AML Compliance Lessons from Payoneer's $1.25 Million Fine

3 mins

In the ever-evolving landscape of global finance, one core lesson reverberates louder than ever: ignore Anti-Money Laundering (AML) and sanctions screening at your own peril. Particularly for fintechs, who are finding themselves under increased regulatory scrutiny. Having a proactive risk mitigation is not optional anymore, It is critical for avoiding reputational damage and colossal fines.

The Sobering Tale of Payoneer's Regulatory Compliance

This lesson rings true in the recent chapter of Payoneer's journey. The New York State Department of Financial Services (NYDFS) slapped a $1.25 million fine on the cross-border payment facilitator for "apparent sanctions violations." In 2016, Earthport, a cross-border payments service provider, notified Payoneer that it had processed a payment to a Crimea-based bank, which is prohibited under the Office of Foreign Assets Control (OFAC) sanctions, applicable to that region.  It triggered a proactive response from the company. What followed was a meticulous internal review, suspension of bank transfers to Russia, and a retrospective analysis of five years' worth of transactions.

The NYDFS acknowledged Payoneer's cooperation and voluntary efforts to enhance sanctions compliance. However, NYDFS, still declared Payoneer's compliance shortcomings as unsafe business conduct, a breach of New York Banking Law. Despite constituting a fraction of Payoneer's global operations, these lapses resulted in a hefty $1,250,000 fine. 

Ironically, these transactions amounting to $793,950.70, accounted for less than 1% of Payoneer's total transaction volume.

Fintechs Under the Regulatory Lens

This episode underscores a critical reality: fintechs are now firmly under the regulatory lens. The era of complacency in compliance controls is over. Ignoring AML and sanctions screening is akin to playing with fire, inviting not just financial repercussions but severe reputational damage.

Now, let's talk about what it takes to keep your business secure from the risks of sanctions. You must ask your current system a few critical questions.

  • How good is your system at matching things that are almost the same but not quite?
  • Is your system looking beyond just names when checking customers? How about considering their address, nationality, and ID?
  • Can your system handle various lists without breaking a sweat? Think politically exposed persons (PEP), adverse media, sanctions, and watchlists.

Critical Considerations

  • Advanced Fuzzy Matching: Ensure your screening system performs advanced fuzzy matching for precise and effective screening.
  • Comprehensive Customer Attributes: Go beyond basic name matching; consider customer attributes like address, nationality, and ID to enhance screening accuracy.
  • Multipoint List Support: Your system must support multiple lists for thorough screening of politically exposed persons (PEP), adverse media, sanctions, and watchlists. This multifaceted approach ensures a thorough and comprehensive screening process. A watchlist data solution that also provides ad hoc or basic matching capabilities is only going to slow down your growth.

The Algorithmic Pitfall: Insights from Payoneer's Experience

Even with a system in place, Payoneer's algorithm proved outdated, leading to regulatory entanglements. The takeaway for financial crime compliance professionals is crystal clear: having old, outdated technology is not going to protect you from the complexities of screening. Furthermore, the often-overlooked yet integral practice of screening IP addresses and mailing addresses assumes heightened importance in fostering a resilient compliance strategy.

Investing in Compliance Resilience

The Payoneer saga serves as a stark reminder—investing in advanced compliance systems is not an option; it's a necessity. The stakes are high, and the regulatory spotlight is unforgiving. In the dynamic world of fintech, the only way to stay ahead is to proactively mitigate risk and embrace compliance resilience. The message is clear: Invest in advanced compliance systems that offer the most cutting edge algorithms to avoid such fines.