Payment processing for FX brokers gets even harder as PacNet and Counting House are sanctioned by US Treasury and branded a criminal organization

Recently, FinanceFeeds has conducted considerable research with regard to the difficulties experienced by FX brokerages in obtaining bank accounts for operational and client capital, as well as payment processing services from merchant service providers as Tier 1 banks are becoming increasingly unwilling to provide bank accounts or facilities for clients to fund trading accounts to retail FX firms.

Now, another payment processing provider is about to be another one to drop from the list of potential service providers, as the US Treasury has sanctioned it and termed it a criminal organization.

PacNet, which operates the brand Counting House, is a large payment processing provider which has a significant number of commercial customers in the retail FX industry, as well as electronic entertainment and gaming sectors.

According to legal notes from the US Department of the Treasury’s Office of Foreign Assets Control (OFAC), the US government’s sanctions on Counting House and PacNet are have been applied in order to target what the officials have termed a significant transactional criminal organization whch launders millions in illicit funds worldwide.

PacNet, the US government states, has a lengthy history of money laundering by knowingly processing payments on behalf of a wide range of mail fraud schemes that target victims in the United States and throughout the world. PacNet is the seventh TCO targeted under transactional criminal organization laws.

With operations in Canada, Ireland, and the United Kingdom, and subsidiaries or affiliates in 15 other countries, PacNet is the third-party payment processor of choice for perpetrators of a wide range of mail fraud schemes.

U.S. consumers receive tens of thousands of fraudulent lottery and other mail fraud solicitations nearly every day that contain misrepresentations designed to victimize the elderly or otherwise vulnerable individuals. PacNet has a nearly 20-year history of knowingly processing payments relating to these fraudulent solicitation schemes (recently binary options), which result in the loss of millions of dollars to U.S. consumers.

PacNet’s processing operations help to obscure the nature and prevent the detection of such fraudulent schemes. In a typical scenario, scammers will mail fraudulent solicitations to victims and then arrange to have victims’ payments (both checks and cash) sent directly or through a partner company to PacNet’s processing operations.

This is how Israeli OTC binary options firms manage to solicit and extract funds from US customers, even though that is an illegal activity in the US.

Victims’ money, minus PacNet’s fees and commission, are made available to the scammers through wire transfers from the PacNet holding account and by PacNet making payments on behalf of the scammers, thereby obscuring the link to the scammers. This process aims to minimize the chance that financial institutions will detect the scammers and determine their activity to be suspicious.

In 2002, as part of a forfeiture action in the U.S. District Court for the Western District of Washington, two of PacNet’s major corporate entities in Canada and Ireland acknowledged that the use of the mail to market lottery chances, shares, and interests within the United States, as well as the use of facilities of interstate or foreign commerce within the United States to handle payments for these types of fraudulent solicitations, violate U.S. federal statutes.

One of the travesties of this is that Counting House angles itself as a major supplier of payment processing services to FX and OTC binary options firms, and in times at which it is difficult to obtain merchant services from many providers, firms could inadvertently use this company.

This represents another potential pitfall that brokers should be aware of, in a similar vein to our research which deduced that Tier 1 banks in top quality jurisdictions including US, Canada, Britain, Australia, Israel and Cyprus – effectively all regions with a high level banking environment (and in which Counting House operated), good safety and compliance rulings and large institutions that carry corporate accounts for some of the world’s largest blue chip companies as well as being home to the lion’s share of the world’s retail FX industry – are continuing to curtail their service and are increasingly turning away FX brokerages as customers.

This means that not only do brokers have limited options as to where to store their operating capital and client funds, but also are now becoming the target of thefts from corporate bank accounts because FX brokers are being increasingly forced to use third degree banks in less than salubrious regions, which, according to our research, is causing great difficulties in security of funds.

A few extreme cases which highlight the risks that face brokerages that are forced to use 3rd level banks have recently emerged, some of which involve the theft of capital from accounts held by brokerages, due to lack of security of accounts, as many lower-level banks in overseas regions do not have the same level of security as those in regions in which FX firms (and companies in every industry sector) are used to.

In some cases, the level of theft of capital has been into the hundreds of thousands of dollars, which is alarming and most certainly a point worthy of consideration for brokers considering placing their business with banks that are not structured according to Basel III liquidity ratio levels or under strict regulations in terms of data security and identity verification compliance procedures.

The case for technology-led FX brokerages with banking licenses to begin establishing their own network of banking services and payment processing divisions for use by firms in the FX industry is growing. This is a facet that FinanceFeeds investigated in London two weeks ago and may appear on the horizon very soon.

Perhaps rather alarmingly, Counting House is a very active presenter at industry conferences worldwide.

 

Whilst Counting House has an FCA license in the UK, as well as a license from Canada’s FINTRAC as a global payment processor, it has operations in Israel which is home to the binary options brands and their platform providers and market makers which have become the bete noire of global governments and Israel’s senior regulators due to their fraudulent nature.

Once again, this is a case of the fringe fraternity that come from online gambling and lead buying casting a shadow over the entire electronic financial sector, at great expense to the real businesses in bona fide locations which are operated by high quality and very experienced industry professionals, another reason why for the purposes of the sustainability of the good companies of the real electronic trading and FX industry, this has to be rooted out.

As far as the magnitude of the sanctions go, the US Treasury’s OFAC division has designated 12 individuals who serve as executives or directors, often in several PacNet-linked companies simultaneously, and, in some cases, provided specific guidance as to how to hide the illicit nature of PacNet’s operations or deceive the financial institutions with which PacNet interacts.

Paul Davis is the president, partner, shareholder, or corporate director in several PacNet companies. Davis is directly involved in couriering funds on behalf of PacNet clients and instructing subordinates to mislabel customs forms of currency shipments to evade cross-border reporting requirements. Davis has also knowingly misrepresented to financial institutions the nature of the business of PacNet clients.

Rosanne Day oversees day-to-day operations for PacNet Services Limited, based in Canada, and serves as the president, board member, director, or shareholder in several PacNet companies. She has instructed subordinates to route transactions through the PacNet entity, Indian River (UK), to hide the affiliation of the transactions with PacNet Services Limited and avoid the potential rejection of the payments by financial institutions.

Gerard Alphonsus Humphreys is a director of several PacNet-linked companies, as well as PacNet Air’s chief pilot and director of aviation. He has participated with Paul Davis in the couriering of bulk cash within Europe and is also listed as the director on several PacNet companies in Ireland.

Ruth Ferlow is the director, manager, or company secretary of several PacNet-linked companies, including the manager of electronic payments for PacNet Services Limited.

Marie Boivin is the director for PacNet-linked company Accu-Rate Corporation, based in Canada.

Brian Weekes has been identified as PacNet Europe’s head of sales, business manager, and head of its banking division.

Monica Elizabete Bottcher is the managing partner for PacNet Brazil.

Siobhan Ann Hanrahan is the company secretary for several PacNet-linked companies in Ireland.

Raffaella Ferrari is the director, administrator, or shareholder for several PacNet-linked companies in Italy and the United Kingdom.

Donna Maria MacBain is a director for PacNet-linked companies Counting House Services Ltd. and PacNet Services Limited, both based in United Kingdom.

Mary Ann Driscoll is the managing director for PacNet-linked company Chexx Inc., based in Canada and Ireland, and a director for Indian River (UK) Ltd.

Estelle Snyman is a director for PacNet Holdings Limited, based in Ireland.

FinanceFeeds remains committed to the support of the mainstream and high quality bona fide retail and institutional firms in bona fide jursidictions which operate a genuine electronic trading system, as well as the support of their technology partners.

Our continued research alongside these firms aims to engender and facilitate the very top level of quality possible in today’s highly sophisticated electronic trading environment, and in order to do so, stands vehemently against the lowbrow and back street nature of confidence tricksters and those associated with fraudulent activities and binary options brands, thus we consider our efforts in this matter to be instrumental to making a very positive difference to protect the high quality firms in this industry for which we have utmost respect and stand by completely, as well as future customers.