LocalBitcoins Traders Charged with Fraud for Selling Bitcoin to Thief in Kenya

December 1, 2017 12:37 PM UTC

Three Kenyan peer-to-peer bitcoin brokers have been charged with banking fraud in connection with trades they made through the LocalBitcoins trading platform. The case could set a troubling precedent for bitcoin traders in Kenya.

As reported by regional media outlet Kenyan Wall Street, 10.2 million KEH (approximately $100,000) was stolen from I&M Bank and a Safaricom Pay Bill account. Local police were able to track the stolen funds to multiple bank accounts, including those belonging to bitcoin traders Emma Kariuki, Stanley Mumo, and  Timothy Gachehe.

The three individuals have been charged with conspiracy to commit a felony, although — apparently — their only connection to the crime was selling bitcoins to the individual who was attempting to launder the funds. That person was “BADASS20,” a pseudonymous individual who used the stolen funds to buy bitcoins through peer-to-peer bitcoin trading platform LocalBitcoins.

The traders deny that they had any knowledge that they were inadvertently helping BADASS20 launder the stolen money, and their LocalBitcoins chat history appears to confirm their protests.

Nevertheless, Kenya’s Banking Fraud Investigation Unit (BFIU) froze the traders’ bank accounts, and the three individuals were arrested and then released on bail. They will make their first court appearance in December in advance of a full hearing in January.

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Oddly, BADASS20 has not been identified or arrested, even though wire transfers revealed his or her bank account. Moreover, his or her LocalBitcoins profile was still active at the time of writing, although he or she has not logged into the account for approximately one week. Recognizing that the account was still active, other users have given the account negative feedback and have left reviews warning other users not to trade with this account.

There are still many unanswered questions which will hopefully be answered at the upcoming hearing, but it’s clear that this case could set a troubling precedent for bitcoin traders in Kenya. In 2015, the central bank issued a public notice (PDF) warning residents to “desist from transacting in Bitcoin and similar products”.

Nevertheless, peer-to-peer trading platforms have flourished within the country. But if this case continues on its present course and the government prosecutes these bitcoin traders for bank fraud  — even though they were unaware of the theft and their only connection to the perpetrator was through LocalBitcoins — it could have a chilling effect on the domestic cryptocurrency industry.

Featured image from Shutterstock.

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Last modified: May 20, 2020 9:18 PM UTC