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Kenya losing Sh40m monthly to new mobile phone fraud

By Winsley Masese | February 7th 2015
The vice is costing the country over Sh400 million yearly though companies
are working hard to block it using new software. [PHOTO: FILE/STANDARD]

NAIROBI: Kenya could be losing about Sh40 million in month to SIM Box fraud, a fairly new form of crime where international calls are routed as local calls. Former South Africa President Thabo Mbeki recently told the African Union Summit that the fraud was prevalent, affecting both service providers and governments.

Locally, Safaricom told The Standard on Saturday that it has found the need to invest in new technology to curb the rising threat.  Safaricom Corporate Affairs Director Nzioka Waita, said the telco is now able to detect and disconnect the illegal calls in less than five minutes. “We detect SIM box usage within five minutes of it coming online and bar the connection immediately. We no longer lose revenues to SIM box fraudsters, and the poor quality connection era is gone,” said Mr Waita,

He admits that prior to the installation of the new software, SIM box fraud was of concern. Safaricom implemented SIM box detection software on its network from last quarter of 2014. Waita was responding to a revelation contained in a report by Mr Mbeki’s High Level Panel on Illicit Finance, which cited fraudsters costing Kenya over Sh480 million a year to the fraud.

In carrying out SIM box fraud, individuals or organisations buy thousands of SIM cards offering free or low-cost calls to mobile numbers. Mr Mbeki who was reporting on the illegal movement of funds across out of African countries, said the fraud involves diverting international calls and transforming them into local calls.

Local calls are cheaper than international calls due to interconnection fees. Applicable taxes are also higher. By using local numbers to portray an international call as local, the Government loses out on the tax (usually a per minute levy) for international calls. Service providers such as Safaricom would receive lower fees than an international call that is on their network. This is because it is being shown as a local call.

This fraud is revealed in a new report on illicit financial flows presented during the just ended African Union meeting in Ethiopia. The revenue loss is part of the larger Illicit Financial Flows (IFFs) that dampen the country’s prospects from achieving improved economic growth projections. Mobile operators have made massive investment towards their infrastructure, paid for licences, taxes while the fraudsters do not incur any expenses. Illegal SIM box fraud has been identified in many other African countries, including Cote d’Ivoire, Madagascar, Sierra Leone, Somalia, Sudan, Tanzania and Uganda.

In some cases, the report says SIM cards were generating up to 10 cents per minute for more than 20 days per month, costing an operator up to $3,000 per SIM card per month in lost revenue. To stem the fraud, operators are forced to incur unnecessary expenses in buying software to detect and block those illegal call terminations.

Telecoms analyst Peter Wanyonyi says Sim box fraud is common in Africa. “Many African countries lack their own telephone or mobile exchanges and calling into Africa can be quite expensive for someone outside the continent, as calls are sometimes routed through third countries and the like,” Wanyonyi says.

“The SIM Box fraudsters prey on this by offering low-cost calls and then terminating them on local telco providers’ networks.”

He however observes that the fraud is not difficult to stop, except that the volumes of calls can sometimes be overwhelming. “There are security companies in the West that offer SIM Box fraud detection, tracking and blocking services, for a modest subscription. Kenyan telcos are notorious for trying to do everything in-house, but this sort of fraud will require dedicated security companies with the expertise to shut down such fraudulent activities,” he says.

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