In a recent statement, the group’s capital market regulators and central bankers an onslaught against the illegal cartel has already began with Rwanda Police Force and Tanzania People’s defence Forces personnel involvement.
“All applications have been suspended and new applications won’t be accepted pending the introduction of new rules and regulations,” the statement quoted Bank of Tanzania Governor, Professor Florens Luoga as saying.
Prof Luoga told reporters soon after the army and BoT investigators invaded bureau de changes in Arusha city a fortnight ago that the number of shops trading in foreign currency will drastically be reduced when new regulations take effect.
“We have more than 300 foreign currency trading shops in Dar es Salaam only, it’s too much because some of them are located in the suburbs where no foreign cash is readily available,” he noted.
In Rwanda, a crackdown also took place last month with the Rwandan National Police force targeting illicit foreign exchange traders.
Illegally selling the currency of Rwanda carries a jail term of up to two years in that country. 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.
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, the EAC statement noted.
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.