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Friday January 27, 2023

Home-based entrepreneurs lose millions in social media scam

December 07, 2022

KARACHI: Social media-based sellers make a tonne of money selling food, bakery items, products, and other services via their Facebook and Instagram pages and WhatsApp groups using mostly the cash on delivery system in Pakistan, or it seems so since the Sidra Humaid (aka Sidra Khalil) committee/ponzi scheme fiasco of over Rs420 million came to light last week.

Online and phone scams have been increasing over the years. The State Bank of Pakistan (SBP), Securities and Exchange Commission of Pakistan (SECP), Pakistan Telecommunication Authority (PTA), Federal Investigation Agency (FIA), banks etc send out SMS and email warnings about phishing, phone, and online frauds every few days. Nevertheless, people fall victim to the scams every now and then.

In a recent financial fraud, the woman in question had been holding committees (also called rotating savings and credit groups) for her friends and relatives since 2015. She had gained excessive trust of a large group of women entrepreneurs running various businesses online.

According to some estimates given by her victims, she ran 117 WhatsApp groups for collecting funds from hundreds of members. In each group, Sidra was allegedly the first beneficiary to receive the collected amount. Under the committee mechanism, a select group of people promises pooling in an agreed amount each month for a pre-decided period. So if a group made up of 10 members runs from January to October to pool in Rs20,000/month, each member of the group is assigned a month from that period to collect Rs200,000. The whole system works on basis of trust and word of mouth with almost zero official paper trails except when banking transactions are involved.

Sidra’s victims allege that she was rolling the committee money to take care of past dues for several months, which points to a Ponzi scheme as well.

Pakistan’s central bank in its warnings says that multi-level marketing, Ponzi and pyramid schemes require new customers to bring a certain number of more members in a geometric progression. Once that process of membership reaches a stage of saturation, the whole structure collapses and only a few people at the top of the scheme make money.

Although for now only Sidra and her husband Humaid Ibrahim Farooki appear as beneficiaries, some victims allege that there could be other people involved too due to the large amount as well as the scale of the fraud.

One victim, who refused to share any details, except that she is a tax consultant, said that building a case against Sidra was difficult, as she made sure that payments were made into a different account each month, including to her husband’s accounts. “Each month, she would post in the WhatsApp group to credit the amount into a beneficiary’s bank account,” she explained, sharing that some of those beneficiaries, who had already received their full share, had disappeared. This victim lost Rs760,000 from a Rs1,500,000 committee. On a query about filing a case, she said that Sidra’s father had promised to pay her amount by December after selling his house. “But if he fails to do so, I will proceed with a case,” she added.

An excerpt from Sidra’s November 27 Facebook post reads: “I have really messed up my committees and now I am practically bankrupt and have no means to pay off my committees… I have to pay so much money, which I cannot even calculate.”

On Friday, she posted, “I have started updating the list of people who I need to pay and from whom I need to receive the amount. As there are a lot of members therefore we have hired an accountant to do the reconciliation. Kindly allow us 4-5 days to get that sorted out.”

By Saturday Sidra claimed that she had refunded some of the committee members; however, victims claimed otherwise.

A victim via a WhatsApp chat said they went to their local police station to file a complaint, but were refused. “They said you can lodge an FIR for a bounced cheque, but you paid someone online, and that too willingly, so there is no police case here and screenshots are not acceptable,” she shared, adding that she was advised to go to the FIA.

Victims are posting about losing huge amounts between Rs100,000 to Rs4 million in this fiasco. However, neither the police nor the FIA have received any formal complaint.

FIA’s additional director cybercrime wing said that though this is a financial fraud, the FIA “cannot intervene in this matter till there is a formal complainant as per law”.

On a query if screenshots of digital banking transactions can be submitted to file a case, he said an investigation has two parts, one is for judicial case file and one for police file. In the police file, everything that relates to the case is recorded, like screenshots and account links, based on which, an account can be seized. After that, whatever is the recovery or the amount, it becomes part of the judicial proceedings. “A screenshot may not be part of judicial proceeding, but it may be part of investigation proceedings,” he said.

It was possible to also place a complaint with the bank manager at the branch with which the transaction happened, to put at least a day’s seize on the account, he explained.

The compliance department of one of the private banks with which Sidra and her husband carried out their business informed that their accounts were still active, and no complaint was filed with them for seizing the accounts.

According to the Federal Board of Revenue’s active taxpayer’s list, both the husband and wife are active taxpayers, and each holds a business in their name. Sidra owns a crochet business Croise while her husband is the owner of an IT company named Machumsol.

According to the FIA official, cybercrimes have increased a lot because the number of internet and data users, and TikTok and YouTube users and subscribers has increased.

Access to smartphones, internet and data have enabled many to embark on their entrepreneurial journeys. But this access also makes people vulnerable to online digital frauds and scams. Millions are generated by online entrepreneurs who majorly operate in an informal system with close to zero regulation and documentation. Their tax contributions, if any, too are unclear.

In the midst of this unregulated environment, many of these online business owners thought that putting their millions in a committee was a good idea. Committees too are undocumented and informal with no paper trails.

Some financial experts point out that though in small amounts such savings and credit associations might be beneficial, for larger amounts, the benefits decline, as those who get access to their saved amount at the end of the cycle, also face rupee devaluation.

However, in Pakistan’s case, where many women still face barriers in opening bank accounts and getting into the documented financial system, a group savings and credit system becomes more attractive. Another aspect is control and access to finances. Women in Pakistan are often deprived of their right to financial independence by their families, even if they are working outside their homes. Their wages from official sources are often taken away or spent without consent by their families. In such a situation, informal committees become even more appealing. This could also explain why women form a majority of those affected by the scam, as well as their reluctance to file any official complaints despite losing millions.

When contacted, Sidra neither responded to phone calls nor WhatsApp messages to confirm the total amount that she owes.

On Tuesday, Sidra moved application before the additional sessions Judge-X (East) under Sections 22-A and 22-B of the Criminal Procedure Code (CrPC), seeking directives to the police to provide her protection from citizens who have accused her of robbing them in the name of the committees.

After the initial hearing, the judge directed the senior superintendent of police (complaint cell) and the station house officer of the Shara-e-Faisal police station to submit their comments on the application until December 14.

Sidra’s counsel Kamran Alam stated that she has been accused of being involved in an online financial scam despite the fact that she neither sold any product nor used any advertisement on any online platform.

She said she had been collecting money from different people, pooling it and then returning it to them on their turn in a traditional manner, adding that she had just made an announcement on social media asking investors to not panic as their money would be returned in the coming months.

The lawyer argued that such an announcement did not constitute any online fraud. He said his client was ready to return the money to every investor but many people also made fake claims despite the fact that she did not owe them anything.

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