Straw man or real regulator? FCA upholds Counting House as PSP following US sanctions deeming it criminal organization

Differences in regulatory criteria between two of the world’s most recognized and prominent financial markets regulatory jurisdictions, Britain and the United States, occasionally make their presence felt when a particular event arises.

FX companies in all regions are heavily dependent on payment services providers (PSPs) to be able to accept deposits from retail clients wishing to fund their trading accounts, as well as to be able to send withdrawals to customers worldwide.

For the most part, merchant services firms such as Visa and Mastercard view this as very normal business activity, and as long as the relevant due diligence has been done by the company, there will never be any difficulty, especially in well regulated jurisdictions such as Britain, where the majority of electronic trading companies have been established for over 20 years, have massive capital bases and in some cases are publicly listed on the London Stock Exchange.

In the United States, credit card deposits to FX firms is not legal, having been outlawed by the NFA two years ago, and conducting business with overseas firms is also not legal, thus  the payments conundrum is somewhat easier to manage on the New World side of the Atlantic.

An astute observation by the US Department of Treasury recently resulted in PacNet, which owns Counting House, a specialist payment services provider that does vast business with less than salubrious unregulated FX firms, or firms operating from non-recognized regions as well as lowbrow binary options fraudsters, having been the subject of sanctions, as reported by FinanceFeeds in detail this week.

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.

PacNet and its subsidiary Counting House, have a UK division, based at a Regus serviced office in Richmond Upon Thames, which is in South West London. All of its directors are registered at the same Richmond Upon Thames address, an office which FinanceFeeds knows very well, and has one or two permanent firms based there and the rest are serviced offices that are as useful as a virtual office in terms of registering a business.

A quick look at the directors credentials will show that the major shareholders listed for the UK entity are accountants and lawyers, thus are likely to be figure heads, with the main characters behind it being disguised.

The firm conducts a vast amount of business in Israel, and has a highly active connection with binary options firms.

Whilst the US government were absolutely on the ball with the sanctioning of PacNet and Counting House, especially bearing in mind that this is one of the back-door methods used by binary options firms to unlawfully rip off American customers and contravene the Securities and Exchange Commission laws banning OTC binary options in the US, the British authorities have issued a statement in favor of Counting House’s UK division.

Britain’s Financial Conduct Authority (FCA) has a payment services register, which regulates providers of electronic payment systems, and that particular division oversees Counting House and its parent company PacNet.

The FCA has now stated its expectations of firms using any services by any division of the PacNet Group, including Counting House.

The FCA states “Following a decision by the United States Department of the Treasury (link is external) to designate the PacNet Group as a ‘significant transnational criminal organisation’, we understand that the ceasing of PacNet Group firms’ operations has led to some customer payments, including direct debits, not reaching creditors and firms.”

“Firms affected by this should assess their payment arrangements and take any appropriate action” says the FCA. (in other words you are on your own and the regulator is washing its hands of any adversity – ed).

The FCA’s statement continues “We expect firms to ensure that customers are not penalised or treated unfairly for a situation that they are not responsible for and that is out of their control. For example, we would encourage firms to communicate clearly with their impacted customers about what action, if any, they need to take, and for firms to review any late fees and penalties imposed in relation to failed payments resulting from an interruption in services provided by PacNet Group companies.”

“Two firms within the PacNet Group – PacNet Services Ltd and UK Counting House Ltd – are authorised by us as payment institutions” confirmed the FCA, clearly upholding their registration despite the findings by the US government.

In conclusion, the FCA stated “We are considering what action may be appropriate and are in contact with the regulated firms to understand and assess the implications that this action will have for firms and consumers. We are not involved in the Department of the Treasury’s action against PacNet Group.”

Hand wringing all round, which in turn enables this particular firm to continue its business whilst under the FCA banner, from offices in London.

Clearly, not all regulators and government authorities are on the same page, and in this case, the United States has demonstrated its will to put an end to the activities of those which seek to defraud retail customers, thus protecting the environment for good quality companies. By continuing to allow companies that operate on this basis to work from London with FCA payment services regulation, the FCA is standing by ecommerce scams and binary options fraud by default.