Last year’s dramatic collapse of German payments firm Wirecard was the biggest accounting scandal since the Enron failure, two decades earlier.
But according to Transparency International, a non-governmental organisation fighting against corruption, there may be more trouble ahead in the booming financial technology (fintech) sector.
Speaking earlier today at the Dark Money conference, Ben Cowdock, Transparency International’s UK head of investigations, said that he and his colleagues were focusing on UK-based electronic money institutions (EMIs) and authorised payment institutions (APIs) as a nexus for money laundering.
EMIs and APIs are financial institutions that are authorised to make electronic payments and, in the case of EMIs, issue electronic money. They are subject to lower capital and supervisory requirements than banks.
According to Cowdock, the relatively light-touch regulatory regime for EMIs and APIs has attracted less welcome business operators.
“EMIs and payment services firms are increasingly the go-to for people with high-risk businesses, where they can’t get banked,” he said.
According to Cowdock, the UK Financial Conduct Authority (FCA) has authorised over 230 of these institutions.
Transparency International has been researching the sector, Cowdock went on, and believes that some firms bear the hallmarks of suspicious activity.
“There are unsuitable owners, you’ve got unsuitable owners running companies and offering services in jurisdictions with high money laundering risk, you’ve got interesting associations with ongoing high-risk firms, whether that’s [company] formation agents setting up shell companies or banks overseas that haven’t got the best money laundering track records,” Cowdock said.
Transparency International would soon publish its report on the payments and EMI sector, he said.
Last year Open Democracy, an independent media organisation, said that corrupt officials, criminals and tax-avoiding entrepreneurs from the former Soviet Union seeking to launder money had shifted their focus from bank accounts in the Baltic States to payments firms.
“Our research follows individuals and institutions who were linked with Baltic banks that were fined for enabling—or failing to prevent—industrial-scale money-laundering. We’ve found that some are moving into the British e-money business, complete with a stamp of approval from the FCA,” Open Democracy said.
“We have found an open Russian-language internet trade in UK shell companies with EMI accounts, EMI licences and even an anonymous EMI provider on offer for £1 million,” it went on.
Earlier this year, the FCA warned of further payment firm failures and reminded clients of EMIs and payment firms that their money was not protected by government insurance in the case of a firm’s insolvency.
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