How Kenya Shut Down Nigerian Start-Up Flutterwave And The Billions In Seizure

Nigeria has been notorious for money laundering schemes and card frauds in other countries. The Assets Recovery Agency (ARA) has recently confiscated billions of shillings from companies and individuals under the guise of investors and agents. 

One such instance involved Mr. Mauzu Bala, a Nigerian national claiming to be a Dubai jeweler agent, caught traveling with a bag of undeclared money in December 2020 at JKIA.

The bag contained $880,000, £60,000 and N63,000 – amounting to over Sh.100 million which the agency confiscated. 

The latest and biggest reveal and seizure was a Nigerian startup, Flutterwave, where ARA confiscated Sh.6.2 billion from 62 bank accounts. In a court filing, ARA reports the money was transferred in the disguise of settlement for goods and services. 

Before the Unveiling

Flutterwave is a fintech company that provides secure and seamless transaction experiences to its consumer base. Or at least that is how it presents itself. 

The payment technology company was the brainchild of Olugbenga Agboola and Iyinoluwa Aboyeji, Nigerian nationals and entrepreneurs. It was founded in 2016 as a solution to the fragmented payment systems in Africa. 

The digital payment application programming interface (API) was developed to simplify business operations in the continent by enabling international transactions using local currencies. The platform expanded to over 33 countries in Africa, Kenya included. 

The San Francisco-headquartered startup expanded its fan base to Kenya, targeting small and medium enterprises (SMEs), which serve as the backbone of the country’s economy.

The company serves payment service providers and merchants, processing millions of transactions globally. 

Its key investors include Greycroft Ventures, Alibaba’s Alipay, Mastercard, and Visa. The company enables clients to utilize its API services in customizing payment applications. Its customer base involves notable names like Uber, Jumia, and Booking.com.

Funding for the Firm

Flutterwave attracted over $20 million in its Series A extension funding before it began experimenting solutions for SMEs that would enable them to use their Instagram pages as eCommerce stores. 

In Feb 2022, the San Francisco and Lagos-based payments firm raised $250 million in a successful Series D funding round.

The fund drive was majorly directed at financing mergers and acquisitions, to tap into the ever-growing digital payments market in Africa. 

In addition, the funds would boost the development of complementary products and promote innovations in Flutterwave’s products and services segment. 

Eduardo Saverin-owned venture capital, B Capital Group, was among the key investors spearheading the growth of Flutterwave in the region. 

Other investors included New York-based venture capital, Lux Capital; San Francisco-based investment fund, Alta Park Capital; and Boston-based hedge fund, Whale Rock Capital Management. The Series D funding valued the payments firm at $3 billion. 

The Big Reveal

The company emerges as the leading payments’ service provider in Africa, serving over 900,000 businesses globally and collaborating with other fintech firms. Kenya is the payments firm’s second-largest market, behind Nigeria. It is in business with big names like Alibaba, PayPal, MTN, Uber, Airtel Africa, Flywire, among others. 

Flutterwave also integrates with Paypal.

Signs of Dubious Practices

Earlier this year, in April, Agboola was found to have formed a ghost ‘co-founder’ identity to have more company shares. In addition, it was alleged that he offered low share prices to company employees looking to cash in. The shares were bought by a firm Agboola owned.

A former employee accused the online payments firm of negligence in carrying out its duty, which led to fraudulent activities. The firm was also under scrutiny following an ethics probe in 2018 by the US Security and Exchange Commission.

This was the start of a long list of allegations that would follow the company. The firm’s assets, worth Sh.6.2 billion, were frozen by the Central Bank of Kenya following money laundering and card fraud allegations. 

Money Laundering and Seizure

Flutterwave has recently caught the attention of the Assets Recovery Agency (ARA) that flagged it for financial impropriety. 

Court filings disclose the firm to be owned by Olugbenga Agboola, Iynoluwa Samuel, and Adeleke Christopher, with a Kenyan director, David Mouko Elizaphan Omaanya. However, Mr Omaanya has no share in the company.

According to recent reports, ARA investigations uncovered Sh.5.17 billion in 29 Flutterwave accounts with Equity, Guaranty Trust Bank (GTB), and Ecobank, which were in US dollars, Euros, Kenyan Shillings, and Sterling pounds. 

Flutterwave also received around Sh.12.4 billion in a single Equity Bank account between November 2020 and 2022. This portrayed the massive cash inflow the company deals with.

However, the funds in the Equity Bank account were transferred to Rem X Ltd, a holding firm controlled by Demuren Olufemi Olukunmi and Nehikhare Eghosasere. Rem X Limited has also had a run with regulation authorities that resulted in a Sh.5.6 billion seizure in April for money laundering probes.

According to ARA, the bank accounts of the first respondent received billions, which were distributed across multiple accounts, in different banks. The distribution was intended to keep the nature, location, source or disposition from the radar of authorities. 

What caught the attention of ARA was the transactions carried out on the same day and at the same time. The cards used in the scheme were also issued by the same accounts.

According to the filing, Boxtrip Travels and Tours and Bagtrip Travels Ltd received Sh.467.1 million and Sh.436 million, respectively. The former is registered to a Nigerian, Enyioma Olufemi Madubuike; and the latter to Tofunmi Taiwo Soyemi.

Elivalat Fintech Limited received Sh.320 million in between 4th November 2020 and 14th April 2022. However, only Sh.1.16 million was available in its accounts at the time the seizure order was carried out. The firm’s directors include Tiwari Simon Adrian, Jackson Mwangi Kamenju and Palliser Ltd.

Another firm caught in the muddy puddle include Hupesi Solutions, with only Sh.1.6 million at the time of the freezing, received Sh.143.3 million. From this amount, Sh.45.6 million was received from GC Natural PL and Sh.54.4 from Flutterwave Payments Technology.

The company, owned by Festus Mumo Mutuku, transferred the money in bits below Sh.1 million to avoid raising suspicions from the CBK.

Subsequently, Cruz Ride Auto Ltd received Sh.2.4 million from the payments firm on June 6, this year. It was later sent to the director, Simon Karanja Ngige. A total of Sh.14 million belonging to Mr Ngige was seized in the crank up.

All these frozen funds were transferred to bank accounts belonging to Flutterwave from different countries before being redistributed to six firms. 

According to ARA, the firm has no supporting explanation or documents to the source of the funds. Thus, Flutterwave is in question of moving illicit funds using its accounts.

How Things Are Looking

Business Daily reported that Sh.4.35 trillion was moved via mobile phones in 2019, a Sh.361.39 billion rise from 2018. Technically, daily mobile phone transactions worth an average of Sh.11.91 billion were conducted in 2019 alone.

Internet banking and digital payments were, and still are, clearly a booming niche, which also makes it an easy channel for fraudulent activities.

As it turns out, Flutterwave Payments firm is neither permitted to operate as a remittance provider nor payment service provider to merchants in Kenya. CBK listed Chipper Cash alongside the payments’ fintech as unlicensed to operate in the country. 

Flutterwave holds that it applied for a license with the CBK in 2019. It also claims to have been in contact with the CBK ever since to ensure they met and provided all the requirements necessary to acquire a permit.

The regulator gave commercial banks directives to cease any dealings with Flutterwave and Chipper Cash and freeze the funds to block withdrawal or transfer. 

Remittance operations in the country are regulated under the Money Remittance Regulations and the Central Bank of Kenya Act 2013.

On the other hand, payment services are regulated under the National payment Systems Regulations and the National Payments System Act 2014.

Outlook

Another Nigerian band linked to a powerful Kenyan politician and two other Kenyans transferred Sh.25.6 billion late 2020. This caught the attention of the Interpol and Europe as a possible money laundering activity.

The Flutterwave seizure comes weeks after Sh.2.3 billion belonging to a Laotian woman was confiscated. The woman is alleged to be backed by four Kenyans. The proceeds were from a debit card fraud in a wider international crime syndicate.

While it is a setback that two of the fastest-growing fintechs will deal a blow to start-ups, it is unclear how such big firms operated in the country for years without a permit before the regulators flagged them. The government needs to tighten its efforts to crank up money laundering and card fraud activities before it grows out of control.