Policy & Regulations - Afrikan Heroes

How Mauritius-headquartered Crypto Startups Can Detect And Handle Money Laundering Events Under New Rules

March 13, 2022

Mauritius, a country based off the coast of East Africa, has been rolling out rules targeted at regulating the crypto-currency industry in the country. In 2021, the country introduced the Virtual Assets and Initial Token Offering Services (“VAITOS”) Act 2021, which came into force on the 7th of February 2022. The Act establishes a regulatory framework for new and developing activities involving Virtual Assets (“VAs”) and Initial Token Offerings (“ITOs”) in Mauritius, as well as measures to combat money laundering and terrorist funding related with VAs.

Under the latest guidance from the Financial Services Commission, in charge of regulating the cryptocurrency industry in Mauritius, Virtual Assets Service Providers (“VASPs”) and Issuers of Initial Token Offerings (“IITOs”) must set out measures for the prevention of Money Laundering and Terrorism Financing (“ML/TF”) during the course of their business and operations.

According to the commission, the Guidance Notes, which is effective from 28 February 2022, should be read in conjunction with the VAITOS Act 2021, the Financial Intelligence and Anti-Money Laundering Act 2002 (“FIAMLA 2002”), the Financial Intelligence and Anti-Money Laundering Regulations 2018 (“FIAMLR 2018”) and the FSC’s Anti-Money Laundering and Combatting the Financing of Terrorism (“AML/CFT”) Handbook.

What Red Flags Should Licensed Crypto Startups Be Wary Of Under The New Guidance?

Crypto companies licensed under the VAITOS Act should be wary of the following red flag indicators in the course of their operations.

Anonymous Transactions

Customers paying highly for and using technological features providing higher anonymity.

Customers entering the crypto company’s digital platforms using an Internet protocol (IP) address that allows anonymous communication such as the Onion router, I2P or IP associated with a darknet.

Crypto companies receiving or sending funds from other crypto companies with weak or nonexistent Customer Due Diligence or Know Your Customer (“KYC”) requirements.

The practice of transporting cryptocurrency across borders via decentralized/non-hosted, hardware or paper wallets. In comparison to a centralised system, where some hazards are reduced, decentralized crypto systems are particularly prone to anonymity risks.

Crypto transactions involving mixing and tumbling services, implying an intention to conceal the movement of criminal money between known wallet addresses and darknet marketplaces.

Unusual volume of cryptos cashed out at exchanges from related wallets on P2P systems with no reasonable business explanation.

Vendors of cryptocurrency that assist crypto activities through terminals pose a greater danger if the machine or kiosk is located in a high-risk area and is utilized for repeated small transactions.

Suspicious Transactions

Similar to structuring cash transactions, structuring crypto transactions (e.g. exchange or transfer) in small amounts or amounts below record-keeping or reporting limits.

Multiple high-value transactions — in quick succession, such as within a 24-hour period, in a staggered and regular pattern, with no subsequent transactions recorded for an extended period of time, which is especially common in ransomware cases involving cryptos or newly created or previously inactive accounts.

The initial deposit made to a crypto account is too huge for the consumer profile.

Making a large initial deposit to start a new connection with a crypto company, funding the deposit in full the first day, and trading the entire deposit or a large portion of it the next day, or withdrawing the entire deposit the next day.

A new user tries to trade or remove all crypto balance from the platform.

Making large transfers to and from the same crypto account or IP address by multiple people in a short period of time (e.g. a day, a week, a month).

Exchanging crypto-fiat currencies at a loss.

Suspicious Sender or Recipient Details

Creating multiple accounts with different names to avoid trading or withdrawal restrictions.

A consumer who refuses to provide KYC paperwork or answer questions about fund source.

Sender/recipient unaware of the transaction, funds source, or counterparty relationship.

A customer offers identity or account credentials that have been shared by another account.

Disparities exist between IP addresses connected with a customer’s profile and those used to begin transactions.

Questionable Source of Funds or Wealth

Making payments to sanctioned addresses, darknet marketplaces, or other illegal websites.

Crypto transactions to or from internet gambling services.

Using one or more connected credit or debit cards to withdraw significant quantities of fiat currency (crypto-to-plastic) or monies to purchase cryptos.

Deposits into a crypto address are unusually high, with an unknown source of funds, followed by a conversion to fiat currency.

Improper usage of shell businesses, monies placed in an Initial Token Offering where personal data of investors may not be available, or incoming transactions via online payment systems using credit/prepaid cards followed by immediate withdrawal.

Funds sourced directly from third-party mixing services or wallet tumblers by a customer.

The majority of a customer’s wealth comes from fake cryptos or Initial Token Offerings.

The majority of a customer’s money comes from other crypto firms or IITOs that lack AML/CFT safeguards.

Funds From High-risk Countries

Moving funds to crypto firms or IITOs 11 domiciled or run in jurisdictions with no or inadequate AML/CFT rules.

These jurisdictions may not have a licensing/registration system, or have not extended STR standards to cover crypto operations, or have not implemented all preventive measures.

How Crypto Companies Can Achieve Compliance With The AML/CFT Rules

First of all, it must be noted that the Guidance Notes, which is effective from 28 February 2022, must be observed in conjunction with the VAITOS Act 2021, the Financial Intelligence and Anti-Money Laundering Act 2002 (“FIAMLA 2002”), the Financial Intelligence and Anti-Money Laundering Regulations 2018 (“FIAMLR 2018”) and the FSC’s Anti-Money Laundering and Combatting the Financing of Terrorism (“AML/CFT”) Handbook.

That said, crypto companies with headquarters in Mauritius must implement the following compliance checks in the course of their operations:

Risk Assessment

They should identify areas where their products/services could be exposed to ML/TF risks;

Take appropriate steps to ensure that any identified risks are managed and mitigated through the establishment of appropriate and effective policies, procedures and controls.

Customer Due Diligence

Crypto companies and IITOs must keep accurate customer records. Examining their wealth and sources of cash.

They must also identify their customers and, where relevant, their beneficial owners, and then verify their identities.

When performing covered crypto activities for or on behalf of their clients, they must gather necessary due diligence information.

Due diligence should also be able to identify clients and their beneficial owners, as well as the purpose and intended nature of the business relationship, as well as acquiring additional information in high-risk scenarios.

Due diligence measurement can also be conducted using a trustworthy and independent digital identification system, even if clients are not physically present.

In order to decide if they can rely on the results obtained, or whether extra processes are required to supplement the existing controls, they must evaluate the controls inherent in these digital identity systems.

The electronic KYC documents must be valid and adequately verify that the customers are who they claim to be.

They must gather, hold, and communicate required and correct originator and beneficiary information instantly and securely when undertaking virtual asset transfers.

They may not effect a crypto transfer without the required and accurate information.

A financial institution must follow the Travel Rule requirements when transmitting or receiving crypto asset transfers on behalf of a customer.

They should employ applicable software to: identify counterparty wallet type (pre-transaction); identify risk-related details about the beneficiary through blockchain analytics and sanctions screening providers; allow to safely send or receive encrypted customer’s Personally Identifiable Information (“PII”) through various messaging protocols; store encrypted customer PII for up to seven years.

For occasional transactions, they must apply customer due diligence measures to an amount equal to or above 1000 US dollars, or an equivalent amount in foreign currency, where the exchange rate to be used to calculate the US dollar equivalent is the selling rate in force at the time of the transaction, whether conducted as a single transaction.

They should keep all customer due diligence-secured identification documents for at least 7 years.

Enhanced Due Diligence (EDD)

Crypto companies and IITOs will be expected to develop internal controls and other procedures to combat ML/TF, including EDD procedures for high-risk persons, business ties and transactions, as well as persons formed in countries without appropriate systems in place.

Particularly, they should follow Regulation 15 of the FIAMLR 2018 when dealing with Politically Exposed Persons (“PEPs”).

If they cannot perform the requisite EDD, they must end the business connection and file a suspicious transaction report under FIAMLA 2002 Section 14.

Transaction Monitoring And Reporting

In addition to applying robust KYC methods that enable identification of suspected ML/TF activities, crypto companies must to establish effective transactional monitoring systems to ascertain the origin and destination of cryptos on their accounts.

They are expected to act responsibly and to report any suspicious behaviour by participants transacting with cryptos.

If they notices suspicious activity or have reason to suspect a transaction is suspicious, they must: a) get EDD in accordance with Regulation 12 of the FIAMLR 2018; and b) make an internal disclosure in accordance with Regulation 27 of the FIAMLR 2018.

These reporting processes must also apply to prospective customers and attempted transactions that did not occur.

The Money Laundering Reporting Officer of the crypto company should next assess if a Suspicious Transaction Reporting (STR) to the Financial Intelligence Unit is required.

Crypto money laundering Mauritius Crypto money laundering Mauritius Crypto money laundering Mauritius Crypto money laundering Mauritius

Security Token Trading In Mauritius Now Eligible For Licensing Under New Regulation

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer

Congo Startup Act Now One Step Away From Coming Into Effect

March 8, 2022

The government of the Republic of Congo is working on an unique legal framework for startups – the Startup Act. On March 2, the Council of Ministers adopted the associated law, which was then transmitted to Parliament. Léon Juste Ibombo, Minister of Posts, Telecommunications, and the Digital Economy, had presented it for consideration. The language of the law, once adopted by the deputies, will aid in the implementation of various administrative, financial, fiscal, and other measures aimed at promoting the growth of tech entrepreneurship in the central African country.

Léon Juste Ibombo, Minister of Posts, Telecommunications, and the Digital Economy

“The lack of a specific legal framework for players in the digital industry, the lack of appropriate funding, the difficulties in accessing public procurement, and the absence of an innovation strategy justifies the proposal of an environment conducive to the development of these young companies,” Léon Juste Ibombo said.

A “startup” label is included in the statute. It will only be given to fledgling businesses that meet certain criteria.

The government of Congo has decided to devote special attention to its start-up economy as a result of the high level of financial interest that this sector has already generated among African investors.

In 2021, African start-ups raised $5.2 billion in funding, up from $277 million in 2015, according to Partech Africa Report.

Covid-19 has increased the value of fintech, e-logistics, e-commerce, and e-health.

The Congolese government aims to allow local innovators to benefit from the rising commercial prospects as the continent’s digital transformation accelerates.

According to Partech’s “2021 AFRICA TECH VENTURE CAPITAL” report, Congolese startups raised $1 million in 2021 from investment funds and other venture capital firms.

Senegal, which has had a startup law in place since December 28, 2019, saw the amount of money raised by its startups reach $353 million in 2021. According to Partech, it was $6.50 million in 2016.

Congo will be able to further enrich itself with tech innovators and entrepreneurs capable of supporting it in its digital transformation with local solutions fitted to its reality, thanks to an ecosystem that encourages the establishment of startups. A thriving local industry that will spur the development of jobs for the country’s youth and increase its riches.

Congo Startup Act Congo Startup Act

Startup Act In Africa: Learn More About What Algeria, Ghana, Ethiopia, Others Provide

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer

Why Bank Accounts Belonging To African Startups Were Frozen By US Bank Mercury

March 7, 2022

In an email to an African startup incorporated in the US state of Delaware (name withheld on confidential grounds), US-based bank Mercury wanted to know the startup’s core business, the list of all US investors that have ever invested in it, and explanatory notes (attaching all relevant documentary evidence in support) about all transactions that had ever taken place on the account. The email followed a related one, late February, that Mercury’s compliance team had flagged the startup’s account for review as a result of which a temporary restriction had been placed on the account.

Initially at cross-roads (considering that staff salaries were due for payment), the confused founder of the startup sought to know why everything was happening now, instead of the dates the transactions occurred. The founder groaned that the bank could have demanded clarification on the occasion of each of the several transactions the startup had conducted.

This is one out of many of such restrictions reported last week across Africa by founders whose bank accounts with Mercury were restricted.

Mercury is a neobank that partners with Evolve Bank & Trust, which claims it is a global leader in the payments industry. Founded in 2019, Mercury describes itself as a bank for startups. That same year, the startup raised $20m Series A funding round led by CRV with support from Andreessen Horowitz, the VC that had earlier led the startup’s $6 million seed round.

African accounts Mercury bank — *UK’s* *Immad Akhund is the CEO & Founder of Mercury. Image credits: Mercury*

Why The Restriction?

It is not surprising that the founder of the African startup earlier mentioned had received the email blocking the startup’s Mercury bank account on Monday February 28, the same day the Biden administration announced additional sanctions against Russia’s central bank, effectively prohibiting Americans from doing business with the bank and freezing its assets in the US.

It is not also surprising that Mercury bank had demanded a list of all US investors in the startup, pointing to the possibility of closer scrutiny on the identities of the general partners behind the venture capital firms that invested in it.

Previously, the neobank’s selling point has been to help U.S. companies founded by people from all over the world.

“You can open your account right from your laptop without needing to visit the U.S.,’’ the neobank says.

Despite the fact that it accepts founders from all over the world, it also states that there is a limit to how far it can go.

“We can’t currently open accounts for founders living in the following countries: Albania, Belarus, Bosnia, Burundi, Central African Republic, Croatia, Cuba, Cyprus, Democratic Republic of the Congo, Iran, Iraq, Lebanon, Liberia, Libya, Macedonia, Montenegro, Nicaragua, North Korea, Russia, Serbia, Slovenia, Somalia, South Sudan, Sudan, Syria, Ukraine, Venezuela, Yemen, and Zimbabwe,” Mercury notes.

What is not clear, however, is when the list was updated. Previously before Russia invaded Ukraine on February 24, the list included, among others, Ukraine/Russia (Crimea), and nothing more.

It should also be noted that the list of sanctioned countries in the United States varies from time to time, in accordance with the US Treasury Department’s Sanctions Programs and Country Information.

In any case, the affected African startups were qualified to be hosted by Mercury in the first place. Mercury notes that it can accept most U.S. companies that aren’t money service businesses or involved with adult entertainment, marijuana or internet gambling.

“Our product is geared towards tech companies, so it might not be the best fit for some other businesses, especially ones that frequently deal with physical cash. We also can’t open accounts for sole proprietors or trusts,” Mercury adds.

Therefore, it seems that African startups with accounts in Mercury may have been caught in the cross fire in the war between the US-backed Ukraine and Russia.

Why Do African Startups Incorporate And Domicile Bank Accounts Abroad In The First Place?

One thing has always been clear since the start of the startup bubble in Africa: a lot of local startups are increasingly being registered in offshore territories. Additionally, they are maintaining their bank accounts there.

The reasons are not far-fetched. A recent report from African Venture Capital and Private Equity Association says that foreign-registered companies significantly shape the continent’s early stage startups funding landscape.

The report notes specifically that about one fifth (21%) of the total number of VC deals between 2014 and 2019 went to startup companies headquartered outside of Africa. Of these companies, the majority (53%) are based in the United States.

Therefore, foreign-based investors in African startups, in most cases, demand that investments be made only through foreign-domiciled bank accounts. Usually, the demands are based on concerns about political, fiscal, economic (particularly tax), social, or cyber-security dangers linked with direct investments in certain African countries.

What Happens To African Startups With The Frozen Accounts?

While the deed had been done, it is critical that African startups who wish to keep their bank accounts in the United States and related jurisdictions conduct extensive due diligence on their business partners and investors in the future, and screen them against the US Treasury Department’s Sanctions Programs and Country Information, as well as other similar sanctions lists.

It’s also a good idea to ramp up compliance checks on overseas transactions in general.

In the mean time, the impacted founders may have to establish beyond a reasonable doubt that transactions made on their frozen accounts are not subject to any compliance issues.

If they fail to do so, the affected accounts may be blocked for an extended period of time.

African accounts Mercury bank African accounts Mercury bank African accounts Mercury bank

Why African Startup Founders Incorporate Their Startups In Foreign Countries

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer

Ethiopia Prepares To Open Banking Sector To Foreign Investors

February 27, 2022

Ethiopian Prime Minister Abiy Ahmed recently stated that foreign investors will soon be able to purchase shares in local banks. Even though no deadline has been set, Ethiopia’s prime minister promises that the measure would take effect “as soon as Parliament passes policies to that effect.”

“The administration is now working on […] a policy change. We will implement it whenever the preconditions are met and the banks are ready “Added he. Several African banks, such as Kenya’s Equity and KCB Group, are eagerly anticipating the opening of Ethiopia’s banking market to foreign competition.

Recall that Ethiopia, with its 114 million people, is Africa’s sixth largest economy. According to the Central Bank, it has 18 commercial banks, two of which are state-owned.

Ethiopia banking Ethiopia banking

Key Things To Note About The New Open Banking Regulations In Egypt

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer

DR Congo Scraps Mobile Device Registration Tax

February 26, 2022

The DRC government has said it will scrap the contentious device registration tax, effective March 2022. The country first implemented the device registration program in 2020 to help combat fraud and counterfeit devices.

The Mobile Device Registry (RAM) tax requires customers to register their International Mobile Equipment Identity (IMEI) devices with the ARPTC (Post and Telecommunications Regulatory Authority).

All mobile devices on Congolese territory must pay a monthly fee ranging from US$0.17 for 2G devices to more than US$1.17 for 3G and 4G devices during a six-month period under the new arrangement. The funds are collected by the regulator, which has blocked the number of subscribers who have failed to register or pay.

Between 2019 and 2020, the number of mobile connections in the Democratic Republic of Congo increased by over one million, according to datareportal. Civil society organizations have expressed concerns that this trend would reverse as a result of the country’s new mobile device tax.

In a statement criticising the RAM, the non-profit group Rudi International stated, “This decree thus adds a sixth tax benefiting the Regulatory Authority of Posts and Telecommunications of Congo to the five others it already imposes on operators in its sector.”

RAM critics have further accused authorities of using the tax to rob consumers and that the government has not been transparent about the levy or plans for fundraising.

According to a study conducted by the firm Ernst & Young as part of an investigation of the potential benefits of a more effective tax system for the DRC’s mobile phone sector, taxes is also a barrier to digital inclusion in the DRC.

Congo device tax Congo device tax

Atlantica Ventures Secures $50m Commitments To Invest In African Startups

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer

Startup Act In Africa: Learn More About What Algeria, Ghana, Ethiopia, Others Provide

February 16, 2022

Running a startup in Africa comes with a lot uncertainties especially as regards the regulatory environment. This is perhaps why most African entrepreneurs opt to form offshore corporations in order to strengthen not only their legal identities but also to protect the interests of investors. The Startup Act concept in Africa, which Tunisia pioneered, is once again helpful in assuaging the anxieties of both founders and investors.

What Difference Have Startup Acts Made In African Countries Where They Exist?

A list of some of the Startup Acts (and associated download paths) that are already in place in several African countries is provided below.

Algeria

Under the Algerian Startup Act, the “Start-up” label is granted to the company for a period of four (4) years, renewable once (1), in the same forms.