Digital Securities
Client Accounts on Hold as FCA Locks Down ePayments
There are few feelings worse than having one’s control stripped away, only to be at the mercy of another. This is, unfortunately, the case for a plethora of clients which utilize digital payments processor, ‘ePayments Systems Limited’.
Mid-February saw an enforced lockdown of ePayments’ client accounts, which persists as we enter March. This lockdown was a result of orders by the Financial Conduct Authority, as the regulatory body probes operations for short-comings surrounding Anti-Money Laundering practices.
While exact figures are unknown, it is surmised that this lockdown has affected over $150 million USD worth of client funds. These funds are touted as coming from over 1 million client accounts.
When the FCA stepped in, arranging the persisting lockdown of their systems, ePayments provided their clientele with the following notice.
“On the February 11, 2020 ePayments Systems Limited (‘ePayments’) agreed with the Financial Conduct Authority (‘FCA’) to suspend all activity on its customer accounts. This decision was taken following a review, by the FCA, of ePayments anti-money laundering systems and controls, which identified weakness that required remediation.
We know this will be a very frustrating time for our customers. We apologise for any inconvenience caused and are working tirelessly to ensure improvements are made and accounts can be reactivated as soon as possible. During this improvement process, we want to assure customers that their funds are being safeguarded as normal.”
Looking for Answers
The situation is obviously a negative one, continuing to linger as the company looks for a resolution. What isn’t so obvious is the reasoning behind the lockdown.
There are a few theories that have emerged as potential culprits for the development.
- New AMLD5 laws have caught ePayments off-guard, necessitating platform upgrades
- ePayments was used as a gateway for laundering funds associated with proven scam, OneCoin
- Partners of ePayments are cracking down on payments associated with ‘high-risk’ industries
Today, we’ll take a brief look at the merit behind each of these theories. The reality, however, is that maybe none of these are correct. Maybe we simply need to wait for a resolution before becoming privy to answers.
Anti-Money Laundering
Before diving into the aforementioned theories, we can establish one fact – with the statements provided by ePayments, we at least know that this situation revolves around their AML procedures.
In order to remain authorized by the FCA, a company must adhere to strict compliance measures surrounding AML laws.
While digital payment solutions offer a bevy of benefits –such as speed and cost – they come with certain caveats. One of these is the potential for misuse through nefarious activity. One of the most commonly known means of illicit activity is money laundering – a practice which enables ‘dirty’ money, associated with illegal activities, to be passed off as ‘clean’ or legitimate.
Naturally, this is a practice which is discouraged, and has resulted in strict measures being taken to ensure it does not occur. These practices are known as ‘Anti-Money Laundering’ laws, or ‘AML’.
In the case of ePayments, it is these AML measures, or rather a lack of, which prompted the FCA enforced platform lockdown.
Scenario 1 – AMLD5
Theory number #1 is a very plausible scenario. The acronym ‘AMLD5’ refers to Europe’s 5th Anti-Money Laundering Directive.
AMLD5 which came into law in 2018, and came into effect in 2020, comes with various stipulations – with one pair possibly being the reason for the shutdown.
- Virtual Asset Service Providers are now viewed on level ground with other entities, despite perceived risk levels.
- Virtual Asset Service Providers must now conform to more stringent AML and KYC rules.
While ePayments may have once conformed to regulations, their systems may simply need upgraded to reflect their new obligations under AMLD5.
While potentially costly for ePayments, this possible scenario is overall positive (aside from the obvious inconvenience of those affected by the lockdown). At the end of the day, this scenario will result in a more secure ePayments platform moving forward.
Beyond this particular scenario, AMLD5 has already had widespread effects across Europe. This was recently made obvious when Germany redefined Bitcoin as a financial instrument.
Scenario 2 – ePayments + OneCoin
This scenario is much more of a worry than new found issues with AMLD5. While the situation as described, is disheartening, thus far, in and of itself, there may be something larger at play. There may be links between ePayments and one of the largest scams of all time – OneCoin.
Many speculate that the potentially porous AML practices of ePayments allowed for some of the roughly $4 billion in OneCoin funds to be funnelled through the platform.
This speculation is lent some level of credence through the recent resignation of Robert Courtneidge, from ePayments. This resignation, which occurred mere days after the platform lockdown, capped off a short stint at the company for Courtneidge. His prior employer? The law firm Locke Lord – the same firm which saw a partner, Mark Scott, convicted of laundering roughly $400 million worth of funds on behalf of OneCoin founder, Dr. Ruja Ignatova.
This development begs the questions – was ePayments used to launder funds associated with OneCoin? And if so, are some of the funds, currently under lockdown, a portion of those from OneCoin?
To date, much if this is simply conjecture, as the FCA has not yet released commentary on the finer details surrounding the ePayments lockdown. However, if it quacks like a duck…
A Potential Timeline
- OneCoin defrauds investors of $4 billion worldwide
- Mike Scott, Partner at law firm Locke Lord, compensated with $50 million for laundering $400 million for OneCoin founder, Dr. Ruja Ignatova
- 2017, Ignatova, vanishes with vast amounts of wealth
- Multiple convicted with various charges surrounding the OneCoin scam
- Robert Courtneidge, formerly of Locke Lord, is hired by ePayments
- FCA lockdown of ePayments occurs
- Robert Courtneidge resigns from ePayments
Future Intrigue
Where this entire saga becomes intriguing, is the potential for tracking down the elusive Dr. Ruja Ignatova.
IF there is a link established between OneCoin and ePayments, MAYBE there remain funds associated with Ignatova in those that are now under lockdown. Providing this were to be the case, a new avenue for potentially tracking down the whereabouts of Ignatova becomes a possibility.
While these are massive ifs and maybes, the scope of the situation is large enough to warrant genuine intrigue moving forward.
Scenario 3 – High Risk Relations
The final leading theory behind the ePayments lockdown is one that has proven to be the downfall of many similar platforms in the past – high risk relations.
Companies like ePayments are not able to operate alone. They require relations with banks, insurance providers, and more. Unfortunately, this means that they, and similar companies, are often at the mercy of these service providers. Often times, we will see a service provider deem that clientele are high risk, and cease offering their services.
With regards to ePayments, it is believed that, roughly, at least 20% of all transactions processed through their platforms can be attributed to the following industries.
- Pornographic Content
- Foreign Exchange (FOREX)
- Cryptocurrencies
Service providers are typically justified in ceasing relations surrounding these industries because, sadly, they are rife with scams and frauds – see the previous theory on OneCoin.
Digital Securities Exchange (DSX)
Connection to the aforementioned high risk industries may be strongest with that of Cryptocurrency. This is through cryptocurrency exchange, DSX; An exchange which shares the same founder as ePayments – Mikhail Rymanov.
Ties between platforms go beyond founders, however. For example, the pair utilize each other’s services for the onboarding of clients, as well as facilitating value transfers between accounts.
Thankfully, nations around the world are beginning to step up, ensuring level playing grounds for all businesses. A recent example of this is the Supreme Court of India’s recent decision to overturn their central banks decision to impose a blanket ban on crypto-related businesses.
Due to the growth surrounding acceptance being seen globally, it is unlikely that the ePayments lockdown is due to high-risk relations.
Progress Updates and a Crystal Ball
Regardless of which scenario you believe to be true, the public has not been given much information to work with, at this time. On a promising note, ePayments has, indeed, released multiple updates and ‘FAQ’ dossiers, indicating that they are at least working on the situation. These can be found through the following links.
Temporary Account Suspension FAQ for Customers
At the end of the day, no one but the FCA and ePayments knows the full situation. Perhaps the reasoning behind the lockdown is a simple one, and the lack of details is to prevent exploitation of a vulnerability.
The various scenarios discussed today are just a few possibilities, with one possessing no more merit than the last. For the time being, we will just need to continue consulting our crystal balls, as we try to make sense of the situation – and hope that ePayments seeks truth when stating,
“We want to reassure customers that funds are being safeguarded as normal and can be retrieved once the improvement process has been completed.”
ePayments Systems Limited
Operating within the United Kingdom, ePayments Systems Limited has grown into one of the largest digital payment processers in the nation.
CEO, Mikhail Rymanov, has overseen company operations since launch in 2010.
*Mikhail Rymanov was contacted for commentary prior to publishing – no response was received*
OneCoin
OneCoin is often noted as one of the largest scams of all time. This Ponzi scheme saw countless investors defrauded of roughly $4 billion USD.
The project, which saw its founder, Dr. Ruja Ignatova, disappear in 2017, with vast amounts of funds no less, was found to be a highly manipulated ruse. While it promised to be the future of payments through various mining practices and secure blockchains, these were found to be completely fabricated.
Financial Conduct Authority
The FCA is a United Kingdom based regulatory body. They note that their main tasks are threefold.
- Protect Financial Markets
- Protect Consumers
- Promote Competition
These tasks are performed within the confines of the Financial Services and Markets Act 2000. Since their formation in 2013, the FCA has grown to regulate 60,000+ businesses.
*The FCA was contacted for commentary prior to publishing – no response was received*
Updated: July 2020
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