In August 2010, what had started off as a tip between friends and the chance to transform meagre savings into mega profits, ended in tragedy for thousands of Benin’s impoverished citizens. The Ponzi scheme in this tiny West African country has directly affected more than 130,000 people in a nation of only 9 million.(2) It has also called the Presidency into dispute in a country that has long been an exemplar of stability in the region.(3) The repercussions of such a scheme may also go far beyond mere finances, affecting Benin’s socio-economic fabric and political stability.
The aim of this discussion paper is to analyse the Ponzi scheme recently uncovered in Benin. Specifically, it examines the socio-economic and political implications of the scheme on Benin.
An introduction to Ponzi schemes
Ponzi schemes are named after Charles Ponzi, who in the early 1900s conned the United States (US) public out of millions of dollars.(4) Recently, Ponzi schemes have been in the spotlight with the uncovering in the US of Bernard Madoff’s multi-billion dollar investment scam in 2008. Madoff’s Ponzi scheme caused a global uproar in the financial community and since the scheme became public, many other schemes have come to light. However, long before Bernard Madoff, men and women have been defrauding each other and the general public with the use of Ponzi schemes.(5)
In a Ponzi scheme, potential investors are wooed with the promise of lucrative returns on their investment with little or no risk. This is usually attributed to the investment manager’s savvy and skill. Ponzi schemes work on the principle of “rob-Peter-to-pay-Paul”, and money from new investors is used to pay off earlier investors until the whole scheme implodes.(6) Ponzi schemes can continue for as long as new investors line up with cash and old investors do not try to withdraw too much of their money at once.(7) Many Ponzi schemes share common characteristics, including: high investment returns with little or no risk; overly consistent returns; unregistered investments (i.e. not registered with state regulators); unlicensed sellers/firms; secretive and/or complex strategies; issues with paperwork and difficulty receiving payment.(8)
Ponzi schemes are different to Pyramid schemes in that with Pyramid schemes “[p]articipants attempt to make money solely by recruiting new participants into the programme. The hallmark of these schemes is the promise of sky high returns in a short period of time for doing nothing other than handing over your money and getting others to do the same”.(9) Pyramid schemes are therefore more transparent as they reveal to the investor the method of financial gain, which is to recruit new members. On the other hand, Ponzi schemes rely on tricking investors into believing that their money is being invested in high yield financial instruments, the profits of which originate from gains on investments and not the recruitment of new investors.(10) Ponzi schemes are thus a subset of Pyramid schemes, both of which collapse under their own weight and are ultimately unsustainable.
The case of Benin: Analysis and implications
The Ponzi scheme uncovered in Benin followed a similar course to that described above. The company in question was Investment Consultancy and Computering Services (ICC). It was registered as a non-profit computer services company and was operating illegally as a banking institution. ICC was forced to close on 01 July 2010 and since then, the Ponzi scheme has come to light.(11) ICC was promising Beninese returns on their investment of between 50% and 100%, and possibly even more and officials relied on word of mouth to attract potential clients, who were then met by consultants who promised lucrative returns.(12) Based on this seemingly attractive opportunity, approximately 130,000 Beninese invested their savings in ICC, resulting in financial losses to the tune of US$ 130 million in a country where most people subsist on US$ 2 a day. In a country of 9 million people, in which many families had pooled their investments in ICC, the losses attributable to the Ponzi scheme have affected up to a quarter of Benin’s entire population.(13) Moreover, Benin’s president Thomas Yayi Boni, a former development banker, has been implicated in the scam. Boni and other Government officials were seen on TV and news bulletins posing with the managers of ICC. These images were then reproduced on t-shirts and in advertisements by ICC, prompting most Beninese to interpret this as a sign of presidential endorsement for the company and therefore a sound investment.(14)
Since the revelation of ICC’s fraud, a number of actions have been taken. In Benin’s economic capital, Cotonou, crowds numbering more than 100,000 have taken to the streets demanding restitution.(15) President Boni has cleansed his administration of those associated with the company, including the minister of the interior, the chief prosecutor and the security minister. In addition, more than a dozen individuals connected to ICC have been put in jail, including the President’s cousin and two of the company’s senior managers. However, members of Benin’s National Assembly have cried foul, saying that these measures are not sufficient and that Boni was complicit in ICC’s fraudulent activities and should therefore be impeached.(16) The Government of Benin has denied any involvement in the scam and lawmakers have had the National Assembly’s request for Boni’s impeachment rejected on the basis that they did not follow the correct procedures. Lawmakers have approximately 50 signatures from the 83-seat Parliament, which falls short of the two-thirds majority needed to summon the president to trial for treason and perjury.(17)
A most serious implication of the Ponzi scheme in Benin is on the legitimacy of the state and political system. As a former minister in Boni’s Government stated, “[t]his business is a crisis of the regime, something that profoundly implicates the state”.(18) Since the move to representative governance began in 1989 with a populist uprising against the corrupt military dictatorship and subsequent elections in 1991, Benin has been an exemplar of stability in an otherwise unstable region. The fact that Boni’s Government has been implicated in the Ponzi scheme has sparked fear among analysts that citizens will again take to the streets in opposition to the Government as they did to depose the military dictatorship 20 years ago.(19) The widespread loss of confidence in the Government since the Ponzi scheme imploded, is a worrying prospect as such a large proportion of Benin’s population has been affected by the scam. The historic precedent of deposing unpopular presidents may again be deemed a legitimate option by Beninese in the absence of effective formal measures to ascertain the truth of Boni’s involvement in the scheme. Indeed, the head of Parliament’s rejection of the request by lawmakers to impeach Boni on the basis that the correct procedures were not followed, seems at best the following of correct legal procedure and at worst an attempt to protect the President’s wrongdoing from becoming public knowledge and to stop justice taking its due course. Moreover, with elections looming in 2011, domestic pressure on Boni can be expected to rise, thereby increasing the risk of political instability leading up to the elections.(20)
A second implication of the Ponzi scheme is on the socio-economic status of Beninese. Specifically, 130,000 people have had their savings depleted and in many cases, completely decimated. The loss of individuals’ savings is made more problematic due to the large number of dependants there are for each individual saver. Individuals with the capacity to save money (and invest in ICC) usually have direct and extended family dependants. Indeed it is noted that “[i]f behind every saver, there are only 10 people... then the whole country is shaken”.(21) Thus, the loss of savings due to the Ponzi scheme has deep socio-economic repercussions in Benin where investors in the scheme were mostly poor to start with and not high net worth individuals who could easily absorb the loss.
The Ponzi scheme in Benin was perpetrated by a company that took advantage of Benin’s population, which is largely illiterate and dependant on subsistence agriculture.(22) Investors therefore had little ability to ascertain the soundness of their investment or to understand the implications of the contracts that they signed with ICC. In the event of such a scheme, citizens should be able to rely on the state and its various institutions to bring the perpetrators to justice and where possible, to facilitate remuneration of investors by the company. The chances of justice being done and of restitution for investors in the scheme is looking less and less likely due to the Government’s possible involvement in the scheme.
While the Government has taken action to arrest perpetrators, the widespread belief of President Boni’s involvement and the seeming unwillingness of Parliament to address this issue has called Benin’s entire political system and its legitimacy into question. This is a serious threat to a young and fragile democracy and it calls for strong leadership to navigate the population’s loss of confidence in the Government, as well as the loss of livelihoods. Whether President Boni is capable of taking on this role, and more importantly, whether he can credibly take on this role in the eyes of the population, remains to be revealed in the coming months.
(1) Contact Catherine Pringle through Consultancy Africa Intelligence's Eyes on Africa Unit (
(2) ‘Ponzi scheme shakes tiny Benin’, News Limited, 02 September 2010, www.news.com.au.
(3) Adam Nossiter, ‘Scheme Rattles Benin, an Anchor of Stability’, The New York Times, 18 August 2010, www.nytimes.com.
(4) ‘Ponzi Schemes’, The New York Times, 05 September 2010, www.nytimes.com.
(5) Furman, D. J. & DeJoy, J. S. 2009. Before and After Bernie: Ponzi Regulation or Lack Thereof? International Review of Business Research Papers, 5(6), pp. 63.
(7) ‘Ponzi Schemes’, The New York Times, 05 September 2010, www.nytimes.com.
(8) ‘Ponzi Schemes - Frequently Asked Questions’, United States Securities and Exchange Commission, www.sec.gov.
(9) ‘Pyramid Schemes’, United States Securities and Exchange Commission, www.sec.gov.
(10) Furman, D. J. & DeJoy, J. S. 2009. Before and After Bernie: Ponzi Regulation or Lack Thereof? International Review of Business Research Papers, 5(6), pp. 64.
(11) ‘Ponzi scheme shakes tiny Benin’, News Limited, 02 September 2010, www.news.com.au.
(12) Cahal Milmo, ‘Thousands left penniless after collapse of Ponzi scheme’, The Independent, 03 September 2010, www.license.icopyright.net.
(15) David Lewis, ‘Head of Benin parliament rejects impeachment request’, Reuters, 20 August 2010, www.af.reuters.com.
(16) ‘Ponzi scheme shakes tiny Benin’, News Limited, 02 September 2010, www.news.com.au.
(17) David Lewis, ‘Head of Benin parliament rejects impeachment request’, Reuters, 20 August 2010, www.af.reuters.com.
(18)Adam Nossiter, ‘Scheme Rattles Benin, an Anchor of Stability’, The New York Times, 18 August 2010, www.nytimes.com.
(20) Serge-David Zoueme & Emily Bowers, ‘Benin Political Risks Rise on Calls for President’s Impeachment, IHS Says’, Bloomberg News, 20 August 2010, www.bloomberg.com
(22) ‘Benin’, CIA World Factbook, 05 September 2010, www.cia.gov.