R29m transferred to Seychelles in Ponzi fraud case |01 August 2014

R29 million has been transferred to Seychelles as a result of an order issued by the Supreme Court under the Proceeds of Crime Act.  
The Court ordered the permanent seizure of the money as a result of a Ponzi fraud case taken by the Attorney General’s Office on behalf of the Financial Intelligence Unit (FIU).

In Ponzi scheme frauds, the fraud operators attract new investor money to make promised payments to earlier-stage investors so as to create the false appearance that investors are profiting from a legitimate business.

In this case a complex structure was established to create the impression that the profits were being derived from legitimate companies rather than stolen from new investor funds.

With little or no legitimate earnings however, Ponzi schemes require a consistent flow of money from new investors to continue. They tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out.

Like the victims of the notorious Bernard Madoff, the victims of this scheme thought they were investing their money in a high yield investment programme (HYIP) with guaranteed higher than normal returns.

This particular scheme was identified early as a result of a combination of suspicious activity reports received both from overseas and local entities after several suspicious transactions on accounts in Seychelles and in other European jurisdictions came to the attention of the authorities.

The criminal proceeds of the scheme had originated in the EU and been lodged in Seychelles bank accounts owned by two international business companies with addresses in Seychelles.

The beneficial owner and sole director of the offshore companies was an EU national.
Documents pertaining to the opening of the Seychelles bank accounts stated that the main trade of these companies was in real estate investments.

However, analysis by the FIU identified that the pattern of transactions coming into and going out of the accounts was more consistent with a ponzi type fraud. False documents were sent to the bank in Seychelles to explain the transactions on the accounts.

This case is a good example of how financial service providers and the authorities are working together to prevent Seychelles being used by international criminals. Within the international framework of exchanging information, the FIU became aware of other investigations and ongoing court proceedings relating to the two Seychelles offshore companies and their beneficial owners in Europe.

The main perpetrators had been arrested for organised fraud, money laundering and illegal banking practices. In total the value of the fraud is estimated to be over €25 million.

In Seychelles, the case has taken approximately four years to investigate and bring to final arbitration in the Courts.

The FIU is conducting a number of other long-term investigations with partners in the United States, the UK and Asia into schemes portrayed as HYIPs which have allegedly operated with Seychelles registered ownership vehicles, bank accounts or directors or other services.

Schemes suspected of being fraudulent, such as the well-known Stoic Capital Management Inc scheme, usually become subject to public notices by the authorities in the relevant jurisdictions where they are operating unlawfully before they become the basis of long-term transnational investigations.