Is FinTech the New Frontier for Money Laundering?

Is FinTech the New Frontier For Money Laundering?

Matt Bernardini looks at concerns about the booming business in electronic money institutions

As the United Kingdom and the world begins the long-overdue conversation about how to crack down on dirty money following Russia’s invasion of Ukraine, many of the bankers involved in moving that money are increasingly transitioning to the electronic money sector and other new technologies.

According to an analysis by Transparency International of registered electronic money institutions (EMIs) in the UK, more than one in three exhibited red flags relating to money laundering. Many of these EMIs have directors who previously worked at banks that were embroiled in money laundering scandals and global corruption.

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Convenience

Many election money institutions advertise their convenience for making payments and quick account opening as selling points on their websites. According to Artem Kotugin, the managing director of RLA Services, a consulting company, it’s the simplicity that has made EMI’s so popular. 

“Roughly speaking, a modern EMI is a bank on your phone or laptop,” Kotugin said. “They are not inferior in terms of user functionality to a classic bank.”

It’s not just transactions that are streamlined with EMIs. Customers are verified much faster than walking into a traditional bank, Kotugin added. 

“In order to start using an EMI, a new user just needs to spend five minutes to open an account, go through online verification, choose the tariff and terms of service himself,” Kotugin said. Moreover, a bank card will also be delivered directly to the user’s home or office.”

Many UK EMIs are featured on the websites of consulting companies and law firms that sell offshore companies and offer banking services for clients. 

RLA Services advertises the ability to open an account in several different payment systems across Europe, including Revolut, Wise and MultiPass (previously known as DynaPay).

According to Kotugin, the UK, Czech Republic and Lithuania are home to a large majority of EMIs, even though the users may often come from other countries. 

“The citizens of these countries themselves hardly use EMI’s, making up a minimum percentage of the total number of users,” Kotugin said. “The thing is that not all jurisdictions generally provide licenses to conduct such activities. In these countries, payment companies are allowed and well regulated, which is why the process has become clear and not so expensive.”

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The Baltic Connection

Transparency International’s review found that 16%  of EMIs had links to the Baltic financial sector, a region that has been hit hard by major money laundering scandals over the last decade. As OpenDemocracy has also noted, several current owners of UK EMIs have direct connections to past scandals in Latvia that saw banks willingly help move billions of dollars out Russia and other Post-Soviet countries. 

For example, A Plus Payment Solutions is run by Dmitrijs Krasko, who helped establish

over 100 companies named in the FinCen Files. 

Some other EMIs are directly linked to Latvian banks. The person with significant control of Decta Limited, is Rietumu Holding, which owns Rietumu bank in Latvia. Just last year the bank was fined nearly 6 million euros for failing to vet its clients for money laundering risks. 

Bilderlings Pay is owned by Aleksejs Peskovs, who is also the deputy CEO at BlueOrange Bank (formerly known as Balikums Bank). Baltikums had been used to evade sanctions against North Korea and to move money as a part of the Azerbaijani laundromat. 

Ben Cowdock, Investigations Lead at Transparency International UK, said that the Financial Conduct Authority should do a better job vetting EMIs. 

“Our evidence suggests the checks carried out by the FCA on prospective EMIs are not always the most stringent, whilst we have also identified a cottage industry of professionals who help firms get authorization from the FCA,” Cowdock said. “It is not clear to what degree these people’s previous employment and activities are taken into account by the FCA when assessing their fitness and propriety for controlling financial institutions.”

The FCA did not respond to a request for comment on their vetting process. Neither did any of the companies mentioned in this story. 

Kotugin believes that EMIs offer an opportunity for some bankers to reinvent their careers. 

“Since banks have already completely lost their former greatness, knowledgeable people (those same bankers) decided to start their own business in this area.” Kotugin said. “EMIs make it easy and not very expensive.”

Kotugin also noted that the process for opening an EMI is much less stringent and does not require the documentation that is needed to open a bank.

“EMI, roughly speaking, can be done from scratch in a couple of months,” he said. “A similar process for a bank can take years.”

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Other Connections 

The problematic connections of some directors extend beyond the Baltic banking sector. For example, two former Latvian bankers affiliated with the company Paystree Ltd are Evija Meimane and Mihails Safro. 

Meimane is also the director of an Estonian company that is reportedly behind a scam Cryptocurrency website. She did not respond to a request for comment. Meanwhile, Safro was previously a director of WFI Czech Sro, which was allegedly involved in the embezzlement of coal from Ukraine. 

As financial technology continues to develop, it will be up to regulators to impose stringent requirements on them and ensure that FinTech does not become its own banker’s laundromat.

“WFI is a trading company. As a software expert and entrepreneur, I was keen to create a commodity trading software start-up and acquired the business,” Safro said. This was back in 2019 while I was simultaneously working on other projects, which quickly took off and so I stepped away from WFI after about six months to focus my efforts elsewhere. WFI had no commercial activity over the course of my tenure.”

As financial technology continues to develop, it will be up to regulators to impose stringent requirements on them and ensure that FinTech does not become its own bankers’ laundromat.