Our next Secret Crime Fighter discovered a ring of Eastern European fintechs trying to gain access to the UK financial system, in order to launder money for Russian Oligarchs. The typology is a classic money laundering scheme trying to take advantage of Banking-as-a-Service (BaaS) providers and is relevant for BaaS providers all over the world. Let’s take a look at how the crime was carried out.

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The Typology

Neo Banks are all the Craze

This typology involves neo banks or payment service providers applying to use BaaS platforms. These new fintechs are usually run by Eastern European “founders”, sometimes from Latvia, Estonia or Russia, who have little or no experience in financial services.

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The “unique selling point” of these fintechs is often vague or unusual, beyond the core idea that they are helping ex-pat Europeans send money home. For example, one of the fintechs was a members only payment service provider based in Eastern Europe. To use it, their customers had to know someone else already using them.

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Russian Dolls

Digging into the backgrounds of the “founders”, and trying to understand the ultimate beneficial ownership (UBO) of these new fintechs usually throws up some concerning findings. They use a Russian Dolls set up, with many layers of ownership that takes persistence and time to get to the bottom of.

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The fintechs are often UK registered Limited Companies, but have many Directors, or Directors who hold many Directorships. One of the common Directors that our Secret Crime Fighter identified across multiple fintechs was an 89 year old lady who had held 400+ Directorships over a 10 year period.

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At the centre of the set up there are often concerning high profile UBOs with connections to PEPs or sanctioned entities in Eastern Europe, and often Russia.

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In addition, running adverse media checks on companies previously run by these “founders” often throws up details of Ponzi Schemes or banks being found guilty of money laundering.

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The “founders” and Directors are sometimes shared across multiple fintechs, demonstrating the organised and connected nature of the typology.

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Financial Flows

Once set up on the BaaS platforms, these fintechs start processing transactions at a higher rate than would be expected for a new fintech, especially ones with very little obvious marketing.

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Money is moved from Russian or UK companies through the UK and out to either other Eastern European countries or to offshore tax havens. Sometimes it is unclear what the final destination is, although the common feature is a fairly large payment of £5k+ moving through and out of the UK.

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The parties receiving the money are often found to be suspicious, as well; people connected to high-risk companies like Gazprom or high-risk locations like Crimea.

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Stopping the Typology

Our Secret Crime Fighter has found that asking new customers about their marketing plans in detail can help uncover these Russian Dolls. Most legitimate fintech founders are passionate entrepreneurs with a clear market and a plan to reach their customers. The Russian Dolls, however, often already know their customers and have no clear plan to find any more.

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Performing deep Know Your Business and UBO checks, down to 10% ownership, can help to uncover concerning underlying ownership structures. This typology highlights the need to take a risk based approach to understanding the UBO, rather than just following the regulatory requirement of 25%.

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For BaaS platforms that have already onboarded customers, this typology acts as a good reminder to consistently test and understand the effectiveness of customer controls. In some of the suspicious fintechs discovered by our Secret Crime Fighter, it became clear that they were not carrying out the KYC, KYB and verification of their ultimate customers that their procedures claimed they were.

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Thanks for reading our latest Secret Crime Fighters newsletter. If you have an interesting typology that you’d like to share, we’d love to hear about it! Please email us at [email protected].

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