With the advantage of hindsight, I cannot help but ask myself what was the state of governance and risk management and how key controls were circumvented dur- ing the vehicle application process. What baffles me is how all three lines of defence failed to identify this. This epitomises the way the banks’ systems and products can be manipulated to facilitate fraud in the form of pyramid and Ponzi schemes. The difference is that the R699 scheme did not promise its clients wealth but was meticu- lously tailored and orchestrated to provide affordable car instalments to motorists. The National Consumer Commission (NCC) recently confirmed to Fin24 that it is conduct- ing a preliminary investigation into nine sus- pected pyramid schemes in order to establish whether they are contravening the provisions of the Consumer Protection Act (CPA) and its regulations. The schemes and investment initiatives under investigation are World- Ventures, Kipi, also known as Mydeposit241, Make Believe, NMT Investments, Instant Wealth Club, MMM South Africa, DIPESA, Sikhese (Pty) Ltd and the Wealth Creation Club (Du Preez, 2015). Volker (2011/2012, p. 8) points out that most of the South African Ponzi scams are relatively unsophisticated and do not stand up to close scrutiny. Most of them offer unrealistic returns such as 30% per month; some even as much as 300% in 30 days. Such schemes are also rife on the internation- al landscape, the biggest ever was uncovered in the US after the 2008 global recession, when Bernard Madoff could no longer con- ceal his scam and the bubble burst leaving his victims US$55 billion poorer. The fact that Madoff faces life in jail (he was sentenced to 150 years) and that his son has committed suicide provides no relief to his many victims (Volker, 2011/2012, p. 5) THE CHALLENGE Pyramid and Ponzi schemes share many simi- lar characteristics. In both, unsuspecting in- vestors are misled by dishonest schemes that promise staggering returns on money invest- ed. These schemes are self-sustaining as long as cash outflows can be matched by mon- etary cash inflows. The underlying difference between the two lies in the type of product that is offered to clients and their structure. Ponzi schemes are based on a fraudulent investment management service, whilst a pyramid scheme is structured so that the initial investor must recruit other investors who will be supported by new investors and so on (Pinkasovitch, 2016). Although there are general guidelines for identifying pyramid and Ponzi schemes, there are some areas that are often vague and there is no one specific method for identifying these schemes owing to the multifaceted approaches used by perpetra- tors. There are many subtle similarities be- tween pyramid and Ponzi schemes which are often not easily identifiable by the layman. As in the case of Madoff, some of these schemes are highly complex.
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