PayPal’s $7.7 million fine is a boost to CompliTech

PayPal Logo
PayPal Logo

Last week, PayPal, the eBay owned online payment company, was fined $7.7 Million for 486 OFAC violations. And that was a reduced fine just for 2013. 2014 investigations have not been completed at this time. That comes to nearly $16,000 per violation. Considering the number of transactions PayPal does, 486 is nothing. But then again, if fines were applied to a larger number of transactions, PayPal wouldn’t have a viable business model. And these violations were made with a strong compliance and anti-money laundering department. Imagine the violations without such a department in place.

PayPal and other Financial Technology (FinTech) firms are categorized as Money Service Businesses (MSB’s), not banks, because they do not offer depository services. this categorization does not absolve them from regulations pertaining to transactions and sanctions, like banks. Last week, they found out what it will cost them to stay compliant.

Generally, FinTech firms consider themselves to be the new alternative to banks. So, they don’t work with banks unless forced. So, compliance is not something FinTech spends a lot of time worrying about, resulting in less compliance experience.

Banks, however, despite their effort to reduce the effects of regulations, have been beefing up their compliance departments as well as vendor services. Some of the vendors are in the new sector of Compliance Technology, or CompliTech.

CompliTech has been around a decade or more but its recognition as a sector of its own is brand new. CompliTech is made up of a handful of firms across the US and Europe as well as groups within existing large bank systems providers. Their products are not yet fully tested, still require incredible amounts of human intervention and are expensive. Small financial players like community banks, credit unions and FinTech cannot afford their services.

But these are the very firms that need CompliTech services the most. If an organization is trying to provide inexpensive products and services with convenience without compliance programs afforded by economies of scale afforded at large institutions, they run a greater risk of serving cash-based businesses and immigrant populations with ties to foreign businesses. These providers face all of the threats of global banking without the benefits. To make matters worse, when a few CompliTech firms emerge as the leaders in the industry, big banks, bank systems providers and large consulting firms are more likely to snatch them up, leaving fewer options for FinTech to fend for themselves.

PayPal is an exception to all of this, as it is an exception in FinTech. It has been a round a while, it is large, and, these afford it a sophisticated compliance program. It hires PhD’s to do statistical analyses and ex-military intelligence officers to execute counter-terror financing. What startup can afford such programs?

CompliTech will eventually get around to serving FinTech. But until then, FinTech is far from taking over the transaction space.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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Financial Crime Briefing: Strengthening Controls to Address Evolving Risk Trends

On Monday, January 26, Associations of Certified Anti-Money Laundering Specialists (hereon ACAMS) held its Third Annual AML Risk Management Conference at The Conrad Hotel in downtown New York. Over the course of this week, summaries and takeaways from the key notes and panel discussions will be shared in this blog.

  • William Langford, Moderator, Global Head of Compliance Architecture and Strategy, Citigroup
  • Martin Cunningham, CAMS, Regional Head – Financial Crime Intelligence – Americas, Standard Chartered Bank
  • Justin Bogert, CAMS, Global Controls Manager, Paypal

HeaderThis panel discussion, the final for the conference, was a well-rounded compliance function discussion. Compliance department has a lot of roles: adviser, monitor, surveillance, investigation, risk mitigation, oversight and control, and regulatory relations. The focus of this panel was monitoring, surveillance and investigation. Both Martin Cunningham and Justin Bogert have military intelligence backgrounds. Cunningham is at a traditional financial institution and Bogert is at a money services business (MSB). Many of the issues are the same but the institutions differing in two main ways, in terms of compliance:

  1. MSB’s collect far less information during onboarding a client, and
  2. MSB’s have more issues pertaining to charities being abused for money laundering or terror financing.

Paypal silos risk into three buckets: Brand Risk, Fraud Risk and Transaction Risk. Traditional anti-money laundering program development are utilized to research typology. Special effort is made to collect information as transactions, both financial and non-financial, take place on Paypal’s platform to create risk profiles. Paypal has developed an internal visualization tool to find relationships.

Standard Chartered Bank is highly exposed to developing economies. For this reason, geo-political expertise is highly valued. SCB’s AML teams are made up of four groups of people: Law Enforcement, Intelligence, Bankers and Trade/Tool personnel. Law Enforcement are good at documentation and analysis of the collected information. Intelligence are good at bringing outside information in to provide context. Bankers bring institutional knowledge about how the organization reacts to transactions and relationships. Trade and Tools personnel provide execution expertise in both preventing and investigating crimes.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.
He tweets @MoneyCompliance