Crypto bank account provider fined €435,000 by FIAU over breaches

The Financial Intelligence Analysis Unit has fined an online financial institution €435,576 over various money laundering breaches.

Phoenix Payments, also known as Paytah, has been at the centre of regulatory and criminal investigations in several European jurisdictions, apart from facing claims from victims who made deposits through Paytah and its affiliates.

The European Fund Recovery Initiative (EFRI) is represented the interests of victims at other hearings on Paytah and Phoenix Payments at Arbiter for Financial Services.

Paytah is owned and controlled by Italian national Marco Lavanna.

According to the hearings before the financial ombudsman, the company has been accused of working with illegal payment providers and crypto-payment processors, which facilitate scam operators, mainly Estonian entities, who use Paytah as a bank account. Deposits from victims of the scams are systematically processed through these Paytah bank accounts.

EFRI is representing 12 clients claiming damages of €350,000 in alleged scam payments to Paytah bank accounts.

Following an investigation, the MFSA fined Paytah €32,000 and restricted the payment processor’s license. The latter appealed against the MFSA measures and filed a lawsuit against the MFSA.

In its investigation, the FIAU said Phoenix Payments had failed to apply enahnced due diligence on clients posing a high or medium-high risk. All of these customers were linked to cryptocurrency, either by being a cryptocurrency service provider or as providers of crypto exchange services and in one instance, linked to a high-risk jurisdiction.

Right of reply from Paytah founder Marco Lavanna

On 1 October, 2021 the Financial Intelligence Analysis Unit (FIAU) informed Paytah that it had imposed an administrative penalty for what the FIAU considered as breaches in certain AML/CFT obligations.

The findings were noted by the FIAU during an inspection carried out in October 2020. While the findings were of an administrative nature, they did not relate to suspicions or evidence of money laundering.

The company will be appealing against this decision in terms of A1.3 of the Implementing Procedures Part I, within 20 days from 1 October. The company made formal representations with the FIAU on 7 May 2021 explaining and reiterating that it is fully committed to combatting money laundering, the funding of terrorism and other financial crime.

The company outlined to the FIAU a number of material disagreements with the apparent findings of the FIAU. These included a number of instances where the FIAU has omitted to take into consideration all of the information, documentation and other measures presented by the company to the FIAU during the Compliance Review.

The company raised these concerns with the FIAU, however it appears that these have been disregarded by the FIAU. The company remains concerned by the FIAU’s systematic nature of these serious omissions which appear unjustified, arbitrary and suggest that key aspects of the company’s AML/CFT framework have been misunderstood.

The company endeavored to clarify these misconceptions of the FIAU, however, with great disappointment, the FIAU failed once again to understand the way the company operates and how its AML/CFT compliance framework is implemented in line with the applicable AML/CFT Rules and Regulations.

Furthermore, of greater concern, not only to the company but to the financial services industry as a whole, it is extremely worrying that the body conducting the investigations, i.e. the FIAU, is the same body that has issued these gargantuan administrative penalties, which prejudice the right of fair hearing embedded in the Constitution of Malta and the European Convention of Human Rights.

In this regard the company has no alternative but to appeal the FIAU’s decision and also seek redress constitutionally. The Ccmpany reaffirms its policy of zero-tolerance even in cases that suggest the slightest hint of improper conduct and continues to rely on the integrity, professionalism and dedication of its staff members.