Zambia Launches Crackdown on Crypto Companies

The Bank of Zambia has started to clamp down on cryptocurrency-related businesses, mere days after declaring that it does not view digital coins such as BTC as legal tender. The crackdown began on Oct. 14, when the central bank announced an investigation into Heritagecoin Resources Ltd. for allegedly laundering money, according to local media reports.

Also read: Zambian Central Bank Declares Bitcoin is Not Legal Tender

Bank of Zambia Probes

Heritagecoin’s Deposits Business

In addition to the ongoing probe, the Lusaka-based fintech startup faces allegations that it has taken on traditional banking activities, such as accepting deposits — something it is not certified to do.

“The company … has since been offering financial services and collecting deposits from members of the public,” Kamufinsa Manchishi, a spokesperson for the Zambian Drug Enforcement Commission, told the Lusaka Times. The organization, which is assisting with the investigation into Heritagecoin, did not reveal the amount of money involved.

Manchishi added that: “As such, the commission together with the Bank of Zambia (BoZ) are currently investigating the company for activities contrary to the Prohibition and Prevention of Money Laundering, as well as the Banking and Financial Services Acts.”

On Friday, the BoZ declared that cryptocurrencies such as BTC are not legal tender, warning that those conducting transactions in the cryptocurrency would have nobody to turn to or blame in the event of market failure. However, it appears that the bank issued the decree solely because it wants to promote its depreciating fiat currency, the kwacha.

That said, the central bank has neither the power nor the legal backing to shut down the nascent Zambian cryptocurrency market. The BoZ would need parliament to amend the law that enabled its own establishment for it to be able to claim any authority over cryptocurrency investments or trading.

Nonetheless, the BoZ does have full control of the banking sector within which Heritagecoin Resources operates. Founded in June 2018, the company describes itself as a “digital currency financing and real estate development” company that also offers “other financial advisory services.” It does not appear that the firm is operating as an exchange, although it does accept deposits.

Suspicious Startup

Some of the promises made by the startup do look suspicious, as many of them are expressed in bombastic, pyramid-style jargon. “The concept is very simple; our partners are entitled to daily earning (sic) of 1.6 percent guaranteeing a payout of 38 percent after service charge. Maturity period is 25 working days,” the company says on its website. Promoters of Ponzi schemes often make similar claims, such as promising unusually high returns on deposits — often, those promises are too good to be true.

“Despite the name, they (Heritagecoin) don’t actually have a coin or token. It’s just a name. They are not an exchange,” Dominic Kapalu, a Zambian author and cryptocurrency proponent, told news.Bitcoin.com. “They collect funds from people which they trade in altcoins and bitcoin. I am not sure if they do mine as well. From the returns they get from the business, they share the profits with the investors.”

Kapalu claimed that the BoZ probe is not specifically focused on the cryptocurrency side of Heritagecoin’s business, even though its crypto unit was at risk of collapse if it didn’t take deposits. “The company is being investigated not because they deal in cryptocurrency,” Kapalu said via email.

“The investigation is to do with a product they have which requires members of the public to deposit money with the company and pay them interest after 28 days. (BoZ) rules state that any deposit-taking institution in Zambia needs to be licensed to prevent companies from defrauding citizens.”

Proceed With Caution, Authorities Warn

Manchishi, the Zambian Drug Enforcement Commission spokesperson, warned investors to remain wary of companies that promise extraordinarily high returns on short-term deposits. On Oct. 12, the BoZ also issued a statement warning individuals that use or trade cryptocurrencies that they were doing so at their own risk. The central bank said that such people would not have any regulatory recourse in the event of theft or fraud.

Additionally, the BoZ claimed that although bitcoin and other cryptocurrencies retained “some monetary characteristics, such as, being used as a means of payment on a person-to-person basis, cryptocurrencies are not legal tender in Zambia.”

On its charge sheet, the Zambian financial regulator claimed that virtual currencies are raising the risk of “money laundering” while “financing activities of terrorism” and driving up “general consumer protection risks such as fraud and hacking.”

In May, the central bank in neighboring Zimbabwe used its authority over commercial banks to shut down cryptocurrency markets.

What do you think about the Bank of Zambia’s stance on cryptocurrency? Let us know in the comments section below.

Images courtesy of Shutterstock.

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