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The Financial Conduct Authority (FCA) in the United Kingdom used its powers under the Proceeds of Crime Act (POCA) to order fintech firm QPay Europe to forfeit 2 million pounds ($2.5 million) in connection with a wire fraud conspiracy in the United States.
The money was allegedly the proceeds of illegal activity linked to criminal proceedings in the United States relating to an alleged conspiracy to commit wire fraud against banks, credit card companies, and other financial service providers, according to a statement released April 21 by the regulator.
QPay, which provides underwriting and due diligence services, was not named in the FCA's investigation.
The regulator's concerns were first raised in March 2020, when it discovered a series of suspicious transactions and found flaws in QPay's anti-money laundering (AML) procedures during the fintech firm's application to become a regulated firm. Since then, QPay has withdrawn its application to become a regulated company.
QPay allegedly received money as an investment from Fintech International Q Software WLL, a software firm. According to the FCA, "none of the transactions appeared to be related to legitimate business," and QPay repeatedly moved the money to different bank accounts in several countries.
The funds were frozen in seven accounts after the FCA filed urgent proceedings in October and December 2020. In October 2021, the regulator requested that the funds be forfeited.
While law enforcement agencies in the United Kingdom have made extensive use of freezing orders since they became available in 2018, legal experts say this is the FCA's first public announcement about using them to combat financial crime.
According to the UK government, account freezing orders recovered £107 million (US $134 million) between 2020 and 2021, up 52 percent from the previous financial year.
"Account forfeiture orders are an important means of intervening and capturing illegal money, and this action is a good example of what can be done," Mark Steward, the FCA's executive director of enforcement and market oversight, said.
Financial crime experts believe the FCA's action demonstrates that the regulator has the legal authority and knows how to use those powers to properly address suspected AML cases. They also believe that the financial services industry, particularly new entrants, should take AML compliance seriously.
Because the bar for obtaining freezing orders is low, Michael Goodwin, a barrister at Red Lion Chambers, believes the FCA "will look to increasingly use forfeiture orders as part of their published drive to combat financial crime." As a result, "strengthening due diligence and AML procedures to mitigate such risks is an obvious first step for all fintechs," he said.
"Challenger banks, crypto exchanges, and fintech firms are all going to face significant regulatory scrutiny, just like financial institutions have for decades," said White & Case partner Jonah Anderson. "We are in a significant period of financial innovation, and by necessity this will create compliance-related challenges. As innovative businesses grow, they need to make sure their compliance function keeps pace with the business."
The FCA's action, according to Thomas Cattee, a white-collar crime partner at law firm Gherson Solicitors, is "a shot across the bow to those in this sector." He went on to say that the move demonstrates that "U.K. regulators will not hesitate to use all the powers available to them, including those under the Money Laundering Regulations and the POCA. The regulators are certainly showing they can effectively choose the correct legislation to successfully pursue wrongdoers under.”"
Following NatWest's £264.8 million (then-US $350 million) fine for AML failures in December, Cattee added that the financial services sector as a whole is being scrutinized much more closely. "This is clearly not an issue exclusive to fintechs," he said.
By fLEXI tEAM