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Pavel Matveev (pictured left), Dmitry Lazarichev (pictured right)

 

https://www.altfi.com/article/7753_fca-comes-down-on-wirex-after-allegations-of-turning-a-blind-eye-to-money-laundering

 

The Financial Conduct Authority (FCA) has decided to crack down on crypto and fiat currency payments provider Wirex after money laundering allegations surfaced, according to an investigation by Fintech Futures.

In response to the article, Wirex’s legal team said: “The article in question contains a number of false, defamatory and misleading statements, including the allegations that money is being laundered through the company, and Wirex is currently considering its legal options to have the article removed immediately.”

Concerns were allegedly first raised all the way back in February 2019 after several Wirex employees independently approached the FCA with concerns that customer money was being laundered through the company, according to the report by Fintech Futures.

The employees, one of which was in a senior compliance position, also reportedly raised concerns that Wirex was trading crypto that wasn’t the company’s to trade.

A former employee told Fintech Futures: “The FCA turned a blind eye. [Wirex is] telling customers they’re FCA regulated, but the irony is the FCA doesn’t care.”

Since going to the FCA with their concerns, one of the employees was made redundant and the other was given a significant pay rise.

Despite the serious allegations, the FCA reportedly only went to Wirex last week and, as a result, Wirex announced its decision to temporarily pause recruiting new UK customers.

Wirex was found to be in direct violation of the Fifth Anti-Money Laundering Directive (5AMLD), which came into force in January 2020, and protects consumers against new money laundering threats that have arisen with the growing popularity of digital currencies.

In a statement Wirex said it “will dedicate resources to further strengthen its 5AMLD compliance protocols, conforming with the updated best practice guidelines set by the UK regulator.”

Wirex is not the first fintech to have found itself in hot water with the UK’s regulator.

In fact, Wirex’s former payment processor Wirecard had its UK activities frozen by the FCA last June after a €1.9bn black hole was discovered on its balance sheet.

Back in November 2020, fledgeling fintech Lanistar was slapped with a now-reversed fraud warning.

After splashing the cash on a massive social media campaign, the FCA flagged Lanistar as a potentially fraudulent company operating without the proper licences or regulations. Just a few days later, it backtracked and performed something of a change of mind and removed its warning against the firm.

Wirex claims to have nearly 3.5m customers across 130 countries and has offices in London, Singapore, Kyiv, Tokyo, Toronto, Dallas, Dublin and Atlanta.

BACKGROUND: FCA cracks down on Wirex after it “turned a blind eye” for more than two years

https://www.fintechfutures.com/2021/03/fca-cracks-down-on-wirex-after-it-turned-a-blind-eye-for-more-than-two-years/

The Financial Conduct Authority (FCA) has finally decided to reign in cryptocurrency exchange, Wirex, whose employees first approached the UK regulator independently over anti-money laundering (AML) concerns back in February 2019.

The sources allege that their concerns included customer money being laundered through the company and that crypto was being traded which wasn’t the company’s to trade. Wirex was unable to comment on the AML issue raised.

Wirex – which claims to have some 3.5 million customers – announced on 24 March that it had paused account openings for new UK customers under orders from the FCA, which has found the start-up to be in violation of the Fifth Anti-Money Laundering Directive (5AMLD).

FCA “turned a blind eye”

Two employees had already approached the regulator, according to former Wirex employees who spoke to FinTech Futures anonymously. One was in a senior compliance position.

Independent of the fintech’s management team, these employees attempted to report AML concerns over the start-up’s operations as far back as February 2019. But after going to the FCA’s office with their concerns “twice”, one of the employees was made redundant, whilst the other was given a significant pay increase. Wirex says no employees have ever been dismissed for “whistleblowing”.

“There was a stage when two of the most senior people went to the FCA to blow the whistle, but nothing happened,” a former employee tells FinTech Futures.

That year, Wirex got rid of its money laundering and risk officer (MLRO). It then proceeded to try and recommend its chief compliance officer (CCO) for the role. But being a clear conflict of interest, the CCO did not take the role.

“The FCA turned a blind eye. [Wirex is] telling customers they’re FCA regulated, but the irony is the FCA doesn’t care,” says another source.

Despite the regulator allegedly being “very interested” in the reports, and holding a “serious concern around management”, nothing was done about the concerns for more than two years. Since then, countless customers have felt the consequences of this.

Freezing accounts

It’s unclear what has prompted the FCA to halt Wirex’s UK onboarding operations now.

The FCA became the AML and counter terrorist financing supervisor of businesses carrying out certain crypto asset activities in the UK on 10 January 2020.

Whilst this goes some way to explaining why the FCA didn’t act on the findings brought to them in February 2019, it does not explain why the regulator allowed Wirex to continue operating on an FCA-issued e-money licence. FinTech Futures reached out to the FCA. The regulator acknowledged the email but did not send an official comment in response.

In February, FinTech Futures released an article highlighting at least 16 customers over a nine-day period who had complained over unexplained account restrictions.

Since then, 16 more customers have come forward with similar complaints. They claim to be unable to access up to thousands of pounds – the most being £30,000 – in funds they’ve stored on the platform.

Users have been paying eye-watering fees – as much as 50% – to extract funds, or they’ve simply been unable to access their account at all, due to a prolonged, unexplained freezing.

Wirex claimed last month that “to maintain the integrity of our checks”, it could not “disclose the full details of why individual accounts are blocked”.

It now seems the integrity of such checks are being pulled into question.

“Laundering” customer money

An allegation corroborated by at least four sources suggests Wirex spent Bitcoin Cash which should have gone to customers, by laundering it through its books.

In August 2017, some miners and developers initiated a “hard fork” – effectively creating a new currency, called Bitcoin Cash. This meant Wirex’s users received Bitcoin Cash into their account.

Wirex notes that this allegation was “unparticularised and unsupported”, and was “unable to respond fully to it”. It adds that, “sometimes cryptoassets fork and a new version of the cryptoasset is created”.

“As we state in our T&Cs, customers may not automatically be able to participate in forks, and we let customers know ahead of time if this is the case,” Wirex adds.

But according to sources, Wirex kept the cash, assuming users wouldn’t think about it – despite being owed it. Wirex’s custodian, BitGo, initially collected the cash on its behalf.

Around the same time as the Bitcoin pay out, millions were injected into Wirex “on behalf of its directors”. When employees tried to verify the funding source of these millions via Elliptic, Wirex’s AML system, it showed them going straight back to customers’ accounts.

Despite Wirex’s self-assurances, users did notice the disappearance of their Bitcoin Cash. Wirex therefore proceeded to tell them they didn’t have two-factor authentication, and that as a result their accounts had been hacked.

“There was a lot of money involved,” says one source. “But clients just had to suck it up.”

Another adds: “Lots of customers came into the office to ask what was happening, but we had no idea what we could say. That was really painful.”

Wirex tells FinTech Futures that it only “trades cryptocurrency when we are entitled to do so”.

Short on cash

A further accusation suggests the company traded cryptocurrency which wasn’t theirs to trade, having borrowed it in the hope it would go up. But after they bought it, the market went down and Wirex couldn’t pay it back.

According to one source, millions in crypto was missing from Wirex’s ledgers as a result of this, bringing them into a “serious deficit”. The fintech has long struggled to make ends meet.

One source tells FinTech Futures “Wirex always wanted investment”, but that since Japan’s SBI Group invested in its March 2017 Series A, “nothing quite fell into place”.

The start-up hired multiple chief financial officers (CFOs). One moved to Revolut, but none have been able to garner funding. Ripple came close to investing, according to one source, but pulled out with no explanation.

In Ukraine, the fintech’s product team was paid with Wirex Tokens – the platform’s own cryptocurrency – for a time. One source describes the period as “a tough time” for the firm, due to the lack of investment.

FinTech Futures spoke to some former employees who left due to the lack of salary increases. “There’s lots of graduates coming in to do jobs on very low salaries,” one source says.

Wirex says it hires “employees on competitive terms”, and that its Ukraine-based product team “are valued staff members” – despite not paying them in a fiat currency.

 Phantom Ukrainian operations

Wirex last filed financial results for 2019 in April 2020. These are its only filed accounts.

Neither of its directors – Dmitry Lazarichev or Pavel Matveev – are on the FCA’s register, despite Wirex being regulated by the FCA.

The start-up’s entire customer support unit – which makes up the bulk of its employees – sits in Ukraine, rather than the UK. And yet, the firm does not list Ukraine as a subsidiary. Wirex tells FinTech Futures that it houses its Wirex Product team in Ukraine.

But its 2019 accounts only mention the UK, Singapore, Japan, Gibraltar, and Canada – failing to mention the Ukraine.

“If the Ukraine company goes bust, the UK company is completely separate,” says one source. “Who owns [its business in] Ukraine? Who will be liable for this?”.

As well as the FCA, other organisations also seem to have fallen short on their due diligence of the company. Wirex’s partners include Mastercard, Visa, and Railsbank – which inherited Wirecard’s UK customers, which included Wirex.

and more BACKGROUND: Wirex users hit by unexplained account restrictions + “disappearing” funds

https://www.fintechfutures.com/2021/02/exclusive-wirex-users-hit-by-unexplained-account-restrictions-and-disappearing-funds/

At least 16 Wirex customers have complained over unexplained account restrictions in the last nine days on Twitter, preventing them from accessing funds.

A handful of them have taken the issue up with the Financial Ombudsman, adding to those on Trustpilot who say they’ve done the same.

The Wirex app – when it’s fully working – allows users to buy, store, exchange and spend crypto and fiat currencies in a multicurrency account. It also offers a Mastercard, with 1.5% cashback on certain crypto transactions.

But a growing number of customers are fleeing Wirex over restrictions imposed for weeks at a time on their accounts, with apparently “no explanation”.

Wirex customer complaints on Twitter

The worst cases include one customer having waited 246 days to get access to their account – and counting. Another told FinTech Futures they’d been waiting more than a year to get access to an account which held €20,000.

Disappearing money

The customers which spoke to FinTech Futures did so under anonymity. One user had his account locked for a week. The fintech cited a need for “verification documents” he’d already sent.

Multiple customers on Trustpilot claim this “verification” process can take upwards of six weeks. “The ineffective support is killing all the advantages [of Wirex],” one said.

When FinTech Futures’ source regained access to his account, which held around €3,000, Wirex started over-charging fees on his transactions. He shared videos of the issue with FinTech Futures.

“They unlocked my account but made it impossible to withdraw more than €300,” he says. “I buy €500 LTC (Litecoin), they say it’s €5 fees, and [they] end up taking more than €10 without it being specified anywhere. You just see your money disappear.”

To transfer his money away to a different cryptocurrency exchange, this customer ended up paying more than €100 in fees. “It cost me a bit but at least I’m not depending on scammers anymore,” he says.

Another big complaint is over pending transactions. One customer on Trustpilot had £1,300 pending out of their Wirex account for more than three weeks, with no update from customer support on the whereabouts of the money.

From Twitter to the UK’s ombudsman

Wirex customers on Twitter are beginning to corroborate the issues around account restrictions. Another customer, under anonymity, tells FinTech Futures “sending out funds is locked”.

“We can do anything except sending things out of Wirex. Customer support does not reply, or they say they will do something. But they won’t. In response to complaints, they just say it works”.

“Some folks, including me, started a complaint procedure at the Ombudsman. After this, we can move on to a lawyer.” Customers on Trustpilot also say they eventually resorted to higher authorities to try and reclaim pending funds or access to funds in their Wirex account.

Wirex customer complaints on Twitter

One Twitter user claimed last week that their ticket had been sitting there for “over two months now”. “I need to chat with somebody [at] Wirex,” they write. “But [I] can’t use the chat because [my] account is locked without ever giv[ing] me a reason why.”

Another customer, Robert Vasliev, called on the Financial Conduct Authority (FCA) to take away Wirex’s licence. Wirex operates as a regulated electronic money institution (EMI) under the FCA.

The start-up claims its operations don’t apply to the Financial Ombudsman. FinTech Futures has reached out to both regulators to understand how they work together in relation to cryptocurrency firms like Wirex.

A capacity issue?

Earier this week, Alertify reported on the Wirex complaints too. It traced complaints back to December 2020.

But even as far back as February 2019, per a Reddit post, customers have been accusing the firm of locking their accounts “without reason”, claiming “Know Your Customer (KYC) issues” which “took weeks to fix”.

Upon approaching Wirex, a spokesperson told FinTech Futures: “Wirex is aware that there are some users that are experiencing issues after being locked out of their accounts. Unfortunately, to maintain the integrity of our checks, we often cannot disclose the full details of why individual accounts are blocked.”

The fintech then seems to point to a capacity issue in its right of reply. The spokesperson says Wirex is “receiving tens of thousands of new users”, “on top of” its “already existing 3.5 million” customers.

“These customers still need to pass the stringent KYC checks required by a regulated company. Meaning that some users may experiencsome delays with their transactions and verification.”

The firm also told Alertify that at the end of January the start-up turned off IBAN functionality due to a change in third-party providers. But the fintech didn’t quote this as a reason for freezing or restricting accounts.

Since its £3.7 million crowdfund last October, Wirex’s CEO, Pavel Matveev, has referenced “growing pains” to investors. Suggesting the company is fully aware of the frictions it’s causing customers.