FALR.docx

E-Banking fraud in Ethiopia especially on mobile banking: issues
and disparity of legal framework
BY MIHRETU MEKONEN
BAFE
SCHOOL OF LAW
COMPARATIVE BUSINESS LAW, LLM REGULAR PROGRAM
COURSE: - ADVANCED LEGAL RESEARCH AND RESEARCH METHODOLOGY
Term Paper
E-Banking fraud in Ethiopia especially on mobile banking: issues and
disparity of legal framework
BY-MIHRETU MEKONEN BAFE
SUBMITTED TO LANTERA NADEW (PHD)
November 30/2023
ADDIS ABABA, ETHIOPIA

BY MIHRETU MEKONEN
BAFE
Abstract
Electronic banking makes use of access codes, which are in the form of a Personal Identification
Number (PIN) before access is granted to the user of the bank services. This has not always
saved the banks from the antics of fraudsters, fraudsters use various avenues to divulge or steal
customers' secret access codes which they personalize, and use the opportunity to impersonate
and rob their victims of their valuables from the bank. Some robbers confiscate ATM cards from
owners with their PINs; and seize tokens and other electronic banking application access codes;
which they use to defraud their victims. Many banking customers resist electronic banking for
fear of being defrauded. Some internet thieves use phishing and spooling to bait their victims.
Bank customers who do not seek verification from their banks easily fall prey.
To fully utilize and enjoy Internet banking as conceived, there is a need for a security system
more reliable than the PIN, password, user name, or token for electronic banking. Electronic
banking services are expanding in Ethiopia although the increasing number of fraudulent
activities targeting the service has put banking institutions in a serious situation. The number of
frauds related to electronic financial services is increasing day by day nevertheless frauds related
to customer information are on the rise and have reached a serious level. This term paper
examines electronic banking frauds and challenges associated with the detection and control of
electronic banking frauds in Ethiopia especially in the area of mobile banking.
Keywords: E-banking, fraud, mobile banking

BY MIHRETU MEKONEN
BAFE
List of abbreviation
1. ATMs…………… automated teller machines
2. Art. ………………. Article
3. CBE………………. Commercial bank of Ethiopia
4. E-banking………………. Electronic banking
5. M-banking……………………mobile banking
6. M-money………………… mobile money
7. NBE……………….. National bank of Ethiopia
8. PIN…………… Personal Identification Number
9. POS…………… point of sale
10. WWW…………… World Wide Web

BY MIHRETU MEKONEN
BAFE
Table of Contents pages
1. Introduction............................................................................................................................. 9
2. Theoretical and conceptual underpinning................................................................................. 10
2.1 What is Electronic Banking? .............................................................................................. 10
2.2 The development of E-banking in general.......................................................................... 11
2.3 The evolution of E-banking in Ethiopia.............................................................................. 12
2.4 Mobile banking (Mobile money .......................................................................................... 12
2.5. Challenges of the Mobile Banking System in Ethiopia..................................................... 14
3. Electronic banking fraud in general.......................................................................................... 15
3.1 definitions of fraud and fraudulent acts in general ............................................................. 15
3.2 Fraud and fraudulent acts on the E-banking system........................................................... 17
4. How mobile banking (money) are exposed to fraudulent acts ................................................. 18
5. Investigations/detections of fraudulent acts on mobile banking............................................... 20
6. Conclusion and recommendation.............................................................................................. 22
7. References......................................................................................................................... 23

BY MIHRETU MEKONEN
BAFE
1. Introduction
In the modern economy, a strong financial system is a pillar of economic growth and
development. A bank is a business entity that collects funds from the public in the form of
savings and distributes it to the community in the form of credit to improve the living standard of
people by providing credit facilities. It mobilizes funds from, within, and outside the country and
channels such funds to various sectors of the economy.
The availability of banking facilities and unfolding banking service outreach are the major
facilitators of developmental and expansionary activities. In this regard, information technology
plays a key role in promoting an inclusive financial system as it is the only way to reduce the
cost significantly and reach the masses. However, all technologies are not suitable for financial
inclusion due to affordability, accessibility, security, and privacy. In the last decades, mobile
phone technology has emerged as the most potential and well-suited channel for financial
inclusion and the use of mobile phones for inclusive finance is very popular in countries where
most of the population is unbanked or under-banked.1
The growing use of new payment channels increased access points and changed traditional
paper-based payment systems to Electronic payment systems. Although Electronic banking
services are expanding in Ethiopia, the increasing number of fraudulent activities targeting the
service has put financial institutions in a serious situation. Such growth of using contactless tap-
and-go technology, the popularity gained using such payment systems and the use of mobile to
complete electronic payments increased the risk of payment fraud. Payment fraud is an activity
that uses confidential information to obtain unlawful gain without the consent of the payer
through activities such as counterfeiting, deception, altering payment instruments, hacking, and
data interception.2
The number of frauds related to digital financial services is increasing day by
day nevertheless frauds related to customer information are on the rise and have reached a
serious level. To overcome the fraud and fraudulent acts in E-banking the providers (banks) and
users (customers); must have a better understanding of the issues and challenges of E-banking is
critical.
This term paper Assesses as problem; The current state of mobile banking fraud in Ethiopia,
including the types of fraud, their frequency, and the financial impact on consumers and financial
institutions, It identifies the vulnerabilities and weaknesses in the existing mobile banking
security systems in Ethiopia and analyze their impact on the prevalence of fraud, Investigate the
effectiveness of regulatory measures and policies implemented by the government and financial
institutions to combat mobile banking fraud in Ethiopia, and Examine the awareness and
1
Adoption and Challenges of Mobile Banking Systems in Ethiopia: by Ebisa Beyene Kennesaw State
University(2020)
2
Dinka Dereje Asefa "Liability of Bank Officers in Ethiopia for Fraudulent Withdrawal of Money by Third Party"
(2021) p1

BY MIHRETU MEKONEN
BAFE
knowledge levels of consumers regarding mobile banking fraud risks and preventive measures,
and propose strategies to enhance consumer education and protection.
This term paper aimed at; by gain an understanding of the factors and conditions that expose
customers to fraud and fraudulent acts of E-banking, explore legal regimes on E-banking and
how they provide remedies for E-banking frauds and fraudulent acts, Realize their problems, and
provide suggestions on how to minimize the E-banking frauds and fraudulent acts, especially on
area of mobile banking.
The term paper has employed both primary and secondary sources of data. The main source of
primary data includes the civil code,3
criminal procedural code,4
criminal code,5
Proclamation
No. 718/2011,6
and its amendment proclamation no. 1282/2023, proclamation no. 958/20167
and
other relevant laws. The secondary data include books, journals, and newspapers, published and
unpublished materials. It has employed descriptive and doctrinal study design.
This term paper has five sections. The first part explores about general development of E-bank
and the development of E-bank in Ethiopia specifically mobile banking. The second part
explores frauds and fraudulent acts related to E-banking. The third part explores how mobile
banking is exposed to fraud and fraudulent acts. The fourth part explores legal system/regimes
i.e. from detection up to a decision for E-banking frauds mainly on mobile banking, and the last
parts contain conclusion and recommendation.
2. Theoretical and conceptual underpinning
2.1 What is Electronic Banking?
Banks have used electronic channels for years to communicate and transact business with
domestic and international customers. With the development of the Internet and the World Wide
Web (WWW) in the latter half of the 1990 banks started using electronic channels increasingly
to receive instructions and deliver products and services to their customers. The delivery of
banking products and services through electronic channels is generally referred to as E-banking
although the range of products and services provided by banks over the electronic channel vary
widely in content, capability, and sophistication. E-banking is also known as Net banking, Cyber
banking, Virtual banking, Personal banking, and other names.8
3
CIVIL CODE OF THE EMPIRE OF ETHIOPIA PROCLAMATION No. 165 OF J960
4
PROCLAMATION No.185 OF 1961 Criminal Procedure Code Of Ethiopia
5
Proclamation No.414/2004 THE CRIMINAL CODE OF THE FEDERAL DEMOCRATIC REPUBLIC OF
ETHIOPIA
6
Proclamation No. 718/2011 National Payment System Proclamation
7
PROCLAMATION No. 958/2016 Computer Crime Proclamation
8
Regulation of Electronic Banking in Ethiopia: The Analysis of Legal Framework By: Bikila Ababu June 2019
Addis Ababa, Ethiopia

BY MIHRETU MEKONEN
BAFE
E-banking can be defined as the automated delivery of new and traditional banking products and
services directly to customers through electronic, interactive communication channels. It is the
systems that enable financial institution customers, individuals, or businesses, to access accounts,
transact business, or obtain information on financial products and services through a public or
private network including the Internet without visiting a bank branch. Customers access E-
banking services using an intelligent electronic device, such as a personal computer, personal
digital assistant, ATM, and Touch Tone telephone. E-banking generally includes the provision of
retail and small-value banking products and services through electronic channels as well as
large-value electronic payments and other wholesale banking services. Bank products and
services rendered through electronic means include deposit-taking, lending, account
management, the provision of financial advice, electronic bill payment, and the provision of
other electronic payment products and services such as electronic money.9
2.2 The development of E-banking in general
Electronic banking, or E-banking, is the term that describes all transactions that take place
among companies, organizations, and individuals and their banking institutions. First
conceptualized in the mid-1970s, some banks offered customers electronic banking in 1985.
However, the lack of Internet users, and costs associated with using online banking, stunted
growth. The Internet explosion in the late 1990s made people more comfortable with making
transactions over the web. Despite the dot-com crash, e-banking grew alongside the Internet.10
While financial institutions took steps to implement e-banking services in the mid-1990s, many
consumers were hesitant to conduct monetary transactions over the web. It took the widespread
adoption of electronic commerce, based on trailblazing companies such as America Online,
Amazon.com, and eBay, to make the idea of paying for items online widespread.11
The increased competition in the world of commercial banks improved customer services
provided by banks across the globe. The technological innovations significantly contribute to this
improvement of customer services offered by the banks. This revolution has set a motion in the
banking sector for the provision of a payment system that is compatible with the demands of the
electronic market. Further, technology has changed the traditional preconditions for service
delivery, dramatically in recent years. The new millennium brought with it new possibilities in
terms of information access and availability simultaneously, introducing new challenges in
protecting sensitive information from intruders while making it available to others. Today's
business environment is extremely dynamic and experiences rapid changes as a result of
technological improvement, and increased awareness and hence demands Banks to serve their
customers electronically. Banks have traditionally been at the forefront of adapting technology to
improve their products and services. The Banking industry of the 21st century operates in a
9
ibid
10
The history of E-banking, by Bob Bachelor- published on 26 Sep 2017
11
Ibid

BY MIHRETU MEKONEN
BAFE
complex and competitive environment characterized by these changing conditions and highly
unpredictable economic climate.12
Electronic banking is a product of e-commerce in the field of
banking and financial services. Banks are also offering payment services on behalf of their
customers who shop in different e-shops. It is an umbrella term for the process by which a
customer may perform banking transactions electronically without visiting a brick-and-mortar
institution.
2.3 The evolution of E-banking in Ethiopia
The rapid growth and proliferation of information and communication technology are knocking
on the door of every organization in the world including Ethiopian banks. In the face of the rapid
expansion of e-banking systems throughout the developed and developing world Ethiopian
financial sector cannot remain an exception in adopting the use of the system. The appearance of
E-banking in Ethiopia started in 2001 G.C when the largest state-owned, Commercial Bank of
Ethiopia (CBE), introduced ATMs to deliver service to local users. In 2005, CBE became a
member of Visa even though for a variety of reasons the project was not as successful as
expected. In the same year 2005, G.C Dashen Bank introduced ATMs to provide banking
services to its customers. The trend was followed by Wegagen Bank in 2008 by introducing
ATMs to serve its customers. In 2010, Zemen Bank anchored the idea of single-branch banking
by launching a full-blown Internet banking service the first of its kind to the Ethiopian banking
industry.13
To better enhance inter-operability between ATMs of different banks Premium Switch Solutions
(S.C.) consortium was formed by three private banks; Awash International Bank, Nib
International Bank, and United Bank, and commenced operation in 2012. The consortium is
formed to increase interoperability among the E-banking delivery channels used by these
individual banks.14
Moreover, in 2011 NBE implemented a core banking process and automated its operation, as
well as, ordered all banks operating in the country to implement core banking solutions.
Currently, all the banks operating in the country have implemented a core banking system and
have automated their operations. The E-banking system in the country is on an upward trajectory
as the number of E-banking delivery channels and products and services being made available
through it are increasing and the users of the facilities are expanding. The E-banking system is
gaining ground and the situations prove this assertion.15
2.4 Mobile banking (Mobile money)
12
ibid
13
Regulation of Electronic Banking in Ethiopia: The Analysis of Legal Framework By: Bikila Ababu p14
14
ibid
15
ibid

BY MIHRETU MEKONEN
BAFE
Mobile banking is one form of E-banking that is provided by a bank or other financial institution
that allows its customers to conduct financial transactions remotely using mobile devices such as
mobile phones, smartphones, and tablets with a SIM. 'Mobile banking' is the provision of
banking products and services using mobile devices but 'mobile money' is money that is stored in
the mobile phone and which can be used to make payments to third parties. Mobile money
(mobile payment) is a payment service operated under the financial regulatory framework and
performed from or via a mobile device. In mobile banking, there is the opening and maintenance
of a 'mobile account' at a financial institution whereas in mobile money it is a stored-value
prepaid payment mechanism.16
Banks and microfinance institutions in Ethiopia have begun providing mobile banking services
since 2015. Compared to other African nations, Ethiopian financial institutions were very late to
introduce mobile banking services. In bank-led mobile banking, banks and microfinance make
use of mobile phones to reach many customers as an extension of their services and products.
With mobile banking, a customer can access banking services from any corner of the country at
any time using his/her mobile phone. The available mobile banking services include balance
inquiries, transaction details, payment of utility bills, bank statements, intra-account transfers,
inter-account transfers, and alerts for withdrawal on a customer account. The government-owned
giant bank, CBE, launched a mobile banking service on December 11, 2017, after it had passed
the pilot period provided in the Regulation of Mobile and Agent Banking Service Directive.
Using the mobile banking service of the CBE, a customer can deposit, withdraw, transfer money,
make payments, buy mobile airtime, and pay the bill in a very simple and convenient way.17
The National Bank of Ethiopia proclaimed the directive18
which regulates mobile and agent bank
systems. We stand from its' nomenclature somehow mistaken, which is the directive but named
as Regulation of Mobile and Agent Banking Services Directives No. FIS /01/2020. This directive
defines three things about mobile money. These are:
 "mobile account" means an account maintained by a customer in a financial institution in
which debits and credits are effected by electronic fund transfer and which is used to
conduct mobile banking activities as outlined in these directives;19
 "mobile banking" means performing banking activities which primarily consists of
opening and maintaining mobile/regular accounts and accepting deposits; furthermore, it
includes performing fund transfers or cash-in and cash-out services using mobile
devices;20
16
The limits of electronic banking regulation in Ethiopia, by Equbamariam Kidane, p19
17
ibid
18
LICENSING AND SUPERVISION OF THE BUSINESS OF FINANCIAL INSTITUTIONS, Regulation of
Mobile and Agent Banking Services Directives No. FIS /01/2012
19
ibid article 2 (10)
20
ibid article 2(11)

BY MIHRETU MEKONEN
BAFE
 "mobile device" means, in this context, mobile phones, smartphones, tablet personal
computers, point of sale terminals, or any other similar device;21
The National Bank of Ethiopia (NBE) has issued the long-awaited directive that will regulate
payment instrument issuers which includes mobile money, wallets, and similar digital financial
services in Ethiopia.
The new directive titled "Licensing and Authorization of Payment Instrument Issuer Directive
No. ONPS/01/2020″22
is poised to replace the previous Mobile and agent banking directive that
paved the way for the likes of M-Birr, Hello Cash, CBE-Birr, Amole, and other mobile money
services to flourish. This directive defines E-Banking as follows:
 "electronic money account" means an account held with a payment instrument issuer and
which belongs to a user;23
 "electronic money float" means the total outstanding value of electronic money issued by
a payment instrument issuer that may also be reflected by a cash deposit in a bank or
government security or both;24
 "Electronic money" means a monetary value represented by a claim on its Issuer. It has
the following attributes: (i) issued upon receipt of Ethiopian Birr, (ii) it is accepted as a
means of payment by persons other than the issuer, (iii) it has equal value with other
electronic money issued in Ethiopian Birr, (iv) stored on an electronic device, like a pre-
paid card, mobile phone, tablet or any other computer system;25
The directive had
allowed banks and microfinance to provide mobile money service via agents.
2.5 Challenges of the Mobile Banking System in Ethiopia
These challenges are M-Banking agents, technology, awareness, trust, risks, environment
(organization), educational level, government directives, etc. Additionally, perceived risk is also
a big problem. Perceived risk refers to the user's level of uncertainty regarding the outcome of
the acceptance decision. There are identified five risks that can be described for M-banking, as
follows;
1. Performance risk: refers to losses incurred by deficiencies or malfunctions of M-Banking
servers.
21
ibid article 2(12
22
OVERSIGHT OF THE NATIONAL PAYMENT SYSTEM, Licensing and Authorization of Payment Instrument
Issuers Directive No. ONPS/01l2020
23
ibid article 2 (9)
24
ibid article 2 (10)
25
ibid article 2 (11)

BY MIHRETU MEKONEN
BAFE
2. Security risk: This is defined as a potential loss due to fraud / a hacker compromising the
security of MB users.
3. Time/convenience risk: this refers to a loss of time and any inconvenience incurred due to the
delays in receiving payments or the difficulty of navigation.
4. Social risk: refers to the possibility that using M-Banking may result in disapproval by one's
friends, family, work group, etc.
5 Financial risks: it is defined as the potential for monetary loss due to transaction errors or
account misuse.26
3. Electronic banking fraud in general
3.1 definitions of fraud and fraudulent acts in general
Fraud consists of some deceitful practice or willful device, resorted to within tent to deprive
another of his right, or in some manner to do him an injury. As distinguished from negligence, it
is always positive, and intentional. Fraud, as applied to contracts, is the cause of an error bearing
on a material part of the contract, created or continued by artifice, with design to obtain some
unjust advantage to the one party, or to cause an inconvenience or loss to the other. Fraud, In the
sense of a court of equity, properly Includes all acts, omissions, and concealments which involve
a breach of legal or equitable duty, trust, or confidence justly reposed, and are injurious to
another, or by which an undue and unconscientiously advantage is taken of another.27
Fraud is an
intentionally deceptive action designed to provide the perpetrator with an unlawful gain or to
deny a right to a victim. It also involves the false representation of facts, whether by intentionally
withholding important information or providing false statements to another party for the specific
purpose of gaining something that may not have been provided without deception.28
Often, the
perpetrator of fraud is aware of information that the intended victim is not, allowing the
perpetrator to deceive the victim. At heart, the individual or company committing fraud is taking
advantage of information asymmetry; specifically, the resource cost of reviewing and verifying
that information can be significant enough to create a disincentive to fully invest in fraud
prevention.29
Coming to Ethiopian law, the concept of fraud and fraudulent acts is not explicitly defined in the
Civil Code. According to Article 1704 of the Ethiopian Civil Code, a contract is considered
fraudulent if it was entered into with the intent to deceive the other party. Article 1996 of the
same code states that an act is considered fraudulent; if it was done by the debtor with the
26
Adoption and Challenges of Mobile Banking Systems in Ethiopia: The Case of Cooperative Bank of Oromiya by
Ebisa Beyene p4
27
Black's Law Dictionary, 2nd Edition
28
By JAMES CHEN Updated July 24, 2022, Reviewed by MARGARET JAMES, Fact checked by TIMOTHY LI
29
ibid

BY MIHRETU MEKONEN
BAFE
knowledge that it would be increased their insolvency. Art.1704 puts fraud as a ground for
invalidation of a contract. Where a party resorts to deceitful practices so that the other party
would not have entered into the contract, had he not been deceived, constitutes fraud under
Ethiopian law of obligations. The fraudulent acts are also stated under Art. 1996 an act shall be
deemed to have been done in fraud of the rights of creditors where it was done by the debtor to
become insolvent, or with the knowledge that he was thereby increasing his insolvency; when
the payment of mature debts may not be challenged by the creditors.30
The essential elements of constitute fraud under Art. 1704 of the Civil Code are deceitful
practice, reliance, and fraud of the contracting party. It is obvious that a mere intent to commit
fraud, which has not resulted in any act injurious to the person intended to be defrauded, is not
sufficient to constitute fraud. The intent must be accomplished by overt acts done to materialize
the desired intent. In other words, there must be a deceitful pact, which is a trick used by a party
to encourage or force the other to conclude the contract, to constitute fraud.31
As Rene David
states, "the concepts of fraud dealt with in Art. 1704 requires that practices have been utilized by
one person to invoke an error on the part of another and to influence him to enter into a
contract." Thus, the utilization of deceitful practice is very important to establish fraud under the
Ethiopian legal system unlike the French and Swiss legal systems, in which intentional false
statements alone constitute fraud. So our law is concerned with how fraud is committed.
Therefore, unless an otherwise deceitful practice is utilized to create a false impression upon the
victim of mind, there can be no fraud as a ground for invalidation of the contract. The rationale
behind these requirements of deceitful practice seems that parties should take the necessary care
when entering into business transactions so as not to be deceived by false statements of
counterparty. The law comes to the help of the deceived party only when the counterparty resorts
to deceitful practices in addition to his false assertion.32
In criminal law, fraud usually takes very specific forms, such as bankruptcy fraud, credit card
fraud, or healthcare fraud. It also recognizes distinct crimes for check fraud, access card fraud,
insurance fraud, and making false financial statements. Some criminal fraud statutes might be
classified under laws forbidding larceny, others under forgery, and others as a crime covered by
laws regarding a specific industry, like insurance or banking laws. Suspicions of criminal fraud
should be reported to law enforcement authorities,33
and prosecutors must prove fraud "beyond a
reasonable doubt." That is, the evidence is satisfactory, the facts are proven, and guilt is
established. This is a higher degree of certainty than a civil case, and the penalties are harsher if
found guilty. The prosecutor must prove the following to get a conviction: There was a
purposeful deception (a false statement, misrepresentation of an important fact), There was intent
to deprive the victim of something (usually money), the victim suffered (or could have suffered)
30
CIVIL CODE OF THE EMPIRE OF ETHIOPIA PROCLAMATION No. 165 OF J960
31
Law of Contracts I Module February 2007, Bahir Dar University by Balew Mersha Desta
32
ibid
33
Last updated in May of 2020 by the Wex Definitions Team

BY MIHRETU MEKONEN
BAFE
an actual loss as a result of the fraudulent activity, and Criminal Penalties for Fraud The
penalties for fraud depend upon the type of fraud, the number of victims, and the amount of
financial loss. Punishment usually includes a prison sentence, an order of restitution to make the
victim whole again, and fines.34
Coming to Ethiopian law, under criminal law, fraudulent acts are defined as intentional acts of
deceit, misrepresentation, or dishonesty aimed at gaining an unfair advantage or causing
financial or other harm to another person or entity. These acts typically involve intentional
deception, manipulation, or falsification of information, documents, or transactions. Fraud and
fraudulent acts are contained under Article 351 Endangering Sources of Revenue and Article 692
and following, define a crime involving fraud,35
Computer Crime Proclamation,36
tax
administration,37
telecom fraud,38
etc. proclamations are defined and stated about fraud. The
criminal code states fraud and its punishment under article 692(1) Whoever, with intent to obtain
for himself or to procure for a third person an unlawful enrichment, fraudulently causes a person
to act in a manner prejudicial to his rights in property, or those of a third person, whether such
acts are of commission or omission, either by misleading statements, or by misrepresenting his
status or situation or by concealing facts which he had a duty to reveal, or by taking advantage of
the person's erroneous beliefs is punishable with simple imprisonment, or, according to the
gravity of the case, with rigorous imprisonment not exceeding five years, and fines.39
3.2 Fraud and fraudulent acts on the E-banking system
Electronic Banking has been widely used in developed countries and is rapidly expanding in
developing countries. In Ethiopia, however, cash is still the most dominant medium of exchange,
and electronic payment systems are at the developing stage. In the face of the rapid expansion of
electronic payment systems throughout the developed and developing world, Ethiopia's financial
sector cannot remain an exception in expanding the use of the system.40
All E-payment methods
share several common characteristics. These are independence, interoperability and portability,
security, anonymity, divisibility, ease of use, and transaction fees. Independence refers to the
ability of E-commerce methods to operate without installing specialized software.
Interoperability and portability refer to the ability of forms of E-commerce to interlink with other
34
By Find Law Staff | legally reviewed by Bridget Molitor, J.D. | Last reviewed June 01, 2022
35
Proclamation No.414/2004, THE CRIMINAL CODE OF THE FEDERAL DEMOCRATIC REPUBLIC OF
ETHIOPIA
36
PROCLAMATION No. 958/2016 Computer Crime Proclamation
37
Art.48 FEDERAL TAX ADMINISTRATION PROCLAMATION No. 983/2016
38
Telecom fraud offense proclamation no. 761/2012
39
ETHIOPIA
40
THE PRACTICE OF ELECTRONIC BANKING IN ETHIOPIA thesis BY MEAZA WONDIMU 2013 p1

BY MIHRETU MEKONEN
BAFE
enterprise applications and systems. Security is an important consideration that encompasses the
safety of the transfer and the chance of the transfer being intercepted.41
Electronic banking though beneficial to the banking system, has introduced great security threats
to banks, and their customers. Electronic banking makes use of access codes, which are in the
form of a Personal Identification Number (PIN) before access is granted to the user of the bank
services. This has not always saved the banks from the antics of fraudsters, fraudsters use various
avenues to divulge or steal customers' secret access codes which they personalize, and use the
opportunity to impersonate and rob their victims of their valuables from the bank. Some robbers
confiscate ATM cards from owners with their PINs; and seize tokens and other electronic
banking application access codes; which they use to defraud their victims. Many banking
customers resist electronic banking for fear of being defrauded. Bank customers who do not seek
verification from their banks easily fall prey.
Frauds committed in the banks are called banking frauds, while the use of electronic to commit
banking frauds is termed electronic banking fraud. It defined electronic banking fraud as frauds
associated with electronic banking perpetrated using ATM, POS, internet, and mobile banking
platforms. They further stated that electronic banking frauds are achieved through the following;
i) Impersonation: exposing secretes identities to a third party who impersonate and defraud the
owner, ii) Phishing and spooling: giving response to futile text messages by revealing identities
which are later used to defraud victims. iii) Hacking: using random code-generating software
developed specifically for fraud purposes to hack into any matching account and defraud victims,
iv) Bankers: liaise with fraudsters by providing identities that are used to defraud banks and
customers, and v) Trojan horse: the interface with user login to divulge user's secret personal
codes/identities which is in turn used to defraud victims.
4. How mobile banking (money) are exposed to fraudulent acts
There are various methods to carry out mobile banking fraud successfully; these methods are 1.
Network provider data breaching – Hackers can break into the system of telecom service
providers and steal the personal information of the people subscribing to their services. Our
personal information could be vulnerable if exposed to such leaks, 2. Call center fraud – While
phone banking, customer service representatives do a couple of checks to identify the customer
after which they reveal account details. If a fraudster has access to these details, he/she can easily
access the account of any individual, and 3. Mobile phone theft – A stolen mobile phone is most
vulnerable to all sorts of malpractices, especially if it has bank apps and all relevant bank
information stored. Even a password-protected phone can be hacked into and used for mobile
banking fraud.
41
Electronic-Banking in Ethiopia- Practices, Opportunities and Challenges journal by Gardachew Worku

BY MIHRETU MEKONEN
BAFE
When M-banking service users must keep their mobile phones and M-banking service passwords
secret, record the passwords (codes) on their mobile phones. The fact that they are catching on,
they say, is that their codes are being easily ripped off by fraudsters using technology. Noted that
this act is getting worse among the other issues they mentioned as an additional reason for the
worsening of the problem is that there is a gap in the provision and control of mobile phones.
Customers' point that makes individuals vulnerable to fraud is not changing passwords regularly.
Customers should enter their passwords in a way that others can't see them when using mobile
banking and making transactions. Many have indicated that they are exposed to fraud by not
taking this basic precaution.
The fraud that is being encountered more often is the act of defrauding money by taking
advantage of the lack of caution of individual customers. Among the methods used by fraudsters,
they say, "We are going to give you a prize, we are going to offer you a loan" by sending
attractive messages to customers, taking customer information, and opening their bank accounts.
Sometimes fraudsters call digital bank users and give misleading information and transfer money
from their account to the fraudster. In particular, the information given that we are going to give
a reward has led to money being taken from many people. Fraudsters steal from customers'
accounts, but this problem is that customers have given their information directly or indirectly to
get an unfair advantage, it has been possible to understand from the explanation of the bank's
officials. They use different methods and even recently, in Ethiopia, It has been stated that there
were fraudulent attempts made to commit theft from the customers' accounts by preparing fake
codes with false information claiming that Commercial Bank is providing loans through mobile
banking. Let us see the news reported by Addis fortune;
A three-story building on Mozambique Street, around Mexico Square, was packed with appeared
aggrieved. A taller man was navigating through the congested hallway on the first floor,
appearing nervous and constantly glancing at his watch. Sisay Tegenu seemed like he was racing
against time. Sisay had good reason for his anxiety. Several who jammed the building last week
were prey to financial scammers. The building houses a department of the Federal Police Crime
Investigation Bureau. The day before, Sisay was the victim of a scam. Someone called him
pretending they were an employee of the Commercial Bank of Ethiopia (CBE). The scammer
told Sisay he was trying to integrate his CBE account with another account he holds at the Bank
of Abyssinia (BoA). Sisay followed instructions and changed his password using his smartphone.
Two hours later, he received a notification from the CBE that he had transferred 85,000 Br. "I
couldn't believe my eyes," he told Fortune. "I'm left with only 3,000 Br." The farthest of four
suspects the scammer could be someone close to him, who should know he holds accounts at
both banks.42
42
https://addisfortune.news/banking-industry-battles-festering-fraud-as-clients-swindled-savings/PUBLISHED ON
Aug 27, 2022 [ VOL 23, NO 1165]

BY MIHRETU MEKONEN
BAFE
5. Investigations/detections of fraudulent acts on mobile banking
Fraud is committed by people who are conscious that their identities are not known to the public,
as such, they would not be known hence, no consequence(s) to suffer. It will be ideal if the
electronic banking application is integrated with technology that can identify users, and possibly
keep a good record of their identities such that they can be traced in the case of unethical or
fraudulent practices. Identity is concerned with the verification of a person to be sure he is what
he claims. Hence it is difficult to track down electronic banking fraudsters; it is expedient to
identify who is the one on E-banking transactions at any point in time.43
Fraud on mobile banking is a crime that can be committed with the help of technology, which is,
using a network system on a mobile or computer device, without knowing the address of the
perpetrator. It is not possible to carry out the investigation just by giving a statement/application
to the police about the victim of the crime. Because there are things that need to be verified by
other institutions outside of the normal investigation process to find out what the alleged victim
has done. Under Article 24 "Recording of Statement; after having recorded an accusation or
complaint in the manner laid down in Art. 14, the investigating police officer shall elicit from the
person making the accusation or complaint all relevant facts and dates, the name or description
of the offender; the names and addresses of principal witnesses and all other evidences which
may be available, and shall record them.44
The mobile number where the act was committed and the bank account of the victim must be
provided to start the investigation. The mentioned proofs are provided by independent
institutions, such as mobile network telecom providers and banking service providers, by
verifying the identity of the customer or the victim. As a problem or as an obstacle to starting the
investigation process, when banks open accounts for customers, they do not ask whether the
phone number they fill in the contact form is registered in the customer's name or not. As a
result, if the phone number is not registered in the name of the customer/victim, it complicates
the investigation process from the beginning by requiring other verification methods.
The difficulty in getting evidence from the institutions is serious in itself. Instead of helping the
victim to start the investigation based on the complaint she/he submitted to the police, the service
provider institutions everywhere reply by telling him to go to the main office or branch and
collect the requested evidence. Despite this upheaval, the victim was able to achieve the above-
mentioned facility, but there is a gap in the issues that are listed in it.
Even if the investigation is started after going through these tedious procedures, since the
fraudulent act is done using an electronic device, it will not be easily accessible to the perpetrator
43
A Study of Electronic Banking Fraud, Fraud Detection and Control Volume 4, Issue 3, March – 2019
44
IMPERIAL ETHIOPIAN GOVERNMENT PROCLAMATION No.185 OF 1961 Criminal Procedure Code Of
Ethiopia

BY MIHRETU MEKONEN
BAFE
of the act. For this reason, fraudsters use voice or text messages on mobile phones or computers.
Therefore, the main questions asked during the criminal investigation process are by whom and
where is not possible to understand; when and how the crime was committed by asking the first
questions from the victim, and where they say, except when and how. The victim's complaint to
the police will indicate when and how it was processed, and the bank and telecom provider will
then check the number of the call and the account where the money was transferred from the
victim. In the meantime, if there is a discrepancy between the mobile number and the name of
the customer's account, the service provider bank will take responsibility. This is because it is the
bank that fills the mobile number in the contract form in the customer's account.
In this process, efforts are made to arrest the suspect by making the fraudster's address at the
address where the account was opened, but the place where the account was opened may not be
the suspect's residential address. Mobile banking makes the investigation even more complicated
as fraudsters transfer the money to different people's accounts after committing the crime. The
transfer of money makes the crime more complex, and if banks have to follow up and close
accounts to protect vengeful customers, they are not seen doing this as the matter is still under
investigation. The reason for this is that we will not accept a restraining order if it is not a court.
The reason for this is that the victim does not know the perpetrator of the crime and the place
where it was committed. Thus, the victim couldn't fulfill the obligation under Article 24 of
criminal procedure. Even though the victim has submitted all the evidence to the police, they are
concerned that no suspect has been arrested yet.
Another issue is that regional police do not have the authority to initiate the investigation, and
banking institutions are established according to the proclamation issued by the Federal House of
People's Representatives otherwise Regional State Police to whom the power of the Federal
Police is delegated.45
If the states have a delegation in connection with the federal institutions,
they can maintain their authority and follow up on the case, but the case will be handled by a
federal institution established in their area. In essence, fraud related to mobile banking is not
proceeding under the criminal law (code)46
because it doesn't involve a physical act. In a special
case, if it is a crime committed by stealing an individual's mobile phone and knowing the mobile
banking code number, it will be treated under regular criminal law.
However, if it is a fraudulent act done by direct calling or hacking through the Internet, it will not
be considered under criminal law. The reason given for this is that the crime was committed
using various electronic and network systems without any physical action; Proclamation No.
958/2016 with the relevant criminal article is in the Proclamation on Computer Crime. However,
it is the Federal High Court that has the first instance jurisdiction over crimes under the
proclamation; "The Federal High Court shall have first instance jurisdiction over computer crime
45
PROCLAMATION No. 958/2016 Computer Crime Proclamation art. 2(18)
46
ETHIOPIA

BY MIHRETU MEKONEN
BAFE
stipulated under this Proclamation."47
Even if the regional courts have the jurisdiction to hear the
case presented above, the supreme court of the region will have the jurisdiction to hear the
case48
. The reason for this is that the federal higher court; jurisdiction is given for crimes
committed under the Computer Crime Proclamation.
According to this proclamation, the investigation can be done by the federal prosecutor49
and the
police or the state police who have a delegation.50
It is the Attorney General who has the
authority to file charges. Investigative Power; 1/The public prosecutor and police shall have joint
power to investigate criminal acts provided for in this Proclamation. The public prosecutor shall
lead the investigation process. 2/ Where requested to support the investigation process, the
Agency51
shall provide technical support, conduct analysis on collected information, and provide
evidence if necessary.52
The proclamation53
is followed through a complicated procedure and that mobile banking fraud
can happen anywhere in the country. However, the legislators only assumed it was a federal
crime and delegated the investigation process to federal prosecutors and police, leaving out the
regional police. They didn’t take into account the possibility of fraud on e-banking technology as
it expands in the country. The proclamation is followed through a complicated procedure and
that mobile banking fraud can happen anywhere in the country. However, the legislators only
assumed it was a federal crime and delegated the investigation process to federal prosecutors and
police, leaving out the regional police. They didn’t take into account the possibility of fraud in e-
banking technology as it expands in the country.
The other is issues of clarity; the victims’ of mobile banking fraud on which law can get legal
remedies and NBE hasn’t protected consumers of m-banking under financial consumer
protection directive no. FCP/01/2020. Thus, who should take responsibility? For online
fraudulent acts and how customers’ money returns. General NBE doesn’t provide protection
mechanisms and compensation for the victims of M-banking users.
Some banks are adopting separate solutions to avoid losing customer trust due to legal loopholes.
The solution to this entire legal gap is to issue laws that license and guides technologically
oriented banking activities, and include civil and criminal liability related to technology.
47
PROCLAMATION No. 958/2016 Computer Crime Proclamation article 40(1)
48
Constitution of the FDRE, Proclamation No. 1/1995 art. 78(2)
49
PROCLAMATION No. 958/2016 Computer Crime Proclamation article 2(14)
50
ibid article 2(18)
51
"Agency" means Information Network Security Agency;
52
PROCLAMATION No. 958/2016 Computer Crime Proclamation article 23
53
ibid

BY MIHRETU MEKONEN
BAFE
6. Conclusion and recommendation
Ethiopia does not have a mature law that governs the regulation of problematic content on e-
banking. Content regulation rules are scattered in various pieces of legislation, including the
bank business proclamation, criminal code, computer crime legislation, and different directives
that are not contained, and these are hardly fit for purpose. There is, for instance, no well-
organized procedural law that governs how to investigate mobile banking fraud, but the
government believes that the situation is reaching a critical level. The understanding of fraud in
e-banking systems identified in this paper may help to identify the gap in the law, solve
problems, and increase the trust of customers. It will also be valuable to all banking industries in
the country to increase their awareness and understanding of e-banking fraud.
E-banking systems, such as mobile banking, internet banking, and others, were not satisfied but
regulated by the Ethiopian banking industry. This is due to the lack of sufficient legal
frameworks at NBE, which can’t initiate the banking industry to control the system. In addition
to the above basic factors affecting the control of e-banking in Ethiopia, security risk and a lack
of trust in the use of technological control are other major barriers to the system. The level of
security risk associated with e-banking products or services, internet banking, mobile banking,
and others pose different challenges to different banks. Improvements are required to ensure
client confidence.
Therefore, as e-banking has a multitude of legal aspects in a wide spectrum of matters such as
contract formation, consumer protection, dispute settlement, privacy, and criminal law, it needs
prudent regulation and proper e-banking law. Ethiopia has so far only enacted disparate pieces of
legislation that have relevance to e-banking governance, yet she needs to have a comprehensive
e-banking law to address entire the legal aspects of it.
7. References
A. Laws
1. Constitution of the FDRE, Proclamation No. 1/1995
2. CIVIL CODE OF THE EMPIRE OF ETHIOPIA PROCLAMATION No. 165 OF J960
3. Criminal Procedure Code of Ethiopia PROCLAMATION No.185 OF 1961
4. THE CRIMINAL CODE OF THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA
Proclamation No.414/2004
5. National Payment System Proclamation No. 718/2011
6. Computer Crime PROCLAMATION No. 958/2016
7. LICENSING AND SUPERVISION OF THE BUSINESS OF FINANCIAL INSTITUTIONS,
Regulation of Mobile and Agent Banking Services Directives No. FIS /01/2012
8. OVERSIGHT OF THE NATIONAL PAYMENT SYSTEM, Licensing and Authorization of
Payment Instrument Issuers Directive No. ONPS/01l2020
9. FEDERAL TAX ADMINISTRATION PROCLAMATION No. 983/2016

BY MIHRETU MEKONEN
BAFE
10. Telecom fraud offense proclamation no. 761/2012
B. Thesis and books
1. A Study of Electronic Banking Fraud, Fraud Detection and Control Volume 4, Issue 3, March
– 2019
2. Adoption and Challenges of Mobile Banking Systems in Ethiopia: by Ebisa Beyene Kennesaw
State University(2020)
3. Liability of Bank Officers in Ethiopia for Fraudulent Withdrawal of Money by Third Party by
Dinka Dereje Asefa (2021) p1
4. Regulation of Electronic Banking in Ethiopia: The Analysis of Legal Framework By: Bikila
Ababu June 2019 Addis Ababa, Ethiopia
5. The history of E-banking, by Bob Bachelor- published on 26 Sep 2017
6. Regulation of Electronic Banking in Ethiopia: The Analysis of Legal Framework By: Bikila
Ababu p14
7. The limits of electronic banking regulation in Ethiopia, by Equbamariam Kidane, p19
8. Adoption and Challenges of Mobile Banking Systems in Ethiopia: The Case of Cooperative
Bank of Oromiya by Ebisa Beyene p4
9. Black's Law Dictionary, 2nd Edition
10. Law of Contracts I Module February 2007, Bahir Dar University by Balew Mersha Desta
11. THE PRACTICE OF ELECTRONIC BANKING IN ETHIOPIA thesis BY MEAZA WONDIMU 2013
p1
12. Electronic-Banking in Ethiopia- Practices, Opportunities and Challenges journal by
Gardachew Worku
C. Unpublished sources
1. Last updated in May of 2020 by the Wex Definitions Team
2. By Find Law Staff | legally reviewed by Bridget Molitor, J.D. | Last reviewed June 01, 2022
3. By JAMES CHEN Updated July 24, 2022, Reviewed by MARGARET JAMES, Fact checked by
TIMOTHY LI
D. Website visited
1. https://addisfortune.news/banking-industry-battles-festering-fraud-as-clients-swindled-
savings/PUBLISHED ON Aug 27, 2022 [ VOL 23, NO 1165]

BY MIHRETU MEKONEN
BAFE

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