0

FINTECH’s REGULATORY FRAMEWORK: AN EXAMINATION OF PING EXPRESS US LLC INDICTMENT OF MONEY LAUNDERING

Articles

By: Abdulbari Adam, Esq

Introduction

The regulatory framework of fintech operating in the US is extremely complex, just like in Nigeria. There is no fintech single regulatory framework or legislation guiding the financial technology business operations both in the US and Nigeria. Rather, fintech business activities fall within the purview of several regulatory bodies and will require the firms to register and strictly comply with the obligations set out by several regulatory bodies.

Complying with such regulatory bodies is a top-level priority for any fintech business looking to operate in both countries as failure to do so might result in serious penalties depending on the violation. There is a recent incidence of violation in the US by a Texas-based fintech firm, Ping Express US LLC, the founders of the firm in Person of Anslem Oshionebo and Opeyemi Odeyale were reported to have pleaded guilty to failing to combat money laundering on their platform. Business Insider Africa reported that the businessmen failed to maintain anti-money laundering controls on their platform; a situation that allowed some of their customers to remit large sums of illegally-derived funds to Nigeria.[1]

“The company outlined its anti-money laundering policy in a memo to state regulators, claiming it would cap first-time customer transactions at $499, cap daily transactions at $3,000, and cap monthly transactions at $4,500. However, in plea papers, the company admitted it allowed more than 1,500 customers to violate these rules. In one instance, Ping allowed a customer to remit more than $80,000 in a single month – more than 17 times the purported limit,”.[2]

It was further disclosed that the company was guilty of conducting money transmission services in some US states where it was not licensed to operate.

It is clear from the above that Ping Express US LLC is in violation of the anti-money laundering policy which is one of the top-level priority regulations pegged out for the compliance of fintech businesses, and such violation did not only land the founders in trouble rather the whole firm was placed on 5-year probation as well a penalty of $500,000 fine.

This article aims to discuss the existing regulations applicable to fintech in both US and Nigeria with emphasis on Anti-Money Laundering and the Nigerian Money Laundering Prohibition Act.

Common Fintech’s Applicable Regulations (NIGERIA, US)

There are various regulations guiding the activities of fintech companies and such activities determine the companies’ applicable regulations. However, there are some common regulations to be considered by every fintech operating in the aforementioned respective jurisdictions.

The US:[3]

  1. Gramm-Leach Bliley Act (GLBA)

Also known as the Financial Modernization Act, the Act requires all financial institutions to explain to their customers how their information is being shared, and to safeguard their data.

  • Fair Credit Reporting Act (FCRA)

The FCRA determines the ways in which financial institutions can collect consumer credit information, and extends consumer rights regarding access to the credit reports.

  • US Anti-Money Laundering regulations (AML)

There are two main AML Acts in force in the US: the Bank Secrecy Act, and the USA Patriot Act. Between them, these laws include obligations regarding anti-money laundering risk management programs, customer due diligence, and various record-keeping tasks. The Patriot Act also includes specific requirements regarding cross-border transactions.

  • JOBS Act

Crowdfunding platforms and other funding portals are required by the JOBS Act to register with the Security and Exchange Commission (SEC) and Financial Regulation Agency (FINRA). The JOBS Act also introduces additional obligations and restrictions on these businesses, including maximum fundraising amounts and disclosure requirements.

  • Fund Transfer Act and Consumer Financial Protection Bureau (Regulation E)

The Fund Transfer Act and CFPB (Regulation E) are two of many laws governing payments-related activities. Specifically, they impose requirements on financial institutions to resolve errors in transfers.

  • Security and Exchange Commission Act

Initial Coin Offerings (ICOs) are popular amongst fintech startups. The treatment of these activities has been controversial in the US, but precedence has now been set with what is known as the Howey Test. This test determines the legal status of the ICO and, if it meets the threshold requirements, it will be subject to the Securities Act and Exchange Act.

  • CAN-SPAM

These regulations place restrictions on businesses carrying out email marketing.

Nigeria context:[4]

In Nigeria, the Central Bank of Nigeria (CBN) is the principal body responsible for of maintaining financial stability and integrity in Nigeria. To this effect, it issues guidelines and regulations for the monitoring of financial services, some of which are:

  1. The CBN Guidelines on Mobile Money Services in Nigeria, 2015
  2. The CBN Guideline for Licensing and Regulation of Payment Service Banks in Nigeria, 2018
  3. The CBN Risked–Based Cyber-Security Framework and Guidelines for Deposit Money Banks and Payment Services Providers, 2018

Some other common regulations applicable to fintech businesses are:

  1. Companies and Allied Matters Act (as amended), 2020
  2. Investment and Securities Act, 2007
  3. Securities and Exchange Commission Rules (as amended), 2013
  4. Money Laundering (Prohibition) Act, 2011
  5. Terrorism (Prevention) Act, 2011
  6. Cybercrimes (Prohibition, Prevention, Etc.) Act, 2015
  7. Bank and Other Financial Institution Act, 2020
  8. Foreign Exchange (Monitoring and Miscellaneous) Provision Act, 1995

The above regulations seek to ensure an effective financial system for the settlement of transactions, including the development of electronic payment systems as well as curtailing the use of fintech in perpetrating criminal activities such as Cybercrimes, Money Laundering, and Terrorism in both jurisdictions.

Fintech platforms usually face the major risk of cybercrimes, money laundering, and terrorism. On the issue of cybercrimes, Cyber security in Nigeria is the instrument put in place to combat cybercrimes, although it does not provide the mechanism financial institutions can put in place to strengthen their cyber defense. Howbeit, the CBN provided for solution to the oversight by issuing the Risk-Based Cyber-Security Framework and Guidelines for Deposit Money Banks and Payment Service Providers.

The Fintech service in the financial sector has provided undeniable convenience to the industry and customers, and it is growing and developing day by day. It can not be overemphasized that its growth comes with so many adverse effects such as money laundering.

Money laundering concern develops with the growth of fintech. In such companies, money laundering is attractive for launderers because of the increase in the initiation of transactions in these systems, unlimited money flow, and the transaction of anonymous accounts facilitated money laundering for criminals. With the rise in digital money circulation, criminals continue their money laundering activities in this direction. Hence the application of Money Laundering Prohibition Act (2011) and the U.S Anti-Money Laundering Regulation on the platform depends on the jurisdiction.

All fintech companies should prevent the use of their products or services by people wishing to launder money or finance terrorism. The use of services provided by financial technology companies as a potential crime method by criminal organizations has made it expedient for fintech companies to combat financial crimes effectively. Therefore, fintech initiatives should not underestimate complying with the respective anti-money laundering laws.

Conclusion

Fintech platforms, despite its provision of undeniable convenience to the financial service sector, presented a lot of opportunities for the perpetration of crimes, hence the provision of several regulations to curb such criminal activities. To avoid the risk of money laundering, fintech has to fulfill its obligations in the regions they operate, they need to meet the requirements of fintech regulations, and they have to create a compliance program else, they will be penalized if found wanting.

[1] Two Nigerian-born American Businessmen Face Jail after Firm’s ‘Controversial’ $160m Remittances to Nigeria – THISDAYLIVE accessed on 28th July 2022

[2] Ibid

[3] The Ultimate Guide To US Fintech Regulations (dashdevs.com) accessed on 28th July, 2022

[4] An Examination Of The Regulatory Framework Of Financial Technology In Nigeria – Fin Tech – Nigeria (mondaq.com), accessed on 27th July, 2022.

Leave a Reply