Flutter wave

How Nigerian techies Stole and wired Sh276bn without CBK nod

As the world toasted Nigeria’s Olugbenga Agboola as Africa’s freshly minted tech billionaire, Kenyan authorities were investigating his firm for possible money laundering links.

It was February last year when a firm he co-founded — Flutterwave — was valued at $3 billion, making it the most valuable start-up in Africa as international investors bet on the continent’s fintech scene.

While this made the 37-year-old Agboola one of Africa’s most well-known entrepreneurs, investigators and regulators in Kenya suspected his Nigerian payments company was riding on proceeds of crime, in particular card fraud.

In the end, the High Court froze its Sh6.2 billion spread in 62 bank accounts on money laundering fears and the Central Bank of Kenya (CBK) ordered Kenyan banks to immediately cut links with Flutterwave.

Flutterwave was one of the three Nigerian fintech that were at the centre of a complex money laundering probe in Kenya, with court records indicating that they wired over Sh276 billion in multiple currencies over four years without the knowledge and license from the CBK.

The three, including RemX and Kandon Technologies, were investigated by the Assets Recovery Agency (ARA) on fears of card fraud and money laundering.

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ARA reckons that the three firms wired Sh276 billion in foreign currencies in over 100 accounts at Guaranty Trust Bank, Equity, EcoBank, Access Bank and UBA between January 2019 and June last year.

By the time local investigators received court orders to freeze the accounts, an estimated Sh262.4 billion had been wired to offshore bank accounts in Dubai, Nigeria and Zambia.

Bank statements attached to court documents revealed a cross-continental operation that moved huge sums of dollars to Kenyan banks and wired them to multiple companies registered locally with shared ownership and suspect addresses.

So far, Kenyan authorities have withdrawn money laundering suits against Kandon and RemX, which is owned by Nehikhare Eghosasere and Demuren Olufemi.

This saw the High Court lift orders to unfreeze Sh5.6 billion belonging to RemX and Sh16 million under Kandon.

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But the CBK said the firms were not licensed to operate in Kenya and ordered local banks to block the three Nigerian fintech from their networks amid their strong linkages.

Mr Olufemi is co-founder of Venture Garden Group, a venture capital firm operating from Lagos.

Venture Garden Group was the first fund to invest in Flutterwave in 2018, underlining the links between the three firms that also exchanged billions of shillings among each other.

The cash movements involved the same companies and entities registered in nearly identical names and in some cases owned by the same individuals across different countries, including Kenya, the US, UAE, Nigeria and Ghana.

Lagos-based Kandon — which also has a hub on 400-77 King Street West Toronto, Canada —moved an estimated Sh6.7 billion between March 2021 and May last year in UBA Bank. About Sh6.4 billion and Sh28.2 million were held in euros and pounds respectively.

RemX received Sh84 billion and wired out Sh78 billion, part of which was used to buy bitcoins at the US crypto exchange Binance and local exchange BitPesa.

Kandon told the court last year that the billions were used to settle payments for importers and exporters moving cash across borders.

“The company has been established locally to provide bridge financing services intended to address the numerous challenges faced in the SME in terms of mid- to short-term financing; this is in line with the overall ethos across the group of companies in the other jurisdictions where it has a presence,” Pauline Uzoamaka, a Kandon director, said in an affidavit.

ARA believed there was a connection between RemX and Flutterwave, citing outsized amounts of money the startups transacted among each other.

Flutterwave sent Sh12.4 billion to RemX between 2020 and 2022.

The funds were mostly wired from Flutterwave’s foreign accounts to a RemX fixed account at Equity Bank.

“No supporting documents were provided to justify the transactions, creating suspicions that the accounts were used as conduits for money laundering,” ARA told the court.

Preserved funds

Kandon received around Sh2.8 billion ($22.5 million) from RemX between February 1 and March 8, 2022 in the period that coincided with ARA investigations, which were later converted to bitcoins.

“The source of the preserved funds are from several clients and suppliers serviced by the applicant whose funds are now caught up in baseless application filed by the 1st Respondent,” Ms Uzoamaka said in court papers defending the outsized transaction the startup facilitated.

The firm was founded in 2019 by Ayowole Ayodele and Ms Uzoamaka.

Between March to May last year, Flutterwave wired to Kandon a total of Sh21 million in tranches of between Sh1.5 million and Sh4 million, all in dollars.

In a warning to Flutterwave in July last year, the CBK cautioned the company against engaging in remittance and payment services without a licence.

The firm alleged in court documents that it applied for a licence in 2019.

“CBK has received information that Flutterwave has been engaging in payment and money remittance services without the requisite authorisation/licence by CBK in contravention of the law,” CBK deputy director Matu Mugo said in a letter to Flutterwave.

The three are not listed on the regulator’s website among licensed remittance and payment service providers.

Flutterwave, which moved the biggest chunk of the funds at Sh184.9 billion in 62 bank accounts spread across five banks, told the court that they entered into agreements with local lenders and service providers to facilitate the transactions.

Read: Payments firm Flutterwave raises Sh28bn for acquisitions

Transactions in dollars hit Sh111 billion ($892.1 million) while it also wired funds in local currency amounting to Sh67.4 billion, euros (Sh5.8 billion) and pounds (Sh681.4 million).

“In the interim, while waiting for the issuance of appropriate licenses, the 1st Respondent (Flutterwave) partnered with licensed entities such as Safaricom PLC and commercial banks operating to remit payments on its behalf and receive Visa and Mastercard payments through their electronic payments gateways,” said Flutterwave legal vice-president David Oluranti.

A Kenyan financial regulator, who sought anonymity, said the firms breached local laws by operating for years without the CBK nod.

“When opening an account with a local bank, as part of the know your customer (KYC), the payment service providers must present a certificate of incorporation, CBK licences and now we have included the list of beneficial owners among other documents. That’s the law,” the regulator said.

This is an indictment on the Kenyan banks that did business with the three Nigerian firms.

The regulator said the Financial Reporting Centre—the agency that tracks illicit money—and the CBK were not aware of the flow of billions linked to the three Nigerian firms.

Flutterwave, founded in 2016, is now the biggest payments start-up on the continent.

The Lagos-based company has processed 200 million transactions worth more than $16 billion in 34 African countries.

It maintains that claims of financial impropriety in Kenya were “entirely false”.

Nairobi Today


Author: Alex

Alex is a Kenyan blogger writing on technology, fraud, social media and politics at Nairobi Today.

email:: admin[at]nairobitoday.co.ke

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