East African regulators need to be aligned to curb Simbox fraud

Simbox fraud in East Africa is rife. Fraudsters are getting away with it—using sophisticated technology—because the East African regulators under the One Network Agreement (ONA) are not aligned in terms of international call termination rates—this would automatically curb Simbox fraud.

The ONA agreement allows cheaper calls between Uganda, Kenya, Rwanda and South Sudan. The differences in cost of termination of international calls within the four countries compared with other countries like South Africa and Nigeria have created a loophole to attract fraudsters. Simbox fraud is perpetrated when international calls are routed through the Internet using Voice-Over-Internet Protocol (VOIP) gateways and terminated as a local call via mobile Simcards. Standard network protocols for terminating international calls are bypassed so this is an illegal use of technology.

Uganda charges an excise duty of $0.09 per minute for incoming international calls while Kenya, Rwanda and South Sudan charge $0.04 per minute. Telecoms analysts say the fraudsters are rerouting traffic meant for Uganda to the other ONA countries where charges are lower, thereby pocketing the $0.05 difference at the expense of the legitimate mobile companies and the Ugandan government. It is estimated that Uganda has lost up to USD 144 million accruing from inbound international telecoms traffic disguised as local traffic. This is a huge amount of revenue for any emerging country to lose.

The Financial Intelligence Authority (FIA), has received reports of suspicious activities, pointing to possible fraud, tax evasion, money laundering and suspected terrorist financing via illegal international traffic, also known as “grey traffic.” In the process the Ugandan government loses 45% of its tax revenue, while the telecommunications companies lose more than 80% of the revenue due to them.

The traffic that goes through official international gateways is instead delivered through Simboxes (racks containing hundreds of local numbers) and received as local traffic. The fraudsters end up paying only an eighth of the money they should have paid to the legitimate voice operators in interconnection fees. The Simbox operators, often disguised as data vending companies, negotiate agreements under which the money is paid to them outside the country and they only pay the local termination fee. It is estimated that these fraudulent operators are terminating as many as four million minutes a month—representing a significant revenue leakage for both the telecommunications industry and the government.

The authorities fear that the money generated through this racket could be used to compromise national security in the East African region. This is a very real threat in view of recent reports of jihadist and terrorist group activities in the region.

According to the Rwanda Utility Regulatory Authority (RURA), Rwanda experiences less fraud than its neighbours because it has a fraud management system—integrated into its International Gateway Traffic Verification System—which could be adopted by the region. In Rwanda a call from a country outside the ONA costs a minimum of 22 US cents per minute while a call from within the ONA is charged a maximum of 10 US cents per minute. Although the extent of revenue loss to “interconnect bypass” of Simbox activity is still largely unknown, it has spill-over effects on the entire network.

The Kenyan government could be losing up to Ksh500 million ($4,900) annually to the fraudsters according to the country’s Communications Authority.

So what needs to be done? Oluwole Babatope, research analyst on telecoms and media at the International Data Corporation said: : East African regulators under the ONA agreement need to be aligned in terms of excise duty to curb Simbox fraud.”

Countries like Rwanda and Tanzania which do have effective monitoring and anti-fraud systems in place are able to capitalise on the revenues generated whereas Uganda is losing out on revenue because it is losing the benefit of international calls coming into the country. And for as long as Uganda remains without an effective telecoms traffic monitoring system, the country will continue to lose telecoms revenues that are so sorely needed for the economic and social advancement of the country

If all the governments in the region were able to ensure proper governance of the telecommunications and other sectors by installing efficient and cutting-edge ICT technology systems such as those offered by a reputable global company like Global Voice Group, they would be in a position to channel these revenues into development initiatives and projects. These governments should focus on their priorities and on proven financing mechanisms that work to deliver the infrastructural reform and socio-economic improvements in order to ensure a better life for all in their countries.

Uganda and other countries in the East African region could benefit greatly from a partnership with a global revenue-assurance and ICT expert as there are powerful revenue-raising opportunities available to the government through Innovative Financing for Development (IDF) mechanisms which are being used fruitfully by many other developing countries. New revenue streams for the government should be investigated in various private sector industries in these countries, some of which are: telecommunications, financial services, travel and tourism, mining and minerals, energy and other economic activities.

Uganda, Kenya and South Sudan need to be on a par with Tanzania and Rwanda in their adherence to the policies of the East African One Network Area, and once they have effective systems in place they will surely reap the benefits already accruing to these fellow East Africa countries. With an effective monitoring and anti-fraud system in place, both government and operators benefit.

It is therefore crucial to block the leakages and stop losing significant amounts of revenue which the country can ill afford. This is what needs to be done.