Vodacom Tanzania Boss Charged with Fraud; Everything We Know So Far

There are some Commsrisk articles that I enjoy writing. This will not be one of them.

Last week the Managing Director of Vodacom Tanzania, Hisham Hendi (pictured above) was detained by Tanzanian police and charged with multiple counts of telecoms fraud. Several others were also taken into custody, including Joseph Nderitu, who is my friend as well as being a Commsrisk contributor and Head of Revenue Assurance and Fraud Management at Vodacom Tanzania. At first I was wary of covering the story because it is difficult to do more than repeat the accusations made by the Tanzanian authorities. However, the charges have since been repeated extensively across the media, not just in Tanzania but more widely. I now believe it better to pull together all the reliable information about the situation as it currently stands, whilst also seeking to provide a level of analysis that mainstream journalists cannot offer.

Bloomberg reported that:

Tanzania charged five employees of Vodacom Group Ltd.’s local unit, including Managing Director Hisham Hendi, with allegedly depriving the government of more than 11 billion shillings ($4.8 million) in revenue.

A tweet from the Swahili Times shows Hendi and others in court.

The Citizen reported that a total of nine people had been charged. The difference in numbers might be explained by some of the accused working for other businesses, including a company called Inventure Mobile Tanzania, which trades as Tala Tanzania. The Citizen also published a different amount for the monetary value of the alleged crime:

Vodacom Tanzania managing director Hisham Hendi and eight others appeared before the Kisutu Resident Magistrate’s Court yesterday, facing ten counts, including leading a criminal network and occasioning the government a loss of Sh5.893 billion…

Charged along with Mr Hendi were business operations manager from Inventure Mobile Tanzania Ltd/A Tala Tanzania, Mr Ahmed Ngassa; an IT expert and Kenyan national Brian Lusiola…

The list also includes the head of revenue at Vodacom Tanzania, Mr Joseph Nderitu; the head of legal services at Vodacom Tanzania, Mr Olaf Mumburi, the telecommunication firm’s heads of sale Mr Joseph Muhere and finance manager Ibrahim Bonzo.

The report from Reuters agreed with The Citizen’s figure of the alleged cost to the Tanzanian government being TZS5.9bn (USD2.6mn) whilst a press release from Vodacom said the Government of Tanzania and the Tanzanian Communication Regulatory Authority (TCRA) had claimed a “pecuniary loss” worth over TZS11bn (USD4.8mn).

To put these figures into perspective, Vodacom Tanzania generates revenues of around TZS1tn (USD430mn) annually. They are market leaders with 12.8mn customers and a 32 percent share of the Tanzanian market. The company paid income tax of TZS46bn (USD20mn) for the financial year ending 31st March 2018, and that year’s annual report stated they had made…

…TZS1.0 trillion [USD430mn] of cash contributions to public finances in taxes, spectrum and regulatory fees over the last three years.

Per Bloomberg, Police Commander Lazaro Mambosasa said the arrests were made following a request from the TCRA. Numerous journalists have since reported that the TCRA is not answering their calls. The information being published by the press is mostly restricted to what is being announced by Vodacom and what was printed in court documents.

Before we further examine the charges it should be noted that these men have not been given the opportunity to apply for bail, and so have remained in police custody since April 3. Reuters reported that a court official said the indicted would remain behind bars until the court case resumed on April 17, whilst a Vodacom press release dated April 4 says a bail application “will be heard in next (sic) few days”.

Jailing these men is needlessly heavy-handed. They are not accused of violent crimes and they pose no threat to others. Vodacom Tanzania cannot evade the law by leaving the country. Possibly the Tanzanian authorities believe this is a show of strength, that will strike fear into corporate criminals. It is rather a show of Tanzanian weakness. Several of those charged are citizens of other countries; actions like this will make other international professionals consider the risks of sharing their skills with Tanzanians.

The defendants are accused of engaging in a form of bypass fraud, though those words will not be found in any article published by the press. The East African reported the following summary of the charge sheet:

Vodacom Tanzania and its staff were accused of importing and installation of electronic communication equipment without licence, and operating network facilities without licence, contrary to Electronic and Postal Communications Act, 2010.

They were further accused of fraudulent use of network facilities, use of unapproved electronic equipment connected to electronic communication network service, use of numbers without relevant assignment, occasioning loss of specified authority, permitting use of network services without relevant assignment, occasioning loss to a specified authority in breach of the economic and Organised Crime Control Act.

It is not clear why Tanzania’s authorities believe Vodacom’s most senior employees would conspire to evade termination charges on calls when those charges contribute to the revenues of Vodacom. Only a portion of the mandatory termination charges is collected by the TCRA. If Vodacom’s goal was systematic tax evasion then it could only be realized by simultaneously undermining their own revenues.

The co-accused from Inventure Mobile Tanzania, which trades as Tala Tanzania, are responsible for running a business which pioneers the use of mobile networks to score the credit worthiness of phone users and then provides them with microloans. Inventure’s founder and global CEO Shivani Siroya has spoken at TED about “unlocking untapped purchasing power in the developing world”. Philanthropist Melinda Gates nominated Siroya as one of the entrepreneurs who will shake up the next 25 years of tech for the October 2018 edition of Wired. Melinda and Bill Gates have also been charitable backers of mobile money interoperability in Tanzania, an initiative which has support from the GSMA as well.

Most of the press reporting has focused on Vodacom Tanzania for obvious reasons. Only The Citizen describes distinct roles for the alleged conspirators. Inventure is accused of the specific crimes of importing and installing communications equipment without permission. The Citizen says the offending equipment is a Proliant Gen 9 server, which presumably refers to one of Hewlett Packard’s ProLiant range of servers. There are many possible reasons why a tech start-up would want a new server; it is not obvious how Inventure committed a crime by importing a computer.

Inventure is more established in neighboring Kenya, a country which has led the adoption of mobile money. It is possible that their Kenyan and Tanzanian offices were engaged in cross-border communications using the aforementioned server. The Citizen observed:

That way, the state charged, the accused were dodging payment of the right costs for making internal calls while also allowing them (international calls) to land on a local destination. [My emphasis]

If the calls that should have been taxed only occurred between the various international offices of Inventure then it is difficult to understand how a single business could have made so many calls that TRCA believes it should have collected several million dollars from their share of the termination fees. If the government is owed a total of 12 cents per minute in termination fees, as per the relevant 2013 Act, then a USD2.6mn tax bill would be generated by terminating 21.67mn minutes of international calls in Tanzania. Business information aggregator Craft states that Inventure has 355 employees globally. That would mean that the average Inventure employee spent 61,000 minutes (or 1,017 hours, or 42 whole days) on calls to Tanzania during the 14 months of the alleged fraud. That means at least 45 percent of all Inventure staff time worldwide would have been spent on phone calls with people in Tanzania.

In comparison to the specific mention of the server and its alleged illegal use by Inventure, the indictments aimed at Vodacom are far more nebulous. The Citizen repeatedly stated they had been accused of “leading a criminal network” and “occasioning a loss” to the government, but whatever was written in the charge sheets was not translated into anything more specific by the journalists who covered the story.

Vodacom responded to the charges by announcing they were fully cooperating with the police investigation. I have been unable to find any similar announcement on behalf of Inventure.

Following Hendi’s incarceration, Jacques Marais was appointed by the Vodacom Board as Acting Managing Director. Previously Marais was Vodacom’s Finance Director. This begs further questions about the reasons to believe Vodacom evaded tax and profited from bypassed traffic with the knowledge of its Managing Director but not its Finance Director.

Hisham Hendi was only confirmed as Vodacom MD in a corporate announcement on March 27. Vodacom Tanzania had been without a permanent MD since the departure of previous incumbent Ian Ferrao following the release of the company’s 2018 annual figures. Kenyan businesswoman and Safaricom executive Sylvia Mulinge had been lined up to be the new Vodacom Tanzania Managing Director but five months of struggling to obtain a work permit for Mulinge ended in defeat in September 2018. No explanation was given for the Tanzanian Labour Commissioner’s decision to refuse a work permit to Mulinge, but the press speculated it was motivated by the belief that there were Tanzanians with sufficient experience for the job. Mulinge then rejoined Safaricom in the role of Chief Customer Officer. Hendi had served as acting MD since the departure of Ferrao.

Tanzanian President John Magufuli has a reputation for battling with multinational companies over taxes. Reuters reports that:

In June, prosecutors charged chief executives of telecoms operators Halotel Tanzania, owned by Vietnam-based Viettel, and Zantel with fraudulent use of network facility. The executives were later released after paying a fine.

The Tanzanian government has also pursued multinational mining corporations for tax.

Tanzania is one of the African countries that has implemented automated systems to audit telecoms revenues, and hence assure government tax incomes. Vodacom has been accused of violating Tanzania’s Electronic and Postal Communications Act, which also created the power to impose a national RA auditing system under the supervision of the TRCA. The 2013 version of the Electronic and Postal Communications Act stipulates that the national RA system, referred to as the Telecommunications Traffic Monitoring System (TTMS), will:

track and detect fraud through an anti-fraud system and services within International gateway traffic and cause the same bypass fraud to be blocked

Since its implementation in 2013 there are many public statements estimating the benefits that have been delivered by the TTMS system, but no apparent mention of its cost. The 2013 Act mandated that inbound international traffic should incur a minimum termination charge of USD0.25 per minute. 28 percent of this charge was to be collected by the TRCA, whilst a further 20 percent was levied as “TRCA’s service fees including payment for managing and operating the system”.

As the purpose of the TTMS system is to detect bypass, and it has been in operation for a long time, it is hard to understand why an experienced anti-fraud professional such as Joseph Nderitu would have engaged in a criminal conspiracy to commit bypass fraud several years after he commenced work for Vodacom Tanzania. The leading fraud manager in Vodacom Tanzania would surely have been aware of TTMS and the way it detects fraud because those frauds also impact Vodacom.

Although the TTMS system first came into service in 2013, it has recently received a lot of media attention in Tanzania. The system was originally built and operated by a consortium of Global Voice Group (GVG) and SGS-Société Générale de Surveillance, but ownership was passed to TRCA this year. President John Magufuli attended the ceremony to mark the occasion; TechMoran reported on the speech he made.

Speaking at an event in Dar es Salaam last week which acknowledged the impact of the TTMS project, the President of the United Republic of Tanzania, John Magufuli, admitted that the mismanagement of funds in the telecom industry had gotten out of control. “It is no secret that we have lost a lot of money as a result of fraud and embezzlement in this sector.

“I would like to inform everybody, however, that since this TTMS system was installed, we now know the exact number of telecom users, debtors, telecom fraudsters, and all the information that we didn’t know before. In fact, the TTMS has managed to eradicate almost all instances of fraud in external telecoms, bringing the figure down from over 65% to just 10%.

“Without this system, a large portion of this revenue would have gone into private pockets, instead of being used by Government for the greater good of the country,” the President explained.

It is remarkable that a single system supposedly discovered that 65 percent of Tanzanian telecoms traffic was fraudulent. It is even more remarkable that several months passed between the eradication of almost all these frauds and the alleged discovery that the new boss of Tanzania’s leading mobile operator was personally responsible for some of them.

The business model of GVG will be well-known to regular readers of Commsrisk. Joseph Nderitu is one of their most consistent critics. GVG has a track record of selling expensive telecoms revenue assurance systems to national governments. When the costs are criticized, governments typically insist the systems are a good investment because of the massive amounts of fraud they will prevent. Oddly, the promised financial benefits keep rising every year, as if fraud has not been systematically reduced at all. Governments hence keep announcing that fraud must be falling because of the anti-fraud systems they have implemented, whilst also announcing how much more money they collected because of the prevention of fraud. Meanwhile, prominent Ghanian activist Franklin Cudjoe received death threats when he publicly complained about the high cost of the GVG national revenue assurance system purchased by Ghana’s government.

A March 2014 press release by SGS-Société Générale de Surveillance indicated that Tanzania’s TTMS system would also be used to track mobile money transactions, of the same type that is the basis of the business model of Inventure, which have driven the growth of Kenya’s economy in general and the rise of Safaricom in particular, and which the GSMA and Gates Foundation have done so much to encourage in Tanzania.

The TTMS project includes several components. Some of these components , such as the volumetry and the billing of the international traffic entering Tanzania, as well as the detection and elimination of international communications by-pass fraud, have been operational since October 2013 and have already yielded tangible results. Other components, which are being prepared with the technical assistance of SGS/GVG, will provide the capabilities to fight against mobile devices theft and counterfeiting, as well as the monitoring of mobile money transactions.

Jakaya Kikwete, who was President of Tanzania at the time TTMS was first implemented, stated his optimism for the revenues it would generate:

The government estimated that the project would generate additional revenue of 20 billion TZS [USD8.6mn] per year, solely through the monitoring of international incoming calls. According to President Kikwete, “It is a commendable move, making almost 20 billion per annum from zero is a very promising step.”

Indeed. It might seem that plucking USD8.6mn from thin air is a great win, until your successor announces that fraud is actually several magnitudes higher, and that he will find much more money for the public purse.

We shall have to see if any evidence of criminal activity will be presented in court. However, it is difficult to comprehend a case which supposes the telecoms professionals most capable of evading fraud controls, and with least to gain by doing so, conspired with a US-headquartered tech start-up that aims to empower poor people worldwide, and which is supported by the leading philanthropists of Silicon Valley, to commit a crime that would depress the telco’s revenues in order to deny the government an amount of tax which is tiny compared to the amounts the telco already pays, and is much smaller than the amounts the same government says it has already recovered using its anti-fraud systems.

On the other hand, it is a shame there is no audit of how Tanzania’s government keeps its promises to recover more and more tax it is owed even though its main tool for assuring those taxes is a five year old system which cost the country 20 percent of all international termination fees until recently. Perhaps the case will reveal the government has some other mechanism for detecting bypass fraud that was previously unknown to not just the leading experts in Vodacom but also to the rest of the world.

It is possible I am biased. But I believe I know the character of Joseph Nderitu, one of the men jailed by the Tanzanian authorities. Joseph has always struck me as honest, decent, and upright. Furthermore, he understands telecoms fraud and how it is detected. The crime of which he is accused is both inconsistent with his character and inexplicable given his level of expertise.

Joseph has repeatedly railed against government corruption that uses telcos as a cover to take money from ordinary citizens. We should not accept at face value the assertion that a government who wants to arrest this man is solely motivated by fighting corruption.

I also know Joseph as a man who reached into his own pocket and paid money to help ensure a free conference was put on to train telecoms fraud, risk and assurance professionals from across Africa. That was why I described him as one of my unsung heroes of 2018. For all these reasons, I cannot believe the charges laid against him.

Is there anything we can do to help Joseph? That is a question that has been preying on my mind. Reviewing the press coverage of this case, it is clear governments expect to set the narrative. Unnamed officials damage the reputation of telecoms professionals, politicians openly denounce them, but nobody speaks up for the character and integrity of the accused. The telcos that employ them are reluctant to do so, because they are already under the thumb of government.

If the international community of professionals has a loud enough collective voice then maybe we can defend the reputation of Joseph, his jailed colleagues, and others who may find themselves in a similar situation. That might make the Tanzanian government relax their harsh approach, and hesitate before doing something similar in future. Just as importantly, it sends a signal to other telcos that we all believe Joseph is a good and honest man, fit to be employed in fighting fraud, no matter what Tanzania’s government says about him, or does to him. So for the time being, having considered the circumstances of the case as described above, I humbly request that you engage your colleagues on LinkedIn by sharing this brief social media post and encouraging them to do likewise.

Eric Priezkalns
Eric Priezkalns
Eric is the Editor of Commsrisk. Look here for more about the history of Commsrisk and the role played by Eric.

Eric is also the Chief Executive of the Risk & Assurance Group (RAG), a global association of professionals working in risk management and business assurance for communications providers.

Previously Eric was Director of Risk Management for Qatar Telecom and he has worked with Cable & Wireless, T‑Mobile, Sky, Worldcom and other telcos. He was lead author of Revenue Assurance: Expert Opinions for Communications Providers, published by CRC Press. He is a qualified chartered accountant, with degrees in information systems, and in mathematics and philosophy.