A group of governments in East Africa has taken steps to cut down on the level of illegal foreign exchange trading going on in their countries.
The East African Community, or EAC, is an intergovernmental organisation based in Great Lakes region of the African continent.
In a recent statement, the group’s capital market regulators and central banks said that they needed to tackle the problem of scam forex trading going on in the area.
Due to currency instability, forex traders are often in high demand in this region. Currencies are often heavily inflated. At the end of November, for example, the Tanzanian shilling was recorded at the huge position of 2,291.7 units in comparison to the US dollar.
However, it is a vicious cycle. The more instability there is, the more illegal forex traders there are, but the more forex trades go on, the weaker the currencies get.
There is also a knock-on effect for trade, too. As local currencies become less valuable, budget deficits tend to rise and importing becomes increasingly difficult.
While demand is so high and citizens are so desperate to get their cash exchanged, forex fraud becomes rife. According to local press, authorities in Tanzania, in particular, have been focusing their energies on the problem for almost six months.
As a result of their investigation, action will now be taken. One strand of the new approach is to place a halt on license applications from new forex bureaux, although this is only believed to be temporary.
“All applications have been suspended and new applications won’t be accepted pending the introduction of new rules and regulations”, said Florens Luoga, who is the Governor of the Bank of Tanzania.
Another approach being taken is to arrest those who are believed to be involved in the scams.
A number of authorities across the region are involved in this. Last month, for example, the Rwandan National Police force targeted illicit foreign exchange traders by taking five of them into custody.
Illegally selling the currency of Rwanda carries a jail term of up to two years in that country.
In Uganda, meanwhile, police have also made a number of arrests.
Back in Tanzania, the armed forces were even involved. Soldiers barred access to foreign exchange bureaux in order to allow representatives of the central bank to enter and investigate.
In one of the region’s largest economies, Kenya, “appropriate enforcement action” was threatened against anyone who carried out illegal foreign exchange transactions in the country by one of the regulatory body leaders there.
“The Authority will take appropriate enforcement action against any persons or entities illegally conducting online foreign exchange trade or collecting client funds in contravention of these regulatory provisions”, said Paul Muthaura, who is the Chief Executive of the Capital Markets Authority (CMA) in Kenya.
Kenya has a maximum prison sentence of two years for those who are found to impersonate an online foreign exchange broker.
Under this law, which was introduced last year, it’s also possible to be fined an amount equal to around $50,000 US dollars if convicted of this crime.