Revealed: Cysec regulated FX brokers laundering money through PERSONAL accounts - We investigate - FinanceFeeds

Revealed: Cysec regulated FX brokers laundering money through PERSONAL accounts – We investigate

We show full details of how certain retail firms are onboarding customers by taking deposits to personal accounts, which are then transferred by ‘agents’ to the brokerage to circumvent laws about onboarding customers and the risk management systems of merchant services providers

A great deal of concentration has centered on the means by which retail FX brokerages offer electronically traded financial products to a non-professional audience across the world during recent times.

Regulatory authorities and government organizations have committed vast resources to ensuring that the retail FX business provides full information regarding how trades are executed, who the counterparty is, what leverage can be provided and where client funds are kept, however there are areas which are just as important, that are missed.

If ever there was an advertisement to only conduct retail FX business with long established companies in major jurisdictions with a history of expertise and quality and with a strong and orderly regulatory framework – that being Britain, North America and Australia in most cases, then the means by which certain firms operate is a case in point.

Last year, FinanceFeeds explained how some companies manage to maintain regulatory licenses from CySec and have presence in Cyprus whilst conducting the vast majority of their business via offshore entities.

Indeed a matter worthy of consideration is how regulatory authorities in specific regions that are synonymous with the FX industry, with their reputation for high quality business, have the burden of companies operating unregulated offshore business from different regions, outside the regulatory oversight of specific national authorities.

A case in point here is that certain brokerages which are at the lower end of the deposit spectrum, with the majority of their business not being in the domestic market, are operating two different business models within the same organization, one which fits the regulatory criteria of the entity based in the regulated jurisdiction and the other in the unregulated entity.

In short, many smaller brokerages are not just operating from two different regions, but are employing a different trading environment for each.

Russia-focused, Cyprus based brokerage EXNESS is another case in point. The company enjoys significant presence on Limassol’s exquisite new marina complex, in a very prominent building within which the abundance of staff is notable by its absence.

The company has a CySec license, however is also registered in St Vincent and the Grenadines, and according to research by FinanceFeeds, the vast majority of its business is from Asia (mostly mainland China), Russia and the Commonwealth of Independent States.

A discussion with EXNESS customer support revealed that EXNESS will allow clients to register for accounts with the CySec entity in Cyprus, or with the unregulated St Vincent & The Grenadines entity.

When asked whether the company is regulated in St Vincent and the Grenadines, we were asked to wait for a while whilst the representative checked. After a few minutes, the representative confirmed “EXNESS is a Cyprus regulated company, regulated by CySec, whereas EXNESS VC (St Vincent and the Grenadines) is an international business company.”

This representative is indeed absolutely correct, however clearly states that one entity of the firm is regulated by CySec, and the other is not regulated by anyone at all.

EXNESS channels the vast majority of its business through the division of the firm in St Vincent and the Grenadines, offering massive leverage of up to 1:2000, the company having intentionally moved away from New Zealand when the Financial Markets Authority was formed, clamping down on bucketeering and highly leveraged margin FX that had been prevalent in the pre-regulation era.

The firm canceled its New Zealand registration and opted for St Vincent and the Grenadines as a region to continue its business, which was largely from China – as it still is today. Whilst volume figures in general must not be considered accurate, EXNESS notes that its revenues from China form a substantial proportion of the company’s business.

Whilst the firm was honest in explaining that it does not have regulation in St Vincent and the Grenadines, yet does in Cyprus, the majority of its clients are being serviced by the unregulated entity. We asked EXNESS for a division of how many clients are serviced by each entity, the company declining to provide such information.

Once again, CySec allows the firm to continue to rest on the laurels of a CySec license, yet use an unregulated jurisdiction from which to service most of its clients on a P&L warehouse basis.

Of course, this is not the only firm that engages in this practice, but it emphasizes how CySec allows unregulated firms with the majority of their clients being served by an offshore entity to maintain licensing in Cyprus.

The NFA in the United States would never allow that, and nor would ASIC in Australia. 

Today, FinanceFeeds has been privy to a document which demonstrates exactly how firms with regulation manage to onboard clients from regions all over the world to offshore entities which merchant services providers such as Visa or Mastercard would normally consider to be too much of a risk to allow the transaction to take place.

The depositing of client funds to unregulated OTC brands and brokers has become something of a red flag for many merchant services vendors, thus Visa and MasterCard will usually block the transfer of funds from unaffiliated countries (usually in South East Asia, Africa or the subcontinent – China does not count because Visa and MasterCard do not exist there).

Aside from that, many governments have banned the depositing of funds by retail customers to unregulated firms internationally, Belgium and the United States being two examples.

In order to circumvent the risk management systems implemented by merchant services providers and bans by governments on soliciting clients from certain countries, many unregulated firms have resorted to using payment services providers which offer specialist means of bamboozling the credit card firms and the authorities by moving funds to a third party account before depositing to the broker.

PacNet, one of the major providers, along with its subsidiary Counting House, was sanctioned by the US Department of Treasury for this last year and branded a criminal organization for money laundering.

Liberty Reserve, a favorite of the unregulated brokers for onboarding clients from all over the world no longer exists, its owner in serious trouble for money laundering, hence a hole exists for those who still insist on not conducting business via a transparent method.

Now, a further means has come to light. That being brokers themselves actually taking client deposits to personal accounts owned by “agents” and then taking the money to the brokerage.

Firms that engage in this are basically transferring funds from the client, to an ‘agent’ to ‘clean’ them to stop the merchant services company clawing it back or not allowing the deposit, then the ‘agent’ deposits it to the broker.

Here is a full document and presentation, with full details, explaining exactly how it works. Have you ever heard of a regulated brokerage doing this before? Nor have we…


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