elevate the security systems to make it more challenging for fraudsters to get their hands on depositors’ money,” Mr Nyamu said.

Uganda’s regulated financial segment comprises 15 commercial banks, seven credit institutions, three microfinance deposit taking institutions, insurance companies, and the stock exchange. The Central Bank is mandated to regulate, supervise and discipline financial institutions in order to maintain their safety.
Deloitte says Uganda tops the list of fraud cases perpetuated through cheques, with 50 per cent, compared to Kenya’s 44 per cent, and Tanzania’s 14 per cent.
Uganda also leads in mortgage and accounting and financial statements fraud. The survey reveals that cash theft still tops the list of fraud with Kenya posting the highest rate of 72 per cent, Tanzania having 71 per cent, and Uganda indicating 67 per cent.
Cheques remain Uganda’s most commonly used instrument in financial settlement and otherwise.
But, the spokesperson at the Directorate of Criminal Investigation (CID), Mr Charles Twine, says besides cheques, RTGS and EFT, there are many more other financial fraud cases in the country. He defines financial fraud as “any attempt” to illegally gain financial advantage.
Bank of Uganda says frauds take various forms, ranging from alteration of cheques and or counterfeit to skimming or cloning of bank credit and debit cards.
Mr Twine says: “These frauds are widespread. We have investigated and prosecuted many people.”
He cites land fraud, procurement fraud, and embezzlement causing financial loss.
Mr Twine cites other computer-aided frauds as Crypto-currency, in connection with which a one Kalumba has been arrested. The scheme has left thousands conned of their hard-earned cash.

Police records indicate that between 2002 and 2006, another fraudulent scheme, Caring for Orphans and Widows (COWE), defrauded people in western Uganda.
A few years later, another fraudulent scheme, Dutch International, emerged on the financial scene. By the time the authorities got to the bottom of the deceitful scheme, unsuspecting investors had lost between Shs20b and Shs30b.
A one Balikoowa and Nkadde, were arrested and charged in court over the shenanigans.
The latest questionable financial scheme that is extracting money from people is now Cryptocurrency. Even when thousands have fallen victim to such deceitful schemes, many more such groups keep flooding the market, promising their clients handsome return.
Strangely, more people continue to invest in them, despite warnings from Bank of Uganda (BoU).
On August 29, 2018, BoU warned the public against Ponzi schemes promising high returns, with little risks to investors.
“If a business guarantees you high returns with little risk to investments, it is false,” BoU warned.
But this did not deter more such fraudulent schemes from emerging and defrauding the public. Prominent among the schemes were D9 Club, Oryx coin, One coin, Dag coin, Savannah coin, Padre Pio, and Bitmex. A senior police detective familiar with operations of the fraudulent schemes said they are created deliberately to defraud the unsuspecting public.
“It is the same people, all they do is to change their modus operandi but continue to defraud,” the officer, who declined to be named, told this newspaper.
Saturday Monitor also learnt that investigating financial fraud is not easy, with highly proficient police officers tasked to trace for evidence.

Training officers
In a bid to bolster this team in July last year, the Directorate of CID, conducted a three-week fraud investigations course to empower its officers.
The officers were drilled to appreciate the government automation payment system where requisition, payment and voucher are all automated,” Mr Twine says.
He says the CID department has also equipped IT experts with investigative skills to deal with electronic fraud.
“Frauds are widespread and we have also investigated and prosecuted many people,” Mr Twine says, adding that the detectives’ biggest nightmare are the rich beneficiaries of fraud, who can afford to disappear abroad when pursued.
Another senior police detective familiar with fraud says: “The work of any fraudster is to create a false market. So that he gives value to something worthless and gets pay for it.”
He cites wild goose chases of World War stoves brought into Uganda by the war veterans, and were said to contain gold, and many people lost money as they paid to get hold of the golden stoves. He also says similar frauds were prevalent in the 1980s and 1990s, when people were duped into paying money in the quest of snatching bright and precious gemstones that very old cobras would allegedly spit out as they trapped insects.
“Uncertain of their safety with snakes, the risk takers would abandon the scheme and lose money to fraudsters,” he recalls.
But there have been more evolving clever frauds involving banks. For example, some fraudsters forge an account holder’s signature and withdraw money from the victim’s account using forged identification. Also some unscrupulous civil servants hold Bank of Uganda cheque meant to pay a supplier, create a duplicate cheque and cash it before releasing the genuine cheque to the cheated supplier.
Besides, fraudsters in Kampala would intercept International cheques either through postal mail or in connivance with criminal gangs abroad.
“They will use the cheques to pay for goods overseas, and when the suppliers bank the cheques, they would realise the cheques had been stolen,” says the detective.
Fake travellers cheques, popularly known as ebicupuli, were also used to defraud suppliers of good and service. The original amount of money would be rubbed off the cheque with special ink and replaced with a bigger amounts and used to pay for goods abroad, with many companies in the Far East falling victim.
The best known case was of former Kampala City mayor, Mr Nasser Sebaggala, who was arrested in New York in June 1998.
He was convicted of eight counts in connection with bank fraud and transfer of altered documents and cheques into the US. He was sentenced to 15 months.
Mr Twine says despite the many legal and regulatory regimes such as the Anti-money Laundering Act, 2013, the Computer Misuse Act, 2011 and the Capital Markets Act, 2011 to fight fraud, the vice still persist.

5 signs an ‘investment opportunity’ may be Ponzi scheme

1. It guarantees you high returns with little risk of losing your investment. A good general rule to follow is; if it sounds too good to be true, then it is false.
2. It promises you consistent returns regardless of the market conditions.
3. The investment strategy or business activities are described as too complex for investors to understand, or top secret.
If a business idea cannot be explained, it is suspicious
4. The company or proprietor running the scheme focuses all their energy into attracting new clients to make investments.
Without a constant flow of new investments to continue to provide returns to the scheme owners and older investors, the scheme falls apart.
5. Both old and new clients face difficulty trying to remove their money from the scheme.
Many times, it has already been spent on paying the proprietors or other investors.


Factors abetting financial crime

• Abundant liquidity in industry, weak or inadequate financial crimes controls
• Manipulation of data and evasion of IT controls
• Diversity of products not matched with strong controls
• Inability to punish fraudsters
• Pervasive use and advancement of technology with weak security controls
• Lack of prosecution or thoroughly investigated due to lack of personnel and financial capacity of the authorities

Financial fraud

Bank frauds
• Cheque Frauds
• Counterfeit
• Forged Instruments
• Alterations on Instruments
• Drawn on closed accounts
• Credit and Debit Cards (plastic) Frauds
• Deposit Slip Scam
Types of cheque frauds
• Counterfeit [cheque not written or authorised by legitimate account holder].
• Forged
• Altered
• Drawn on closed account Counterfeit
Sources of cheque fraud
• Fraudulently opened bank accounts
• Thieves/robbers breaking into homes/offices or cars
• Waste cheques from bank archives by bank insiders
• Intercepted government / parastatals or company cheques payable to genuine suppliers/service providers
• Intercepted cheques written using acronyms e.g URA, CAA, URC, KCC etc.
• Counterfeit cheques with advancement in colour copying and desktop publishing. Many experts say this is a growing source of fraudulent cheques.
• Dollar cheques / travellers cheques • Eichupuli’, mainly obtained from outside the country but also intercepted from international mail.