Israeli-based Payoneer fined US$1.4 m for not complying with AML

Payoneer, an Israeli-based startup that processes international money transfers, has been fined US$1.4m for non-compliance with anti-money laundering (AML) laws. This is a significant setback for a company that has just been publicly listed and has already had its fair share of criticism.

But what AML regulations did Payoneer break and what’s next for the fintech startup?

Anti-money laundering laws

The topic of money laundering in itself is not difficult to wrap your head around. Illegal transactions are, naturally, cause for investigation and punitive measures. However, there are vastly different circumstances (and associated laws) in which money is considered illegally laundered. Compliance can also be a grey area when it comes to money transfer platforms, considering that they themselves are not responsible for the illegal transactions.

In the UK, transactions considered as money laundering may break a number of different laws.

The Proceeds of Crime Act (POCA) of 2002 outlaws transactions involving any finances gained from or processed through criminal acts. This therefore accounts for money involved in fraud, contraband trade, and scams. This also accounts for transactions made with people considered Specially Designated Nationals (SDNs), on whom sanctions have been placed.

The Terrorism Act first introduced in 2000 outlaws transactions that fund or benefit from acts of terrorism. This includes any transactions done with groups deemed terrorist organisations and their members.

The Financial Action Task Force (FATF) on money laundering is an intergovernmental organisation that tracks unlawful transactions across the globe. The FATF has designated a number of countries on its blacklist, into and out of which it is illegal to make transactions. The blacklist includes countries that are not complying with or acting upon international anti-money-laundering regulations, as well as countries known to fund terrorism.

The blacklist currently includes North Korea and Iran. In addition, the FATF has a greylist, including countries such as Cambodia, Syria, and Yemen, among others. Transactions in and out of these countries are under increased surveillance.

Finally, it is legislation of the Money Laundering Regulations (MLR) that requires financial services providers to do due diligence of transactions made by their clients. They are required to file Suspicious Activity Reports (SARs). This is part of the oversight companies like Payoneer are subject to.

To understand why Payoneer has been fined US$1.4 m, let’s take a look at who Payoneer is and how they have failed to comply with AML requirements.

Who is Payoneer?

Payoneer is a financial services provider founded in 2005 in Israel by Yuval Tal and Yaniv Chechik. It provides an easy way to send and receive money internationally online, and partners with companies like Amazon, Airbnb and Fiverr. In doing so, it facilitates international sales, bookings, and payments made in the gig economy.

Payoneer’s services are often used as an alternative to PayPal, especially for those who wish to send or receive payments through Amazon, who do not allow PayPal as an option.

Payoneer recently went public, listing on the NASDAQ. It is known to have links to current Israeli Prime Minister Naftali Bennet, who is reported to have received a large payout due to its listing.

There is clearly a lot of potential for Payoneer to facilitate illegal transactions. Here is where they have gone wrong.

Payoneer’s non-compliance with AML

According to reports, Payoneer has acknowledged processing 2,241 transactions for sanctioned parties, as well as 19 payments to Specially Designated Nationals (SDNs). Included in the 2,241 transactions are transfers to or from the Crimea region of Ukraine, Syria, and Iran.

Payoneer has also allegedly provided services to companies in the fraudulent binary options industry, scam dating sites, and an under-investigation French Forex company.

To be clear, Payoneer has not been fined for completing these transactions. Rather, it is in the fact that they did so without filing SARs that they have failed to comply with AML.

Payoneer’s is an interesting case, considering that they are not intentionally carrying out illegal transfers or working with blacklisted countries and murky companies. They are specifically being penalised for facilitating transactions while turning a blind eye.

This gets into the somewhat tricky business of what responsibilities money transfer companies have when it comes to AML regulations.

Do money transfer companies need to be regulated?

The legal responsibilities of international money transfer companies are not simple, as they are dealing with finances in multiple countries around the world. Different countries have different regulations with which they must comply.

However, it is specifically the FATF, a global body, that provides oversight of these companies. Regulation through the FATF is not all that prohibitive. After all, they provide clear guidance of which types of transactions to report, which can be flagged by algorithms.

That said, there are many grey areas. Different countries and regulators will disagree on which groups to consider terrorist organisations (something PayPal is currently learning). There is a thin line between a scam and opportunistic capitalism. And some companies are technically legitimate, even if the majority of their transactions turn out to be fraudulent.

This is why money transfer companies are not required to deny all dodgy transactions. Reporting them gives the FATF the chance to determine whether they are breaking AML regulations.

Payoneer has learnt a hard lesson, and will need to take more care going forward to comply with AML. They have replaced their Chief Compliance Officer (CCO) and are retraining compliance employees. This may be a little too late to win back the trust of some, especially considering the fact that Payoneer has touted its supposed comprehensive sanctions and AML compliance programs to business customers.

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